By Erin Harris, editor-in-chief
Alibaba is China’s biggest online and mobile commerce company, and it famously became one of the most valuable tech companies in the world after raising $25 billion from its U.S. IPO. Its Chinese retail marketplaces, including Tmall and Taobao, have hundreds of millions of users and host millions of merchants and businesses. Alibaba handles more business than any other e-commerce company. Lee McCabe, VP and GM of Alibaba Group North America, details the Tmall experience and why North America’s top retail executives should care.
First of all, McCabe is no stranger to e-commerce, as he’s spent his career shaping the landscape by launching eBay in the U.K. as well as Expedia in Australia, New Zealand, and Asia Pacific before heading to Facebook to run a few of their global verticals, including travel. In his current role with Alibaba, among other things, McCabe helps U.S. retailers reach the Chinese audience via Tmall. “The most important information for retail executives considering connecting with Chinese consumers on Tmall is that the opportunity lives in the consumer insight,” he says.
Understanding Chinese Shopping Preferences
Before diving into the data, it’s important to understand that there are real differences between the way North American and Chinese consumers shop. Pitney Bowes’ 2017 Global E-Commerce Report found that 96 percent of digitally empowered Chinese shoppers make purchases online daily or weekly — more than any other country. McCabe concurs by stating that shopping is embraced very differently in China than in other parts of the world. “The Chinese consumer shops for sport; it’s their way of life,” he says. And for Chinese consumers, their e-commerce lifestyle revolves around marketplaces as opposed to dedicated, brand-specific sites. According to eMarketer, 85 percent of online purchases in China occur on digital marketplaces.
China continues to become more attractive as a target market, and Alibaba’s Tmall owns a 57 percent share of all retail e-commerce transactions in China. At an annual gross merchandise value (GMV) of over $547 billion, Alibaba earns more than the top 10 U.S. online marketplaces combined. Launching a flagship store on Tmall isn’t the same as launching your own domestic e-commerce channel, which is why it’s smart to partner with a team that knows the market well and has knowledge of the marketing, logistics, payments, inventory differences, and other various nuances. Not to mention that China leads the world in mobile shopping — more than three out of four Chinese consumers said they have used a mobile phone to shop, compared with a global average of 43 percent, according to recent PwC survey results. And, while Chinese consumers appreciate low price, they prefer product quality over cost. While that clean, sleek e-commerce site to which you’ve dedicated serious resources might work for U.S. consumers, Chinese consumers are looking for information — they’re worried less about responsive web design and more about highly detailed product information.
How Does Working with Tmall Work: Consumer Insight
McCabe explains that Alibaba has 580 monthly mobile active users on its Chinese retail marketplaces. Alibaba provides North American businesses the ability to develop their own website, or flagship store as it’s called, within Tmall, which essentially becomes their website in China. The flagship store’s look and feel and branding are up to the retailer. “We offer the marketplace, so the retailer can build their desired store within Tmall,” explains McCabe. “They’re in full control of the pricing, and we give them the tools — that is, the platform and the data — they need to operate their store. We provide the consumer insight retailers need to understand both the Chinese landscape and the Chinese consumer.”
Each Chinese consumer has the same ID across all Alibaba sites, which gives McCabe and his team a clear picture of the Chinese consumer landscape. “We know their browsing preferences, and we can see for what and how people search,” he explains. “We can see their media viewing habits, because we own Youku Toudo, the YouTube of China, as well as Weibo, the Twitter of China. These tools provide a complete picture of everything that’s going on online for the average consumer. When we work with a North American brand, we can determine if there are any commonalities in their existing domestic consumer demographic, and we can find, target, and advertise the brand to like-minded Chinese consumers.”
McCabe goes on to say that Alibaba relies on machine learning and AI for myriad aspects of its business. Tmall also leverages AI and machine learning for personalization. “With our AI technology, every time an individual consumer comes to the retailer’s flagship store, they receive a personalized, effective experience.”
Alibaba has a growing team in North America to support North American business, and this team spends time with retail executives up front to educate them on the Chinese opportunity, the Alibaba ecosystem, and how best to leverage each one. “We also understand the brand and what retailers want to achieve by entering China; we learn the brand’s growth aspirations, and then we dive into our capabilities,” says McCabe. “We then take a gauge on what their current awareness is in China, what their current product fit would be, what would be the right start time for them in China — and this all ends with an entry plan around product and marketing strategy in order to launch them on Tmall. Once the retailer is live on Tmall, retail executives will learn more from the consumer data insight. From there, we work with the executives closely to ensure they’re taking advantage of all the opportunities across the platforms, whether it be 11/11, See Now Buy Now, etc.” Once the retailer begins selling on Tmall, U.S. retailers learn about the Chinese consumer — search habits, buying preferences, and how they prefer to interact with the brand.
Just Ask the Retailers
Thousands of international retailers have found success on Tmall. The opening of lululemon’s flagship store on Tmall in 2015 was another way to explore the market and build its community. More specifically, Tmall was the only e-commerce platform in China that offered the tools necessary for lululemon to tell its full brand story. And that includes going so deep as to explain not just what products are offered but also why they were made in the first place. The company’s Chinese business has been growing 350 percent year over year, while the Tmall business was on track to triple in 2017.
Last year, Victoria’s Secret leveraged the “See Now, Buy Now” format made popular in China by Alibaba. All items seen on the runway, aside from those not yet released in the market, were available for immediate purchase as Chinese shoppers watched the show. Alibaba also allowed viewers to buy the products featured during the show in real time, whether through the Tmall or Taobao mobile apps or even dedicated links to products that were included on the Youku viewing page.
Then there’s Apple. According to Alibaba, Tmall was the only e-commerce platform in China outside of Apple’s official website where consumers had the opportunity to preorder iPhone 8, 8 Plus, and X.
A Whole New Level of Mobile and Mobile Payments
The China Internet Network Information Center (CNNIC), which released its annual Statistical Report on Internet Development in China in January 2017, found that mobile internet users in the country totaled 695.3 million last year — a figure that’s more than double the U.S. population. Consider that Single’s Day 2017 racked up $25 billion in sales, and about 90 percent of transactions were done via mobile. At its peak, Alibaba’s processors handled 256,000 transactions per second, twice as much as last year. Mobile commerce is alive and well in China — and so, too, are mobile payments.
“Not only do we build the marketplaces — we also want to make sure that customers can transact easily and businesses can get paid easily,” explains McCabe. “On the payment side, we have a company called Ant Financial, which has an app called Alipay for mobile payments. Currently, Alipay has 520 million users and counting. Alipay can be used for e-commerce transactions as well as in-store transactions. We’re working with a number of U.S. retailers to ensure they can accept payment from a Chinese traveler or tourist via Alipay.” Like many things in China, payment developed differently from the U.S.; China went straight from cash to mobile payments, bypassing credit cards. Once a transaction takes place, Alibaba’s logistics arm Cainiao Network will determine the quickest way to ship the product. There are 55 million packages delivered every day through Cainiao, which is about 70 percent of China’s package delivery.
Alibaba receives commission from every sale of every product sold from a retailer’s flagship store. But the truth is, Tmall has exceptional analytics that allows retailers to compare not only their performance but also compare data against peers also on Tmall. Only brands with a trademark (either ® or ™) can open a flagship store, and the owner of the store must be a formal representative of the brand or hold exclusive authorization documents for setting up a Tmall flagship store, provided by the formal representative of the brand. And while preferred segments include healthcare products, apparel, shoes, and accessories, other segments are growing quickly in popularity. If you’re considering partnering with Tmall, top retail executives need to have complete buy-in as well as understand the opportunity for it to perform well. Seeking entry into the Chinese market can grow the business if retail leaders see the value.
Overall I am a big proponent of U.S. retailers launching stores on Tmall to reach the Chinese consumer. It is a clear-cut case where the positives far outweigh the negatives. There are six key reasons why I strongly would advise retailers to consider the strategy.
First, the Chinese market is entirely incremental revenue from an enormous market. U.S. retailers have no idea how strong their brands will resonate with China’s over 1 billion people, so it just plain makes sense to see how the market responds. If the market doesn’t react, so what? If it does, then all of a sudden retailers could have something big and needle-moving.
Second, the idea is super easy to do. It is akin to starting a website back in the late 1990s. Retailers can put a few people on it, there are resources in China to help get everything stood up, and so overall the effort from a human resource and operational perspective is minimal.
Third, the strategy is so far afield from a retailer’s mainline everyday business that it should never be a distraction. Retailers can put a few people on it, hold them accountable, and then watch how things progress. Positive or negative, it will not impact their U.S. consumers. Retailers can (and probably should) almost treat the concept like a separate stand-alone company initiative altogether.
Fourth, it potentially creates new economies of scale for retailers. Most retailers already manufacture their products in China, meaning their products are already close to the market. This proximity gives retailers another lever to pull in terms of how they run their sourcing operations for maximum efficiency.
Fifth, selling on Tmall helps retailers learn the ropes. Going through the bumps and bruises of distributing products within a foreign country’s online marketplace makes a retailer better prepared to do the same thing in other markets down the road. Working through China will later help them to set up shop in India, and then South America, and so on. And, at the rate we are going, who is to say that the same Alibaba Tmall infrastructure will not eventually power many of the future emerging markets as well?
Sixth, and most importantly, there is literally no risk. If the market does not respond to the retailer’s brand, or if the effort becomes too expensive or too much of a distraction, then retailers can just shut the damn thing down. Again, shutting down wouldn’t even register in the mainline U.S. market, so no one would care and business would not suffer relative to a pre-China investment state in the slightest. But, forgo the opportunity, and a retailer misses out on what could be a huge opportunity in a large market. Essentially, retailers should think like a digitally native startup trying to gain distribution and let the Chinese consumer decide — what is the worst thing that could happen? It doesn’t work and you have the mainline business to fall back on. Seems pretty low risk to me.