The Reality Of Today's Omnichannel Retail Has Alibaba Opening Physical Stores

By Christine Kern, contributing writer

CEO says that they will integrate physical stores to overcome challenges of pure-play e-commerce.

The reality of the current state of retail means that retailers need to transcend single channel offerings in order to succeed. This is a lesson that Alibaba Group Holding CEO Daniel Zhang has learned well. In a recent letter to shareholders, Zhang stated that the company is planning to integrate physical stores into its operations in an effort to overcome the "tremendous challenges" inherent in pure-play e-commerce, Bloomberg. China’s traditional retail industry is worth $4.5 trillion.

Zhang wrote that Alibaba is teaming up with Suning Commerce Group and Intime Retail Group to combine its online sales with actual brick-and-mortar opportunities. This will upgrade its retail businesses and target efficiency gains across product manufacturing, distribution and service.

In his letter, Zhang recognized the growing trend of the integration of offline and online retail for a “re-imagined omni-channel experience.”  Therefore, he explained, “The most important opportunity on the horizon is not growing online sales in isolation but rather helping traditional retailers upgrade into a brand new retail model,” Zhang wrote. “The consumer retail industry as a whole is experiencing a radical disruption driven by digital transformation.”

Alibaba announced the opening of its first physical store in North China in January, in order to boost sales of its imported products. At the time, it was earmarked as an effort to bring its global imports to a broader Chinese market and provide a more social shopping experience to its consumers, according to Forbes. Since e-commerce comprises less than 15 percent of total Chinese retail sales, a physical store (or a set of them) would allow Alibaba greater access to a much larger market.

One way Alibaba hopes to overcome its ecommerce challenges is by moving into untapped rural regions, overseas markets, and online media and cloud computing to generate new sources of revenue. Zhang said cloud computing, digital marketing, and cross-platform entertainment are earmarked as key areas of long-term growth, and cloud computing is now one of Alibaba’s fasting-growing businesses, hosting 35 percent of websites in China and working to dominate in Japan within the next two years.

“Cloud computing and big data will become ubiquitous,” Zhang wrote. “Data has already become the new ‘natural resource’ that is as vital as oil and electricity. Cloud computing is the new ‘engine’ powering commercial operations.”

Zhang also noted that “The transformation of commerce will be increasingly dependent on innovations in new technology. A principal question in our future development is how to leverage our expansive commercial ecosystem to provide an environment for large scale application of new technologies – such as artificial intelligence, augmented reality, virtual reality, Internet-of-Things – and ultimately help drive the birth of new business models as the new technologies mature.”

And Alibaba is not the only e-retailer making the dive into physical space: Amazon has also made the assertive move, opening brick-and-mortar stores to help boost sales and fulfillment. Amazon opened its first brick-and-mortar store in New York City in 2014, focused on providing a quality in-person customer experience.  In fact, in a role reversal that demonstrates the drive for omnichannel business to thrive, Amazon is adding physical stores, while merchants are opening online Marketplaces, as Innovative Retail Technologies reported.