It’s Time To Go Offline, According To Amazon And Alibaba
On Friday June 16th, news broke that Amazon is set to acquire Whole Foods Market Inc. for $13.7 billion. This deal is the largest acquisition in Amazon’s history since it was founded in 1994.
As illustrated by WSJ (Figure 1), ranking second is the acquisition of Twitch Interactive, a move intended to increase popularity of AWS game hosting among developers. A close third at is the acquisition of Zappos.com, a move intended to consolidate Amazon’s dominance in online shoe and clothing retailing. Acquisition of Kiva Systems Inc. marked Amazon’s investment in operation optimization via robotics.
This time, Amazon is aiming to further streamline its supply chain. As many have speculated, this streamlining may come in various forms and stages. Right now, the storefronts could be used as mini-fulfillment centers for local deliveries, or as an extension to Prime Now warehouses; these well-situated locations could also be developed into community hubs for pickup, thereby cutting costs in “last mile” delivery to the customers. At some point, Whole Foods may very well be the test ground for Amazon Go, bringing suppliers directly to the customers.
Speaking of Amazon Go, why would Amazon, an e-commerce and cloud computing company, be eyeing brick-and-mortar retail? To answer this, I’d like to bring another player into the picture: Alibaba Group.
Alibaba Group is the Chinese e-commerce company. Alibaba’s services range from C2C, B2C, B2B online sales platforms, to electronic payment, shopping search engine as well as data-centric cloud computing. Just about three weeks earlier, Alibaba spent over $80 million for an 18% stake in Lianhua Supermarket Holdings Co Ltd., becoming its second-largest shareholder. Prior to this, Alibaba has already advanced at various fronts of physical retailing, buying major stakes in discount grocery chain, shopping mall chain, online as well as online-to-offline (O2O) convenience stores.
Of course, the parallel being drawn here is no coincidence. Going back to our question: why expand to brick-and-mortar? When in doubt, there is one rule-of-thumb that countless detective shows have taught me: follow the money. As a McKinsey article pointed out back in June 2016, the growth rate of China’s online retail market started to slow down as the market began to saturate. In the US, physical retail still represents over 90% of total retail. Both e-commerce behemoths set out to capture the lucrative physical retail market, in order to break away from saturation and stagnation.
From my perspective, the most intriguing observation is how differently the two companies envision the future of physical retail. Amazon GO mimics the online-shopping experience: automated, frictionless, very few human interactions. Alibaba’s partnership with the O2O grocery chain “Mr. He Ma Market” paints a different picture: the stores are show rooms, fresh produce markets, munch spots and assembly lines for made-to-order takeout meals all in one; it aggregates services, encourages social interaction and participation, and provides the flexibility and convenience of online shopping. Indeed, at the heart of Jack Ma’s “New Retail” strategy, online and offline services weave into and turbocharge each other.
As of now, it’s hard to tell which company has grasped the future. But their different takes on physical retailing can be understood. Amazon and Alibaba have different arsenals and deal with different consumer behaviors. For instance, Alibaba has incredibly detailed profiling of its customers thanks to its own online payment solution and credit system. Naturally it focuses on data-driven product selection and catering of customer experience. Amazon has unparalleled infrastructure and technology, especially in supply chain management. Therefore, it leverages its strengths in computer vision, deep learning and sensor fusion. While Amazon deals with customers’ pain point of lining up at cashiers in stores, Alibaba tackles the lack of personal touch in online shopping that many Chinese consumers seek after.
Such differences are to be cherished and encouraged. As the two companies position themselves in the ever-evolving competitive landscape, we as consumers shall see who steals the show. But one thing seems certain: soon, once again, shopping will never be the same.
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