Reverse-showrooming: E-commerce giant Alibaba invests $692 million in Chinese department store operator Initime
Alibaba has continued its pre-IPO spending spree with a $692 million investment in a Chinese department store operator, Intime Retail, that will give it a 25 percent stake in the company.
The investment follows similar deals with a messaging startup, a mapping company, and other groups, and will be used to create an "online-to-offline" shopping experience for Alibaba users. This could lead to something like reverse-showrooming, where shoppers would purchase items on their smartphones and pick them up from a retail store instead of using brick-and-mortar shops as glorified product displays for goods they ultimately purchase online. (Not that there's much, or any, evidence in support of the idea that consumers are doing that in the first place.)
American web companies have long been rumored to open their own storefronts. Google has been rumored to be creating a store for its tablets, laptops, and other physical products since the beginning of last year. Amazon was expected to open its own physical stores in Seattle in 2012. Neither company has opened or hinted at opening such stores, but the rumors persist. Now it seems that Alibaba will beat them to the punch, just like it did with same-day delivery.
Alibaba's deal with Intime doesn't even come close in scale to the acquisitions companies like Facebook or Google have made in the last few months. But as an investment from an e-commerce company looking to quash its competition, creating a viable "online-to-offline" experience might help Alibaba stay in front of its competition and continue to best its American counterparts.
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Quartz compares Alibaba's investments to acquisitions made by Facebook and Google:
Reuters reports on the effect this investment has had on Intime's share price:
Facebook has acquired the virtual-reality hardware maker Oculus Rift, staff from solar-powered dronemaker Ascenta, and the mega-popular messaging start-up WhatsApp. Google, for its part, is buying military robots, building driverless cars, and launching high-altitude internet blimps.
The comparison is striking: In China’s relatively young internet sector, major players like Alibaba are buying relatively stodgy old companies. Meanwhile, in the relatively mature US internet sector, major players like Facebook and Google are placing bets on dynamic and fast-developing future technologies.
Shares in Intime surged as much as 17 percent shortly after the market open on Monday, following a trend of Hong Kong-listed companies whose shares gained sharply after receiving investments from Alibaba.
The gains were short-lived, with Intime reversing course and losing as much as 11.4 percent by mid-morning as investors digested details of the purchase, in which Alibaba offered to buy the stock at a 13.7 percent discount to its last traded price on March 26. China Skinny founder Mark Tanner explains Alibaba's motivations to Bloomberg:
'By having department stores on the books it will be a lot easier for them to integrate their virtual monopoly. Alibaba sees WeChat leading the way and they don’t want to fall behind.'The Wall Street Journal places the announcement in context with other Alibaba efforts:
Alibaba, whose Taobao and Tmall shopping sites dominate China's e-commerce market, said in the release it would "explore opportunities to combine the strengths of Alibaba's Internet commerce technology and platforms with Intime's physical retail presence in high-end department stores and shopping malls."
Seeking to leverage its large caches of shopping data and advertiser network, Alibaba has been moving quickly to help shoppers pay for goods and services, not just online, but also in bricks-and-mortar stores. Known in the industry as 'online-to-offline,' a number of recent Alibaba investments have been aimed at expanding the company's reach into China's malls and restaurants. Pando weighs in
Pando alum Hamish McKenzie wrote in 2013 that American e-commerce companies could learn from the same-day shipping prowess exhibited by their Chinese counterparts:
Same-day delivery – the Holy Grail for US ecommerce giants such as Amazon and Google – has been a reality for a while in China. Here, Meeker shows that Jindgong (formerly known as 360buy), the biggest threat to Alibaba’s Taobao, achieves that efficiency sometimes by means of bicycle. In China, ecommerce plays a more important role than it does in the US because the country’s bricks-and-mortar retail infrastructure is still under-developed, especially outside of the big cities. There’s also a lot of competition, forcing online retailers to go to greater lengths to attract customers.
One way these retailers manage to pull off such fast delivery is by employing multiple people who take care of different stages of a journey. In Shanghai, for instance, a man on a motorized scooter might hand off a package to someone who is waiting inside the turnstiles at a subway station. That person will then take the package to the appropriate stop, at which he meets another man with a scooter to whom he can pass off to the package, without having to leave the paid area of the station, for the final mile delivery. Kevin Kelleher wrote about Amazon's struggles to keep its marketplace at the cutting edge in the wake of a bump in Amazon Prime's price and declining revenues:
Here’s Amazon’s ideal scenario: If the company brings in millions of new Prime members, they could buy more through Amazon because of the savings on fast delivery, which would revive its overall revenue growth. Amazon could then afford to not be the cheapest retailer all the time. It will engage customers with its brand, Prime’s digital-content offerings, and other perks.
And here’s the not-so-happy scenario: Amazon realizes it can’t keep losing money on buying customer loyalty. Amazon Prime is already driving up overall shipping costs, which will in turn add to Amazon’s delivery costs, prompting higher Prime fees. If that happens, Prime looks less and less like a bargain. Shoppers find better bargains on other sites and opt for the discount over Amazon’s fast shipping. In that case, revenue growth keeps slowing, while shipping and digital-content costs rise.
So it’s not so much that Amazon’s revenue growth is slowing, it’s why. If it’s something Prime can reverse, Amazon’s future looks bright. If not, it will mean customer loyalty may be too slippery a thing even for Amazon to grasp for long. The quest for the best deal may be more powerful than Amazon realizes. So Amazon spends and spends, but it’s not enough to keep enough shoppers coming back. [Image via Thinkstock]