Has disruption from e-commerce run its course?
Alibaba’s Jack Ma has put it bluntly: “We must embrace physical space.”
Despite the cascade of store closings, liquidations and bankruptcies, there are strong indications that pure-ecommerce, not stores, may be the endangered model. Consider Alibaba’s Hema grocery store concept, which the company has been quietly developing for the last two years, well before Amazon swallowed Whole Foods. Alibaba has opened three new supermarkets in the last month alone, bringing the total to 13, with the majority of locations in Shanghai and Beijing. The massive, bright stores blend online and offline shopping, enabling customers who have downloaded the Hema app to scan barcodes and pay with their Alipay wallets. The live seafood market is one of the primary draws, especially for Chinese shoppers who value fresh fish and would rather select it themselves. Hema shoppers can choose a crab or lobster, have it cooked on premises to eat in the store, or have it delivered to their home. The stores also double as a warehouse for delivery in 30 minutes within a close radius.Hema is the manifestation of Jack Ma’s vision for “New Retail” — what he describes as “the integration of online, offline, logistics and data across a single value chain.” Even though online shopping in China remains poised for solid earnings growth — just last week, Alibaba, blew past analysts’ expectations with a 56% rise in first quarter revenue, driven by growth in online sales — online and offline commerce are quickly converging. O2O, “online to offline,” was China’s tech buzzword in 2015. And according to Daniel Zhang, Alibaba’s CEO, Hema is just the beginning:“We hope to see chemical reactions. If we can incubate a type of business model that others have never seen, then we are on the right track. This is not a supermarket. This is not a food mall. This is a brand new model. Hema just is an example of how Alibaba can operate the existing offline business.”For many industry-watchers, Alibaba serves as the unofficial bellwether for the health and future of Chinese retail. After speaking with Chinese executives, Fortune reported:“The worst time for retail is over. The online thing is also a bit over,” one real estate consultancy executive told us. A leading executive at one of China’s largest hypermarkets went so far as to insist, “I am convinced that in the end, online will never be feasible on its own to make any profit”… The true threat to retail in China may not be online shopping. It’s the increasing likelihood that the country’s e-commerce giants will turn their attention to doing bricks-and-mortar — better.”In a recent public statement, Jack Ma, whose online empire eclipses any of his physical competitors, put it more bluntly: “We must embrace physical space.”Judging by recent developments, the pure e-commerce model may not be long for the U.S. either. That Amazon and eBay are the only true online shopping sites in the U.S. with any real influence is one piece of evidence. So is the fact that small online retailers are struggling to gain a foothold, while legacy retailers such as Walmart are snapping up online merchants. And yet the most vivid illustration of O2O in action is the escalating turf-war between Amazon and Walmart.
Amazon is the dominant player in online sales and has particular traction among affluent consumers in cities. Walmart has thousands of stores that sell hundreds of billions of dollars worth of goods. It is particularly strong in suburban and rural areas, where it has stores within 10 miles of 90% of American consumers. Recently, however, the two are looking more and more alike, with Amazon opening physical bookstores, a convenience store in Seattle, and moving into upscale groceries, while Walmart invests more heavily in technology.The goliaths have been eyeing each other’s models for a while now. But the tipping point may have begun last year, when Walmart acquired Jet.com, the fastest growing e-commerce site in the U.S. Since then, the company has launched an incubator lab in Silicon Valley to foster tech startups, acquired three more e-commerce sites (Moosejaw, Shoebuy, and Modcloth), and is building the world’s largest private cloud. Walmart has also continued its rollout of online grocery, with curbside pickup and delivery options available, and is testing convenience stores and technologies that suggest it is embracing the cashless future. Just this month, Walmart acquired Bonobos, the upscale men’s clothing company that has innovated exactly the type of online-offline hybrid that the retail giant is going for. Because all the inventory is centralized, Bonobos stores themselves take up minimal space.
“Just as Walmart is using Bonobos to get access to higher-end consumers and a more technologically savvy way of selling clothes, Amazon is using Whole Foods to get the expertise and physical presence it takes to sell fresh foods,” The New York Times reported.Walmart fired another shot across the bow this month, when it applied for a floating warehouse that could make delivery via drones. Amazon received a patent for a similar vessel in April 2016. But one of our sources is skeptical: “Many people may see the floating warehouse as a bit ‘pie-in-the-sky’.” By contrast, Walmart’s new massive online pick-up towers, now featured in close to 20 stores, are making an immediate impact. After testing one of the machines for Business Insider, reporter Haley Peterson declared, “it shattered our expectations.”...
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