Last week, Alibaba Group President Michael Evans joined NRF President and CEO Matthew Shay to discuss Alibaba’s response to COVID-19, and how the pandemic has altered the retail landscape in both the short term and long term. We share some of the key highlights.
What has been the journey for Alibaba and its merchants since Feb 2020?
Alibaba has been adjusting the business to respond to the challenges raised by the pandemic:
- Helping consumers to take advantage of retail offline or online depending on severity of the pandemic where they live
- It had 11m merchants, many of which did not have the capability to cope with such a change in trading conditions
- Alibaba reduced commissions via Ant Financial and offered ways to help with digital tools
The pandemic has accelerated digitisation of the entire value chain. Bricks-and-mortar retail, however, remains important as it still accounts for about 80% of total retail in China. Alibaba’s New Retail strategy has helped merchants and consumers during the pandemic:
- If physical store closed, merchants can still trade, while this has offered consumers convenience
- On New Retail, merchants and consumers need to embrace the value propositions. The implementation of technology is not the issue
- Productivity and efficiency for merchants about 20-30% boost with New Retail
- New Retail has not been embraced as quicky in the Europe or U.S – offline businesses have .com – trading internationally this does work unlike the concept of having a platform with New Retail technologies
- Large players in the U.S are still quite rooted to their traditions
- Emerging players or even emerging markets, less established business often have lighter infrastructure and easier to transition. Legacy systems are not embedded in the cost structure
What have been the key trends or changes in behaviour?
During tough economic conditions, general trends such as consumers looking for value arise. The transparency of online pricing, however, means consumers have more opportunity to evaluate competing products. This has led to more switching, exploring new brands or packaging. Availability has also been a factor. All of this, means loyalty being interrupted.
- Businesses are adapting supply chains and how they manage their inventories. Digitisation has always been something Alibaba talks to merchants about, but it was sometimes seen as nice to have. Now, all merchants feel it is critical. They understand the concept, despite it may mean different to different people
- The basic online experience is two dimensional – pictures and text. Merchants can really see the value of New Retail and digitisation, e.g. live streaming, short videos and gamification
- Taobao Live: did not exist two years ago, now achieves US$44bn GMV, a live streaming sales platform and channel. Pre-pandemic, live streaming was popular already, but a lot of the other things in terms of how brands interact with shoppers are going to remain
- Brand building in China remains key. Many merchants are looking into success stories, taking elements to form their own core selling strategy
- For consumers, they are looking for more immersive and more interesting way to shop and interact with the brands. With changing lifestyles, a greater focus healthcare, healthy food, grocery, fresh, demand for sports equipment at home etc, all are human reactions to the pandemic and largely compliant to staying at home
COVID-19 has unlocked categories that have historically been difficult to digitise
- Two hardest sectors and categories to digitise: food and luxury
- Food business: Freshippo consumer 227 stores
- 40% online then 60% in store when Freshippo (named Hema Fresh at time) was first launched in January 2016
- Now 65-75% transactions are conducted online. This has increased from 60% pre-pandemic
- It has seen the expansion in the number of older people ordering online
- Previously, there were concerns around what will happen with delivery, how to integrate Alipay, but older population becoming more digitally aware
- Luxury: now 200 brands on the platform, growing their business interacting with consumers
- Offline stores closed following travel restrictions. A digital platform that sells luxury brands relevant
- Brands have historically been concerned about counterfeits / IPR problems, but Alibaba is policing in an aggressive way to protect merchants
Other Alibaba innovations
- Using customer insights to change manufacturing
- Offline factory (owned by Alibaba), manufactures products based on consumer insight
- C2B New Retail manufacturing whereby you get what you need with through optimised supply chains
With 11.11.20 coming up, what can we expect?
- Fun and interesting valuable experience for merchants and consumers
- An opportunity to try new technology and new innovations, allowing merchants to pilot in one day or during this period
- New things, new approaches, expect lots of live streaming, as this is the preferred communication method
- Most of the Chinese population have not been able to travel, interest in international brands likely to be significant – Tmall cross border continues to grow strongly
- 11.11 pitch fest for the U.S (advertised digitally, small businesses from the U.S), small businesses pitched why they should participate. Alibaba has selected 9 merchants across different categories and is sponsoring them throughout the event