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The staggering numbers for China and Alibaba – should UK retail be worried?

July 27, 2017

I recently had the pleasure of attending the UK Industry Meeting for GS1 in London.  There were lots of great speakers including Dave Lewis (Tesco), Dino Rocos (John Lewis), Jo Malone (Jo Loves) and many more.  One of the highlights for me was a presentation by Terry von Bibra, General Manager of Alibaba Europe.  Terry shared some insights into the Chinese online economy and Alibaba specifically, doing this through some extraordinary numbers.  Here are some of the key takeaways…

 

Although China has grown significantly over the last few years, growth is slowing down.  However, it is still significant!  From 2016 to 2020, China's economy is forecast to grow by 3.4 trillion USD to a total of over 14 trillion USD.  As a comparison, the total UK economy is currently 2.6 trillion USD.  I think this puts their current size and the future opportunity into context.

 

Internet usage is also growing at a stratospheric rate and there are currently some 731 million active internet users in China. This is the same as the entire European population (not just internet users) and twice that of US! The pace of growth is also very interesting and far out strips anything we are used to in the western economies.  In 1999, internet penetration was less than 1% in China, so all that has been achieved has been done in less than 20 years.  Many people are expecting this growth to decline, but they would be wrong.  Internet penetration is still only 53% across China, and therefore opportunity is still massive!! As a benchmark, over 90% of the UK population use the internet and this is relatively flat in terms of growth.  No other economy or culture has changed so fundamentally or so quickly as China ever before in history.

 

When you compare UK internet shopping to China, it’s a hugely fragmented market in that each retailer develops their own website, loads products to it and trades from it.  And this is true for the entire customer journey all the way from research and browse, right through to checkout and delivery. However, in China it's all about marketplaces.  There are two sites that own around 70% of all internet shopping traffic. In the UK, a similar level of traffic share corresponds to approximately the top 40 sites.

 

Alibaba is the biggest marketplace site in China with over 50% of all Gross Merchandise Value (GMV) going through it.  Last year, Alibaba’s GMV was $485bn.  This is only slightly smaller than the entire UK retail market, which is around £358bn.  UK online is an even smaller part of this corresponding to around £40bn annually.  One can imagine the trend in China is only going one way with internet penetration only just breaking 50%.  So, who knows where these numbers will rise to over the next few years!

 

There are 10 million active sellers across all Alibaba platforms and this equates to over 57 million packages being delivered daily.  This requires over 1.4 million people to deliver the packages and none of these are employed by Alibaba, but by their business partners.  It certainly is a network of businesses, with Alibaba at the heart of it.  They have over 1 billion product and service listings on all their platforms… so you can pretty much source anything there.

 

Because of the ‘late development’ of digital in China, most trade there is through mobile devices. Unlike the UK, desktops are not widely used in China and this whole area of technology has been leapfrogged… and this shows in the Chinese consumer’s behaviour.  It truly is all about mobile with up to 80% of Alibaba shopping traffic being conducted through mobile devices.  So, if you think about a mobile first strategy, think about what they are doing.

 

In the UK, Black Friday has been a relatively new import from the US and there are as many retailers here that love it as hate it.  China also has their equivalent and it’s called ‘Singles Day’ or ‘Double 11’ as it falls on 11.11.  This 24-hour period is the biggest shopping day of the year for the Chinese consumer and I will leave you with one last figure… on this day in 2016, Alibaba’s GMV was an amazing $17.8bn.

 

The last point Terry made was one on their strategy.  Alibaba in Europe is all about helping European retailers to sell better in China.  At some point in the future, I wonder if this will reverse and their growth will be about helping Chinese retailers (and consumers) sell better in Europe.  Given the truly staggering capability they have built and the staggering numbers this is delivering, the next disruption to the UK retail market place may be already here, but we just don’t know it yet.

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