E-tailers fight to dominate online-to-offline market
The battle among the mainland's e-commerce operators for leadership in the emerging online-to-offline (O2O) market is heating up.
Last month, Alibaba, the country's largest e-commerce firm, made its first bricks-and-mortar investment, paying HK$5.37 billion for 25 per cent of department store operator Intime Retail.
The two companies will share their membership resources and logistics network and enhance the payment experience.
Meanwhile, internet giant Tencent is in talks with a top shopping centre operator in an attempt to expand its business empire from the online to the offline market.
Last month, JD.com the nation's biggest business-to-consumer shopping platform, said it would work with more than 10,000 convenience stores in Shanghai, Beijing and Guangzhou and Dongguan, in Guangdong province, to enable shoppers to place orders on its website and receive the products from the stores.
The e-commerce players are going head to head, splashing out billions of yuan to extend their reach not only to bricks-and-mortar shops but also to restaurants, cinemas, pharmacies and car dealers.
"Over the past 15 years, Alibaba has been focusing on its online business. However, the relationship between the internet and consumers has changed substantially, and we need to adapt to that change," said Daniel Zhang Yong, the chief operating officer of Alibaba, which is preparing for a listing in the United States later this year.
Zhang said people today would not need to sit in front of a computer to go online. They could always go online with their mobile phones and tablets, making it possible to provide online services wherever they were.
Statistics from the Ministry of Industry and Information Technology show there were 1.24 billion subscribers to mobile communication services in February. Of them, 839.05 million were mobile internet users.
Chen Yougang, a partner at consulting firm McKinsey, said the landscape of the retailing industry had been changing as the line between online and offline consumption was blurring.
"In future, O2O will be indispensible if a retailer wants to survive market competition," Chen said. "By its nature, O2O fulfils consumers' demand through the online and offline channels at the same time."
Intime chief executive Chen Xiaodong suggested a future scenario: a shopper at an Intime store finds a suit he likes. He tries it and uses his mobile phone to check where the suit is sold at the best price. Then he places the order online and continues to shop elsewhere or proceed to a dinner with friends. When he gets home, the suit is waiting for him.
The emerging O2O market is a game for well-heeled firms, at least at this stage.
Earlier this year, two makers of software applications for calling taxis - Tencent-backed Didi Dache and Alibaba-controlled Kuaidi Dache - were involved in a cash-burning battle for market share.
Each offered up to 20 yuan (HK$25) to subsidise passengers' fares and a cash reward of 5 to 10 yuan to drivers for each trip booked through the application.
It is estimated that the two companies spent more than 1.5 billion yuan on their O2O foray in this single segment over the past four months.
"There's no business model that is solely built up by money," Chen Yougang said. "At the end of the day, who will win this battle will depend on who has a stronger supply chain, better store-operating capability and deeper understanding of consumers."