Alibaba's quest to build a nationwide online retail network

Alibaba Group’s plans to revolutionise China’s retail industry, investing US$16 billion in logistics and support by 2020, will open up the country’s vast interior and bring access to hundreds of millions of potential new customers.

With an extra US$15 billion or so in its pocket from a likely initial public offering, Alibaba and partners such as delivery service firms and life insurers will pump cash into revamping China’s fragile supply chains and big new data centres to process reams of consumer information.

While Alibaba sees itself as a catalyst for change, its plans also lay the groundwork for retail rivals to chip away at its business further down the line.

By encouraging retailers to be more internet-savvy, and by building the networks to distribute goods nationwide, Alibaba is showing bricks and mortar rivals how to grow online without depending on its sites.

Companies such as Gome Electrical Appliances, Haier Electronics and Chow Tai Fook Jewellery have branched into e-commerce, riding Alibaba’s coattails and reaping the rewards with their own online stalls on Alibaba’s websites.

Alibaba chief executive Jonathan Lu says the firm expects to nearly triple the volume of transactions on its marketplaces to about 3 trillion yuan (HK$3.79 trillion) by 2016, overtaking Wal-Mart Stores as the world’s biggest retail network.

And the message to retailers from the group’s sprawling campus headquarters in Hangzhou, Zhejiang province, less than an hour’s train ride southwest of Shanghai, is simple: adapt or die.