October 1, 2012, 12:00 AM

Alibaba claims global e-commerce supremacy as Chinese e-retailers introduce innovations

E-commerce in China is big and getting bigger. It's also becoming more innovative.

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One sign of that growth: The country's leading e-commerce company, Alibaba Group Holding Ltd., will process 1 trillion renminbi ($159 billion) in transactions this year on its e-retail platforms, founder and chairman Jack Ma predicted last month at Alibaba's annual meeting, AliFest, which attracted 2,500 mostly Taobao merchants. Those sales will take place on Taobao, China's equivalent to eBay.com, and on Tmall, a web marketplace for larger brands. Alibaba said its gross merchandise value totaled 100 billion renminbi ($15.9 billion) in 2008, the last year the company reported that figure.

If it hits the 1 trillion RMB mark, transactions on Alibaba's platform will exceed the combined sales of eBay Inc. and Amazon.com Inc. this year, predicted Alibaba chief strategy officer Zeng Ming in a briefing with reporters during AliFest. The value of goods sold on eBay sites worldwide last year totaled $60.3 billion. Amazon doesn't report gross sales, only its own sales and the commission it takes when other merchants sell on Amazon.com. Amazon's net sales last year were $42 million, which likely put the value of all goods sold on its sites in the range of $60 to $70 billion.

Zeng acknowledged that it's hard to compare Alibaba with Amazon, but in any case said the Chinese e-commerce powerhouse is looking beyond e-commerce rivals to becoming the world's largest retailer of any kind, overtaking Wal-Mart Stores Inc., today's global retail leader. Zeng projected that Alibaba sites will handle 3 trillion renminbi ($476 billion) worth of sales within five years. "That will be quite close to Wal-Mart's sales," Zeng said. Wal-Mart reported global net sales of $419 billion in 2011.

Western competitors question the validity of Alibaba's sales numbers. They note that Alibaba does not charge the merchants that sell on Taobao a listing fee or a commission on sales—big reasons why 6.6 million Chinese retailers sell on Taobao—and thus would not know if a consumer decides not to complete a purchase she made on Taobao.com. That's more likely to occur in China than in North America because many online Chinese shoppers pay in cash on delivery, and not with credit or debit cards.

Fast delivery

Nonetheless, there's little doubt that e-commerce in China is growing rapidly, and that Alibaba is the leading player. China's Ministry of Commerce reported e-retail sales last year totaled $124.2 billion, a 53.7% increase from the prior year. Experts estimate anywhere from two-thirds to 80% of those sales took place on Alibaba's Taobao or Tmall.

While Alibaba doesn't regularly report sales on Taobao and Tmall, it did disclose revenue of $2.3 billion in 2011, up from $1.3 billion in 2010 and $730 million in 2009. The company also reported a $339 million profit in the 12 months through October 2011, a seven-fold increase from the prior year. Alibaba made the disclosures as it restructured this year, ahead of a likely stock offering. Alibaba also paid $7.6 billion last month as part of a deal to buy back about half of the 40% stake Yahoo Inc. held in Alibaba.

For all the growth, Alibaba's Zeng emphasized how China is leapfrogging Western e-retailers by offering highly customized products. He pointed to Chinese furniture maker Order Your Life that targets the millions of newly middle class Chinese moving into apartments and homes. The company encourages consumers to design all the furniture for their new home, and promises to build and deliver the pieces in 10 days.

Other Chinese e-retailers are also delivering quickly. For example, Yihaodian, which generated online sales of $43.4 million in 2011, promises delivery within 12 hours to consumers within about 150 miles of its warehouses in five of China's biggest cities; in other big cities it delivers within one day. Only 4 years old, Yihaodian will soon have a big new partner: Wal-Mart, which already owned 17% of Yihaodian, recently obtained Chinese government approval to raise its stake to 51%.

don@verticalwebmedia.com

@dondavisIR

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