I’ll admit that I’m somewhat skeptical of e-commerce leader Alibaba (NYSE: BABA) due to its excessive hype and increasing lack of focus, even though the company regularly seems to defy gravity with a sky-high valuation that has made it China’s biggest Internet company. But despite my doubts, I’m actually somewhat upbeat on a new report that says the company aims to export its premier annual sales event as part of a much-needed global expansion to justify its high valuation. At the same time, another report saying the company will spend more than $1 billion on a rural expansion also looks like a smart move, coming a year after a similar expansion by its closest rival JD.com (Nasdaq: JD).
Despite a recent wave of acquisitions and high-profile moves into new areas, Alibaba still derives the vast majority of its revenue from its core e-commerce business. What’s more, much of that online shopping comes from relatively sophisticated buyers in large Chinese cities like Beijing and Shanghai, making the company relatively vulnerable to competition in those markets and also limiting its growth potential.
One of the company’s biggest successes has been its Single’s Day promotion, which Alibaba essentially created on its own just a few years ago and falls on November 11 each year, or the 11th day of the 11th month. The event has quickly grown and been embraced by China’s entire retail sector, becoming a major shopping event each year. Alibaba itself logged a whopping 35 billion yuan ($5.7 billion) in sales on its 2 main e-commerce platforms in a 24-hour period during last year’s event, up 83 percent from 2012.
Now media are reporting that Alibaba intends to take the event global starting with this year’s Single’s Day next month. (English article) There’s not much detail about the actual plan, though the report says Alibaba is setting up a series of global warehouses outside China to support the effort. I suspect many of those will be in the US, where Alibaba has shown a keen interest to expand and challenge global leader Amazon in its home market. (Nasdaq: AMZN)
Obviously this kind of effort will require lots of infrastructure to support other languages and deliveries in markets outside China. But Alibaba certainly has the money to build such infrastructure after raising $25 billion in the world’s largest IPO last month. I also like the idea of exporting a shopping event like Single’s Day, whose other name, “Double 11” plays on the four “1” digits represented by the 11th day of the 11th month. Such a concept can be easily understood by people in the west, which also loves big event-style shopping days.
Next let’s look briefly at the other big Alibaba news, which has media reporting the company has budgeted about 10 billion yuan, or $1.6 billion, over the next 3-5 years for a drive to boost its sales in China’s rural areas. (English article; Chinese article) Under the initiative, Alibaba will set up 1,000 county-level operating centers and a whopping 100,000 village level service stations to serve rural customers whose homes are often inaccessible to traditional big warehouses and delivery services.
This particular initiative is probably part of Alibaba’s initiative announced last year to spend 100 billion yuan over the next few years to build up its national infrastructure to improve its product distribution and delivery services. (previous post) JD embarked on a similar expansion about a year ago, and this kind of move indeed represents a huge business opportunity for e-commerce firms. Accordingly, this particular move, along with the Single’s Day global expansion, both look like smart plays that could make strong contributions to Alibaba’s business over the next 5 years if executed well.
Bottom line: Alibaba’s plan to export its Single’s Day promotion and expand its rural logistics network both look like smart moves that could yield significant results in the next 5 years.