Express from China
October 1, 2015 11:53 AM
Hair extensions, sports jerseys, solar panels and tools to make e-cigarettes. That’s an eclectic collection of top-selling items on AliExpress.com, Alibaba Group Holding Ltd.’s fast-growing global marketplace with more than 200,000 mostly Chinese sellers and 100 million products in 40 categories, including health and beauty, apparel and accessories, consumer electronics and furniture.
“It’s fascinating to see what people are buying,” says Scot Wingo, chairman of ChannelAdvisor Corp., an e-commerce services provider that helps merchants sell through online marketplaces. “Electronics accessories, electronics and toys are expected. I wouldn’t expect wedding dresses and hair extensions, but they frequently are up on AliExpress’ best-seller list.”
AliExpress is Alibaba’s global platform for small and midsized businesses—often Chinese manufacturers—to sell directly to consumers outside of China, and prices are often lower than most other sites. Launched in 2010, AliExpress has been one of the fastest-growing businesses inside of Alibaba, growing its gross merchandise value at an average of 300% every year, according to the company. The online marketplace is particularly popular in Russia and Latin America. Web analytics company SimilarWeb Ltd. in June said AliExpress is among the top three most-visited e-commerce sites in Brazil with an estimated 110 million visitors per month. It is currently the 26th most-popular site globally, according to Alexa Internet Inc.
Alibaba does not disclose its U.S. sales or otherwise break out revenue outside of China except to report international retail commerce, which is “primarily generated from AliExpress,” the company says. For the 12 months ended March 31, AliExpress generated $285 million in revenue, up 88% from the same period in 2014 and equaling 3% of Alibaba’s revenue. In its most recent quarterly report, for the three months ended June 30, Alibaba reported international retail commerce revenue of $81 million, up 40% from the year-ago period.
“Growing our business internationally is a strategic priority for the company because our mission is ‘to make it easy to do business anywhere,’” Alibaba said in the report. The company this summer also hired J. Michael Evans as president of Alibaba Group, with responsibility for global expansion. Evans is a global power player, having been vice chairman of New York investment bank Goldman Sachs Group Inc. from 2008-2013. Alibaba declined to be interviewed for this story.
Among the ways Alibaba promoted AliExpress last year was incorporating it, in a big way for the first time, into the annual Singles’ Day online promotions it offered on Nov. 11, China’s major online shopping day. Alibaba did not say how much of the $9.3 billion in purchases consumers made on Alibaba’s sites last Nov. 11 came from AliExpress, but it did say that consumers in 217 countries made purchases, with the largest number coming from Hong Kong, Russia, the United States, Taiwan and Australia. Members of Alibaba’s U.S. team were at company headquarters in Hangzhou in September planning for AliExpress’ participation in this year’s Singles’ Day sale.
Calculating AliExpress revenue as tracking at $320 million a year and as 4% of Alibaba’s total revenue results in an estimated gross merchandise volume of $9.5 billion, Wingo says. Gross merchandise value is the total dollar value of goods sold. Based on filings with the Securities and Exchange Commission and web traffic data, he estimates AliExpress’ GMV at $4.0 billion in Russia, $3.0 billion in Brazil, $1.5 billion in the United States and $1.0 billion in the rest of the world. With e-commerce sales in Brazil totaling $16.28 billion in 2014, and $17.47 billion in Russia, according to eMarketer Inc. figures, that means AliExpress commands roughly 18% and 23% of web sales, respectively, in those two markets.
It’s too soon to tell what AliExpress will mean to the U.S. retail market because it’s still flying under the radar, Wingo says. But it is the “tip of the spear” in Alibaba’s cross-border trade plans, he says, allowing Alibaba to learn more about the U.S. market and from there perhaps open AliExpress to U.S.-based sellers or offer a merchant platform for U.S. sellers to sell to U.S. consumers.
Some U.S. retailers believe AliExpress will have little to no impact on their sales. Jack Kimball, who in 1989 founded Miami-based Sun Electronics, a solar panel retailer who has an eBay store, is one of them. That’s despite solar panels being a top-selling product on AliExpress. While Kimball was initially concerned when he learned about AliExpress several years ago, he found many sellers on the site who he says used bait-and-switch tactics or didn’t fully disclose shipping costs to shoppers. That, combined with high tariffs on solar panels imported from China to the United States, led him to not worry about AliExpress’ potential impact on his business.
U.S. retailers don’t acknowledge AliExpress much, Wingo says, but time will tell. RadioShack Corp., the now-defunct 94-year-old consumer-electronics chain that filed for bankruptcy in February, likely was hurt by the online marketplace’s growth because many of the products it sold could be found in cheap abundance on AliExpress, he says. “Wal-Mart probably has some pressure for competition for the low-cost consumer, and maybe at some point dollar stores if consumers can get those things directly from the manufacturer, but dollar stores don’t have much of an online presence,” Wingo says. Wal-Mart Stores Inc. declined to comment.
In the United States, AliExpress is, to some degree, competing with Amazon, even though Alibaba chairman Jack Ma has said he is not planning to take on the world’s largest online retailer, says Michael Zakkour, vice president and China/Asia Pacific practice lead for supply chain consulting firm Tompkins International Inc. who specializes in China business and international marketing. “In the U.S., AliExpress is a combination of Amazon, deal of the day and clear-outs, and not just Chinese stuff. If I’m Wal-Mart, I’m a little bit worried about AliExpress. If I’m Amazon, I’d be interested. If I’m Neiman Marcus, I’m not concerned,” he says.
In Russia, AliExpress ranks as an ally, at least to Danny Perekalsky, CEO of e-commerce site Ozon.ru. Russia’s e-commerce market consists of more than 40,000 online stores, most of them quite small and often part of the “gray market,” which leaves consumers with high levels of distrust about the source and quality of goods they purchase online, he says. “Gray market” refers to the import and sale of what are often legitimate goods by unauthorized dealers, an activity that is often legal. “At this stage in our development, AliExpress helps us grow the market,” Perekalsky says. “Shoppers in Russia are learning, and AliExpress is one more driver to introduce e-commerce.”
Moscow-based Ozon, which projects 2015 revenue of 12 billion rubles ($181.55 million), and AliExpress have little overlap in terms of products or target audiences, Perekalsky says. “What we are offering is the direct relationship with the Russian shopper. Buying the item, payment, delivery, returns—all are done directly with us. We are not a mediator between the consumer and merchants. We are selling from our warehouse. More than 90% of our goods are branded goods from branded suppliers. We also have some imports from China—that’s about 7% of sales, so of that 7% there is that competition with AliExpress.”
The Chinese e-commerce giant’s push into Russia has prompted Ozon to up its game, however. “AliExpress is pushing us to do things fast and better,” he says. “We understand we must be fast and have quality products.”
AliExpress has a representative in the country, Perekalsky says, and “I’ve met him, I know him. He’s a nice guy. A Russian guy.” Alibaba, which as of June 30 reported having 34,433 employees across its eight divisions, is rapidly building its distribution network in China and partnering with shipping and fulfillment agencies to service international consumers. “When a marketplace starts to really optimize the shipping experience, it is a sign they are hitting some good volume and want to make sure the customer experience is strong and competitive with the likes of Amazon,” Wingo says.
Perekalsky says there’s no Alibaba warehouse in Russia yet, “but when it comes, it means we are on the march to development.”
Angela Hu, founder and CEO of online jewelry and accessories retailer Dahlia Jewels, says she is impressed by the many things Alibaba gets right as a business. However, she says AliExpress is unlikely to have a big impact on the U.S. and European markets where consumers have more established e-commerce options than they do in Latin America and Russia.
“AliExpress is a competitor to third-party sellers,” she says. “If it poses a threat it would be to Amazon, not us. We’re a product company.”
Regardless of how AliExpress grows or markets itself to sellers and shoppers, it must be viewed as part of the whole and how it advances the Alibaba ecosystem, Zakkour says. “Where is Alibaba going with all this? It’s a very focused company, and I’m a bit of an Alibaba fanboy, but it’s clear that their goal is no less than becoming the first truly global e-commerce company, and their focus now is on total cross-border e-commerce,” he says.
For example, with Alibaba’s Tmall and Taobao shopping portals in China, a consumer in a Shanghai apartment eventually will be able to order shoes directly from New Hampshire-based Timberland, a division of apparel maker VF Corp., and in three days have it at his door, he says. “We’re not there yet, but that’s what Alibaba is working toward,” he says.
“AliExpress allows a Chinese company to do the same thing as Tmall and Taobao, but going the other way, and AliExpress is growing fast because people have taken a shine to whole idea of cross-border e-commerce,” Zakkour says.
In mid-September, Alibaba’s logistics arm Cainiao signed a memorandum of understanding with the U.S. Postal Service to improve shipping solutions for online sellers and consumers in China, the United States and Latin America.
U.S. consumers and retailers seem to be learning gradually about AliExpress, Wingo says. “There’s not a big, splashy Super Bowl commercial. They’re letting the products and prices speak for themselves, but they do tend to promote certain products and are active on Google. They’re heavy on SEO and smart about that.”
Not knowing AliExpress’ U.S. sales makes it hard to gauge its impact or growth in the U.S. e-commerce market, Wingo says. But overall, he says the direct-to-consumer-from-China model is young and could easily double from a $2 billion industry to $4 billion in the next couple of years.
AliExpress has the opportunity to be a leading e-commerce marketplace in developing economies, as is evident in Russia and Latin America, and it’s making a push into Southeast Asia and India, Zakkour says. But how AliExpress may affect the U.S. e-retail market remains unclear.