Irresistible trend
The tremendous benefits brought about by this significant coalition will undoubtedly squeeze the living space of other rivals, who also have their own arrangements. Huang Xuande, CFO of JD.com, said a focus will be laid on fresh food in their online-to-offline development scheme, justifying their newly established cooperative ties with Yonghui Superstores, which sees fresh agricultural and subsidiary products accounting for over 50 percent of its total sales and has established more than 300 physical stores and more than 20 purchase bases nationwide.
Teaming up with Yonghui Superstores is part of JD.com's online-to-offline plan in 2015, under which the second largest Chinese e-commerce player can send fresh food, flowers and supermarket goods to consumers who dwell within a radius of 3 km within two hours.
In turn, Yonghui Superstores, which has been frustrated in its attempts to seek online presence since 2013, can also be transfused with e-commerce and logistics distribution resources. As a matter of fact, large supermarkets like Walmart are scrambling to build their own e-commerce platforms in China. In July, Walmart took full control of online store Yihaodian.com after acquiring its 51-percent share in 2012. Yonghui Superstores badly needs external support to wrench it out of its dire circumstances.
"The channel resources of offline retailers will be revaluated," said China International Capital Corp. Ltd. (CICC) in a research report published on August 10. As some farsighted e-commerce giants have begun to cooperate with traditional retailers recently, the once underdog has shown signs of being able to reverse its declining fate.
"These alliances between e-business companies and offline retailers indicate that they have shifted from wrestling with one another to pursuing synergy, in order to make the cake bigger for all," said Wang Tian, Chairman of Better Life Group, a conglomerate headquartered in Hunan Province, which dabbles in supermarkets, department stores and e-business.
As the CICC report pointed out, online and offline integration is an inevitable choice. After several years of high-speed expansion, e-business companies are striving to maintain their growth momentum, and joining hands with physical retail outlets will be of strategic importance in breaking through that bottleneck. Offline stores can effectively enhance consumers' consumption experience, provide more value-added services and improve customer fidelity. Online and offline integration will give full play to information advantages and bring down the markup percentage of commodities.
"The groundbreaking cooperation between Alibaba and Suning is conducive to penetrating the entire industrial chain and channels of the retail sector, thus sewing the concept of Internet Plus into the retail industry," said Zhuo from Analysys International.
Yet, an array of challenges lie ahead. Chen Yuefeng, an expert on industrial chains, believes cultural integration will be the most difficult problem these business giants face. "While brick-and-mortar retailers lack the Internet gene, e-business enterprises are inexperienced in the traditional retail industry. Therefore, such coalitions can be fraught with challenges," said Chen.
What really matters is whether the two parties can accomplish cross-platform cooperation and allow consumers to benefit from such integrations. "The results may not be felt within two or three months. Only when brick-and-mortar stores and Internet companies appreciate and coordinate with each other can a new business ecosystem come into being," said Jack Ma.
