Why Alibaba’s investing in offline-to-online retail opportunities


Sep. 10 2014, Updated 12:56 a.m. ET

Alibaba and Wanda see big opportunities in blended online and offline retail models

In the previous part of this series, we discussed how Alibaba plans to increase its presence in the fast-growing cloud services market. Alibaba is also looking to invest in offline-to-online retail opportunities, which is the concept that enables users to purchase goods through their mobile phones while present in physical stores. Alibaba see a big opportunity in this retail model. Earlier this year, the company invested $692 million in InTime Retail Group. InTime is one of the leading department stores in China.

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The online-to-offline model is also picking up in China. This is the reverse of the above-mentioned retail model in which users research online before heading to a physical store and making a purchase. A few days back, Dalian Wanda Group, which is the biggest commercial land developer in China, announced a partnership with Baidu (BIDU) and Tencent Holdings (TCEHY) to promote the online-to-offline retail model.

The three companies would invest $813 million in this venture, with Wanda Group taking a controlling stake of 70%. The other two companies will have a 15% stake each, according to a report from Sina.com (SINA). Tencent is a Chinese Internet company best known for its increasingly popular mobile chat service, WeChat.

In the mobile instant messaging space, WeChat’s number of active users—at 400 million—is second only to WhatsApp. WhatsApp was acquired by Facebook (FB) for $19 billion earlier this year. Baidu is China’s leading search engine and it’s considered the Google (GOOG)(GOOGL) of China.

The webrooming and showrooming concepts are picking up

Wanda could leverage Tencent and Baidu’s large online user base to drive users to its stores in order to purchase products. According to a report from eMarketer and as the chart above shows, 78% of people in the U.S. made purchase in a physical store after researching online, while 72% of users made purchases online after visiting a store.

So there’s an unmet need for both online-to-offline and offline-to-online retail models to flourish. That’s why companies like Alibaba and Wanda are trying them out in China.

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