China gets O2O boost

1 April 2014
BEIJING: The online-to-offline sector in China has been given a major shake-up with the news that leading internet business Alibaba is investing in department store operator Intime Retail Group.

Alibaba's initial 9.9% stake will grow to 26% in three years' time when convertible bonds are exchanged for shares. Meantime the two will form a joint venture to develop shopping malls, department stores and supermarkets, according to China Daily.

Intime currently operates 28 department stores and eight shopping malls in China. Shen Guojun, Intime's chairman, said the business needed to adapt to changing consumer behaviour and "enter cyberspace to cater to customers' shopping demands".

For Alibaba, COO Zhang Yong said future business would involve the integration and merging of the high street economy and e-commerce, a process which would be assisted by big data and cloud computing technology.

Alibaba had earlier partnered with Intime to trial a service that allowed users of the former's Taobao shopping platform to pay for purchases at a Hangzhou Intime mall by mobile phone rather than at the cashier.

And Alibaba's Alipay third-party payment service has also partnered with retail chains to offer discounts to users of its e-wallet mobile payment service, Want China Times reported.

Speaking to Warc at the end of last year, Doreen Wang, head of branding at Millward Brown in China, observed that online vendors played a bigger role in China than in Western countries because organized retail was less established.

"For example, most department stores don't own the inventory, but position themselves primarily as real estate companies," she said. "Therefore, when brands shift focus towards online, these retailers' lack of retailing or merchandising skills prevent them from taking an active approach."

But Wang also saw O2O as a way for brands and traditional retailers to tackle the challenge of ecommerce: "Online's power lies in ease of community, stickiness brought through community … thanks to instant action and promotion, and so on," she added. "The power of offline is feel and touch, self-pickup and services. Therefore, by combining it with O2O, a retailer and a brand can win."

A Wall Street Journal graphic illustrates the increasingly tangled web of the Chinese internet as the country's three leading online businesses – Alibaba, Baidu and Tencent – expand into new areas and come into closer competition with each other.

Data sourced from China Daily, Want China Times, Wall Street Journal; additional content by Warc staff
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