MAGAZINE: Alibaba’s European tale

What is China’s most valuable brand? Well if you believe the hype, then the answer is Alibaba Group Holdings, the e-commerce-led conglomerate. Advertising group WPP and its research arm Kantar made the company Number One in its annual BrandZ Top100 ranking, having concluded the firm had boosted the value of its brand to $141 bn (€126 bn), up 59% from the previous year. Alibaba’s rise ‘reflects the growth of a brand which has contributed to transformational changes in the Chinese market’, said WPP.  

For those worried that their kids are spending too much time on their mobile phones and that as a human race we are too consumerist, Alibaba is probably not their best friend. Its pulling power over those with mobile phones in China is immense and it is growing. It has at least 721 million active monthly users on its flagship e-commerce platforms including Taobao, 60% of which are under 30, and the average user goes on the Taobao app around 7 times a day and browses 19 items. In total, they watch live streaming videos about products on the platform for a combined 140 million hours a year. And according to a letter to shareholders by CEO Daniel Zhang last October, the company is adding 100 million new active users a year – something it did last year, which helped generate around $56 bn of annual sales across Alibaba’s market place. This might be a horror story to anti-consumerists and at the same time music to the ears of shareholders for a company that in 2014 broke the world record for the largest IPO when it floated on the New York Stock Exchange with a market cap of $21.7 bn.

But aside from being an obvious villain in an anti-consumerist debate, what has Alibaba – a company that cannot be described as ‘new’ because it has been trading for 20 years - got to do with European real estate? Up until quite recently, the answer would have been ‘not much really’. Apart from taking some office space in London, Milan, Paris, Munich and Amsterdam, its impact has been pretty negligible other than to satisfy the owners of those office assets given Alibaba’s strong covenant. However, the signs coming out of Alibaba in Hangzhou are that it is on the cusp of having a much greater impact.

The Chinese conglomerate whose motto is to ‘make it easy to do business anywhere,’ has the same model for all its business lines: it relies on e-commerce platforms accessed primarily by phone to encourage people to click and buy things. And a very important part of this is getting those products to its customers as soon as possible - which means logistics.

Belgian air hub
In recent weeks and months, clear signs have emerged that Alibaba’s efforts to become global will have an effect.  Last year, Alibaba struck an agreement with Liège Airport in Belgium to develop its first air hub in Europe (to the annoyance of neighbouring Netherlands). Liège Airport is leasing a 22-hectare site to Alibaba’s logistics company Cainiao Network for a 220,000 m2 facility, and Cainiao will begin development later this year once the airport has cleared the way. European goods stored at this hub will be put onto direct flights to China. It will work the other way around too. Goods flown from China to Liège Airport will make use of Alibaba’s new distribution centre before continuing their journey. The plan got into the public domain earlier in 2018 but it was only truly confirmed by the Belgium government on 5 December when the country said it had signed a memo of understanding with Alibaba to promote inclusive trade under the Electronic World Trade Platform (eWTP). The government went on to describe the logistics facility.

This is a real development and is being seen by Belgium, Liège airport and others as the first time a serious potential competitor to Amazon in Europe has made a direct investment in logistics. The investment in the air hub is stated at €75 mln.

Global growth has moved up the agenda at Alibaba, which some commentators suggest is due to China’s slowing economy. Instead, Alibaba says it just wants to realise its goal of ‘global buy, global sell, global delivery, global travel, and global pay.’ To do this, in May last year Alibaba said it wanted to build a logistics network capable of handling 1 billion packages a day, taking it up from the current 100 million a day. Such an investment would require $15 bn of expenditure, and if things go well it will achieve 24-hour delivery times in China and 72-hour delivery for international markets. 

More clues
The air hub at Liège Airport is just one sign of things to come. There have been plenty of others (see box). Another of Alibaba’s e-commerce platforms is Tmall upon which Chinese customers can buy all manner of goods. But four years ago, Alibaba launched Tmall Global, enabling them to buy many more international brands. And just two years ago, the company launched a direct import programme designed specifically to enable international SMEs to more easily sell their wares into China. It is here that more clues of how Alibaba will have a greater impact on European logistics can already be seen.

In a recent podcast interview on Alibaba’s news site called AliCast, Tmall Global’s global head of business development, Yi Qian, said Alibaba had started to do overseas warehouse fulfilment. He specifically talked about opening such a fulfilment centre in Los Angeles and how this was helping SMEs that were hesitant about opening up a ‘flagship store’ on its platform. To help SMEs test the waters first, Tmall Global is set up to  handle everything from taking possession of the product in that foreign market, to storing it in one of its warehouses there and then flying it out so that when a consumer buys an international product it can be delivered within seven days. Tmall Global will even create a website image and content for the retailer that will work for Chinese consumers. Once a SME sees sales rise, it might then take the step of opening a store on the platform. This whole enterprise is aimed at supplying its Chinese customers with more international products, helping thousands of SMEs in the process to trade in China, with a by-product being the need for fulfilment centres in cities outside of China. In this way, it does not take a big leap of the imagination to see what might happen in Europe given it has happened in Los Angeles. 

PropertyEU has learned of an example which highlights how things have worked to date with Tmall’s cross-border business. In 2016, UK supermarket group Sainsbury’s began operating a distribution centre in Slough outside London to store products prior to dispatch to China for sale on Alibaba’s Tmall Hong Kong platform. The stock from Sainsbury’s warehouse facility would be sent to logistics facilities operated by Cainiao in China, which took the orders on Tmall’s platform and would then pack them locally and arrange for delivery. The Chinese warehouses would be located in free trade zones which meant that for Chinese consumers it could be cheaper to buy an international product than one sourced locally. A person familiar with the operation at Sainsbury’s said the supermarket group was plugging into the aspiration in the far east for a western lifestyle and products. At the same time, Chinese consumers had lost some confidence in Chinese products after high-profile problems such as the baby milk scandal 10 years ago.

One day, the power of Alibaba’s Singles’ Day certainly became apparent to Sainsbury’s: to its astonishment it sold 16 containers of olive oil to Chinese consumers in 24 hours – the equivalent of one-and-a-half years of olive oil sales across the whole of Sainsbury’s UK stores. Despite such successes, there were also difficulties in exporting Sainsbury’s products due to Chinese import regulations and issues to do with storage facilities in China. Sainsbury’s made money from the Tmall venture using the Slough warehouse facility, but ultimately it shuttered the enterprise after 18 months as it wasn’t making enough for a company of its size.
Back home in China, Alibaba has built a serious logistics network that might one day be mirrored in other parts of the world. During the past five years it has built a network providing national coverage via 14 bonded warehouses in different Chinese cities.

Singles’ Day
To provide an idea of Alibaba’s demand for logistics space, each 11 November the online retailer holds what is known as Singles’ Day. Last year, Alibaba broke its own record by transacting $31 bn of sales on its platform, and for that single epic online sales event Qian said the company occupied half of all of China’s bonded warehouses. For its cross-border business, Tmall Global has already reached 100 million users who are high-end middle class Chinese consumers. It is estimated that in a few years’ time, there will be 500 million middle class Chinese, so the potential for growth in customers is enormous. Currently Tmall Global hosts more than 20,000 brands in over 4,000 categories from 77 countries and regions.

In a fascinating aside, Qian also said anti-hair-loss products were among those most in-demand of all the international products being sold. ‘We are seeing a trend in younger people worried maybe about the pressure of working hard and losing their hair early, so we researched which countries produced anti-hair-loss products and found suppliers in India, Japan, Europe and the US. We are talking to those brands and creating campaigns.’ 

This expansion by offering TOFs – Tmall Overseas Fulfilment - is certainly new. On 21 March, Alizila, Alibaba’s news network, published an article saying ‘Tmall Global was putting the world in China’s shopping cart’. Its news site said Tmall Global’s general manager of Tmall Import & Export, Alvin Liu, had addressed a recent annual gathering of representatives from over 1,000 brands. Liu said the Alibaba Group-owned website now offered an overseas fulfilment solution and an import programme to support brands’ foray into China. Currently, TOF is available in the US, Japan and South Korea and will expand into Europe later this year. It has six warehouses so far, it added.

The article said: ‘As China’s biggest cross-border e-commerce platform for nearly five straight years with 32% of the market share, Tmall Global has retained its leading position by sourcing the latest and most popular overseas products for Chinese consumers. At the same event, Alibaba pledged to bring $200 bn worth of international goods into China over the next five years through its platforms.’

The question is how fast and to what degree Alibaba will be successful in building the necessary logistics network in Europe. It is going about things in the region without much fanfare it seems, and the company declined to give PropertyEU an interview. But there are enough clues to suggest that European logistics players can expect to rub shoulders with the Number One Chinese brand some day.

Road map to Europe logistics growth

January 2013 News surfaces of Alibaba Group setting up a logistics and technology company, Cainiao Smart Logistics Network, to service its Taobao Marketplace and Taoboa Mall platforms – the largest e-commerce sites by transaction volume in China. Other investors are reported to include Yintai Holdings, Fosun Group, China Life Insurance Group and Citic Group. 

8 May 2017 AliExpress, Alibaba’s B2C e-commerce marketplace, says it has an agreement for the Dutch postal service to be its delivery partner of packages in the Netherlands. PostNL is an example of a postal delivery service transforming into a logistics company for e-commerce firms.

29 May 2018 Alibaba leads a consortium to buy a 10% stake in Chinese courier ZTO Express. Its logistics arm Cainiao is part of the investor group. It is the third Chinese courier Alibaba has invested in as it expands its domestic logistics network.

31 May 2018 Alibaba says it wants to build a logistics network capable of handling one billion packages a day, up from 100 million. Such an investment would require $15 bn of expenditure. It wants to achieve 24-hour delivery times in China and 72-hour delivery for international markets. 

23 October 2018 Alibaba Cloud, the conglomerate’s cloud-computing arm, says it has agreed to use a data centre facility in London on top of one set up in Frankfurt in 2016. The locations have never been publicly revealed but PropertyEU sources suggest one belongs to Virtus Data Centres, which has centres in Enfield, Hayes and Slough. The Frankfurt centre is tipped to be one of E-shelter’s. Neither company confirmed the rumour to PropertyEU. 

30 October 2018 CEO Daniel Zhang says in his 2018 letter to shareholders that Alibaba’s logistics platform enables 63% of parcel deliveries in China and operates a holistic supply chain solution for its two-year-old New Retail strategy which is about integrating online and offline retail stores. He also says it is making progress to realise its global goal of ‘global buy, global sell, global delivery, global travel, and global pay.’

29 November 2018 Alizila, Alibaba Group’s news portal, says the Chinese platform has struck an agreement with Spain’s El Corte Inglés, the biggest department store in Europe by sales. The multi-faceted concord spans retail, payments, cloud computing, but of particular interest is ‘exploration of a collaboration in logistics’, such as leveraging El Corte Inglés’ shipping capabilities and distribution centres in Spain to support local fulfilment services of AliExpress, Alibaba’s B2C marketplace.

5 December 2018 The Belgian government signs a memorandum of understanding with Alibaba to promote inclusive trade under the Electronic World Trade Platform (eWTP). It confirms the development of its first logistics centre in Europe, a 220,000 m2 air hub at Liège Airport to be developed by Alibaba’s logistics arm, Cainiao Network. It will boost European goods flying out to China, and Chinese goods being flown into Europe.

20 March 2019 Cainiao Network is again in the news as Alibaba announces its logistics arm and overseas online platform AliExpress has struck an accord with Spain’s postal service Correos. The agreement is for the pair to design new logistics strategies. Correos said AliExpress could also use its nearly 2,400-strong office network to exhibit products sold on the platform. AliExpress’s Spanish online site, Aliexpress Plaza, says orders can reach customers in three-seven days.

21 March 2019 Alibaba’s news page Alizila reports Tmall Global’s general manager of import and export Alvin Liu addressed an annual gathering attended by over 1,000 brands. Liu told them news of six TOFs (Tmall Overseas Fulfillment) centres available in the US, Japan, South Korea and that it will expand into Europe later this year. Goods get sold on its e-tailing platform as well as its physical stores, Freshippo (also known as Hema in Chinese) and Tmall Supermarket.

25 April 2019 An Alizila podcast with Tmall Global’s deputy general manager Yi Qian highlights how Alibaba has introduced e-commerce fulfilment centres in some overseas locations to help international brands sell products on its platform. Qian talks about Los Angeles helping SMEs in California.

6 May 2019 Alizia says Alibaba has claimed the Number One spot in an annual ranking of China’s most valuable brands. The ranking has been organised by advertising giant WPP and WPP’s subsidiary Kantar, a data and analytics firm. The next day Kantar advertises an event to be held in Amsterdam at which an Alibaba representative will be speaking. As part of an overview of Alibaba, Kantar says AliExpress is exploring the potential of installing physical points at El Corte Ingle´s shopping centres.