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 Anchored by Alipay, the dominant Chinese electronic payments system
that works closely with Alibaba and is controlled by its executives,
the world's largest Internet retailer is using the calling card of
China's consumers to attract U.S. partners, two sources close to the
company told Reuters.
Long seen as the most potent threat to Amazon.com Inc <AMZN.O> with
$300 billion in global sales, the moves add up to a conservative
approach to expanding in the United States, contrary to industry
speculation that the company may be plotting a direct assault on
U.S. soil.
That considered strategy, outlined to Reuters for the first time by
the sources and executives who work directly with the Chinese
company, is intended to heighten awareness in the United States of
what Alibaba does, gain goodwill in an important Western market, and
lay the groundwork for a longer-term play.
At the heart of its push are Alibaba's and Alipay's trial deals to
handle Chinese sales, payment and shipping for some of the biggest
names in U.S. retail from Neiman Marcus Group to Saks Inc. Both
confirmed the agreement but would not talk about how the pilots are
faring.
The Chinese companies will also work with U.S. startup Shoprunner,
an online mall for U.S. retailers in which it owns a stake, and
retail services provider Borderfree Inc <BRDR.O> to court Chinese
consumers.
And Alibaba is preparing a marketing campaign to raise awareness
among U.S. businesses of its global business-to-business wholesale
platform, Alibaba.com, so they can buy and sell to and from global
suppliers.
"They own the toll road into China," said Michael DeSimone, Chief
Executive Officer of Borderfree. "What really puts the jetpack on
things when you deal with an Alipay is, they're on the ground and
they know the Chinese consumer so well."
Industry insiders point to just $15 billion in annual U.S.-to-China,
cross-border consumer sales now. But Daiwa estimates cross-border
purchases, which exclude sales of American products within the
country, can grow to 1.8 trillion yuan ($291 billion) by 2020.
"It’s not a big thing right now, but within the next 12 to 18 months
what you’ll see more of is bringing 300 million Chinese consumers to
retailers in the U.S.," Alibaba Vice Chairman Joseph Tsai said in an
interview with Reuters last year. He laid out the broad plan, and
sources have now described details.
Still, there's no guarantee of success.
China's middle class is over 250 million strong and growing, spurred
by government policy to create a more consumer-driven economy. Apple
iPhones and General Motors cars have become big-selling status
symbols, but the market remains a challenge for Western companies,
especially those lacking a global footprint. Home Depot Inc decided
in 2012 to shut all seven of its big box China stores, while in
December, Best Buy said it will sell its struggling China business.
And Alibaba's 10-month-old effort to help foreign retailers set up
shop in China, Tmall Global - its business-to-consumer website, has
had muted success. Of 5,000-plus brands and 650 merchants that now
sell on that site, just 30 have accumulated more than 10 million
yuan in sales, according to the company.
But there are signs of traction. Costco Wholesale Corp, which began
selling on Tmall Global in November, saw sales of more than 40
million yuan in its first month of operations, according to data
Alibaba provided to Reuters. And the site has attracted some 90
million unique visitors since launch, buying from 90 percent of
listed merchants.
KNOWING THE NAME
Part of Alibaba's aim is to counter official concerns about Chinese
mega-corporations. In 2014, Alibaba hired former Treasury chief of
staff James Wilkinson to help tailor its international strategy, and
it has enlisted Korn Ferry to search for a Washington-based
international government affairs chief.
Alipay and a logistics-partner network that took years to assemble
are central to Alibaba's U.S. effort.
Major brands, such as Nike, that have a large physical presence in
China already sell directly on Tmall. But Alipay's effort directly
connects American merchants with China, without the need for
investment in a physical presence.
It also allows U.S. retailers and Chinese consumers to avoid
difficulties associated with foreign exchange. Chinese consumers pay
in yuan; U.S. companies get paid in dollars.
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Alibaba's and Alipay's program for U.S. companies is called ePass.
It includes a customs pre-approval process, a sort of "fast lane"
that shaves days off delivery. Daiwa analysts John Choi and Alex Liu
call that capability Alibaba's biggest advantage over rivals such as
JD.com.
Alibaba and Alipay have made pilot agreements to handle payments and
shipping to China for department stores Neiman, Saks, Macy's Inc,
Macy's Bloomingdale's chain, Ann Taylor, luxury fashion site Gilt,
and apparel label Aeropostale, according to Borderfree. The
companies declined to comment, although Neiman, Saks and Ann Taylor
confirmed the deal.
If a Chinese consumer bought a pair of shoes from Saks, for
instance, Alipay would handle the financial transaction. The shoes
go to a U.S.-based Alipay facility that handles the transfer to
China. After clearing customs, a local partner typically would
handle final delivery.
Alibaba has even taken on a role akin to a cultural liaison for U.S.
retailers. Tracey Weber, chief operating officer of online retailer
Gilt, said that as their Alipay trial progressed, the Chinese
company began increasingly to help with marketing and even product
selection: advising them to use more red for instance, or to more
prominently display cross-body handbags popular in China.
"It is such a different environment," she said.
Shoprunner, meanwhile, hired an ex-Amazon executive to head up a new
Shanghai office last year, and Chief Executive Scott Thompson said
the startup is preparing a major marketing campaign in China in
2015.
TARGETING COUNTERFEIT
Alibaba also aims to draw in more U.S. businesses to its Alibaba.com
portal, as buyers and sellers. One strategy is to reduce the number
of counterfeit goods, a major problem in China and a concern for
companies considering sharing intellectual property such as
technology and designs.
To that end, Alibaba has enlisted data company Dun & Bradstreet
Credibility Corp, among others, to beef up a supplier-certification
program it hopes will help draw in many of the estimated 27 million
small-time American businesses and manufacturers that now operate
mostly offline.
Validation could allow both sides to assure themselves that they are
working with legitimate partners.
Jeff Stibel, who is heading up Dun & Bradstreet Credibility Corp's
effort with Alibaba, said integration was starting, and it will
launch its certification program early this year.
Alibaba also has some plans to sell to Americans.
Alibaba has a small U.S.-based portal, 11Main.com, a collection of
Internet storefronts for smaller businesses and products from yoga
mats to scented candles. While it focuses on U.S. consumers, a
quarter of its 1.4 million listed products can already be shipped to
Asia. It hopes eventually to help sellers gain access to Alibaba's
U.S.-Chinese corridor, 11Main President Mike Effle told Reuters.
Alibaba.com itself is an avenue to sell to Americans, as businessman
Michael Sorrentino found at the Consumer Electronics Show in Las
Vegas this year.
The chief executive of smartphone case maker Eyepatch estimates
about 20 percent of U.S. retailers he spoke with asked if they could
buy his gear through Alibaba.com.
"That quickly taught me, whether I'm familiar or not with that
platform, that I need to be on it," he said.
(This story corrects to spell out full name of company in paragraph
26)
(Additional reporting by Malathi Nayak and Deepa Seetharamanin San
Francisco and Nathan Layne in Chicago; editing by Peter Henderson,
Martin Howell and Bernard Orr)
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