Alibaba has taken plenty of heat from analysts in the past month — particularly after its stock hit a post-IPO all-time low and its quarterly earnings missed expectations.
But Alibaba, along with the other eCommerce leaders in China, have a new area to target that they are hoping will help make up for the slowing eCommerce sales that have made it harder to bank on the major cities to drive growth. While Alibaba has discussed the importance of targeting rural China for some time, now seems to be when the eCommerce giant is putting more stake into the concept.
As a Wall Street Journal article references, Alibaba and its smaller rival JD.com have invested more logistics by partnering with companies that can help get more of its goods to rural towns. In face, Alibaba and JD.com combined have a 80 percent share of China’s eCommerce market (roughly $440 billion). And the goal, WSJ notes, is to hit 100,000 villages by the end of 2020.
This may seem like an ambitious target, but with incomes in rural areas rising at a higher rate than in urban areas, there’s a lot of potential growth for the eCommerce giants to tap into. The issuance of smartphones into the regions (with help from the government) has also helped give China’s eCommerce market a boost. Sure, the numbers in rural China are still slim compared to those of urban shoppers, but those figures are shifting.
During Alibaba’s most recent earnings call, CEO Daniel Zhang focused on Alibaba’s logistics investments, which have paid off for Alibaba through its logistics affiliate, Cainiao, which has helped scale Alibaba’s next-day delivery services. Next-day services are now available in 41 cities and are expected to expand to nine more by the end of the year.
As highlighted by WSJ, research from the China Internet Network Information Group showed that the amount of rural Chinese shoppers increased 41 percent last year, year over year, while urban shopping numbers only increased 17 percent in that same time period.
“The scale of online shopping in rural areas is still lower than in the cities, so there’s a huge space to unearth, a big market that can be fought for,” said Wang Xiaoxing, eCommerce analyst at research firm Analysys International.
Alibaba’s logistical investments, if all goes as planned, may help scale that ambition through its recent investments in the country’s logistics side. This includes investing 10 billion yuan (about $1.7 billion) into distribution centers all over China in the next 3-5 years. Alibaba currently has 63 county-level centers, and 1,803 village-level centers, WSJ reported.
Alibaba and JD.com’s goal is to eventually cut down how many days it takes to get goods delivered into rural areas, but that also means fixing some of the logistical issues from the delivery side, too. While rural residents may be getting increasingly interested in shopping on online marketplaces, many still need the reassurance that the goods will get to them in a timely manner. That’s where Alibaba and JD.com’s investments will come into play.
Still, it’s going to take take time for villages to get on board and for those logistical investments to catch up. China’s delivery system has been lagging for some time and it’s no easy feat to bring the industry of an outdated system up to speed. But if Alibaba and JD.com want to attract the rural customers who are increasingly turning to their smartphones to shop, then they’ve realized now is the time to move.
But there’s still plenty of little issues to iron out.
“In the cities, every address is very fixed and more clearly labeled, like house numbers, street names, districts. But addresses in villages are not so clearly labeled,” Jiang Hongyu, director of JD.com’s rural efforts, told WSJ.
That’s where Alibaba is rushing to move logistics plans quicker. Alibaba owns 48 percent of Zhejiang Cainiao Supply Chain Management, which is working to build out more warehouses to scale delivery efforts across China. Alibaba also invested in Shanghai YTO Express, one of China’s top logistics companies, to help Alibaba increase its operational efficiencies, while working with the company to develop its solutions across China.
“The roads are bad and no one wanted to spend heavily in investing in doing logistics for the rural areas just for the sake of a few packages,” said Xu Weidong, a Cainiao operations manager for northern China. “Now, Alibaba is here.”