Alibaba Group Holding Ltd Competes Against The Old Economy

AlibabaBy Charliepug (Own work) [CC BY-SA 4.0], via Wikimedia Commons

Alibaba Group Holding Ltd (NYSE:BABA) took the online retail world by storm last week when it recorded $9.34 billion in sales on Singles’ Day (Nov.11). By comparison, last year’s U.S. Cyber Monday sales stood at $2.29 billion. The Chinese company receives about 39 million orders on a normal day. But its platforms received a staggering 278 million orders on Singles’ Day.

What governs Alibaba’s ecosystem?

Speaking at JPMorgan’s Global TMT Conference, Alibaba’s chief strategy officer Dr Ming Cheng said that the huge Singles’ Day event and the “smooth logistic fulfillment” were proof of the robustness of the company’s ecosystem. Zeng revealed that the company’s ecosystem is governed by the behavior of the marketplace rather than Alibaba’s management team.

When asked about the rising competition on Chinese e-commerce market, he said competition has never been a concern for Alibaba. The Hangzhou-based company competes against the “old economy” rather than peers. Well, that’s because it always strives to stay ahead of the curve, so its biggest competitor is the old economy. When the company enters a new market, it tries to reconstruct the value chain.

Alibaba aims to deliver 100 million packages per day

Further, Alibaba has a vast amount of consumer data that could potentially boost its profitability. The company analyzes its database to identify shopping behavior of consumers. For instance, it recently discovered that women with larger bra sizes tend to spend much more than those with small cup size. Dr Zeng said that the company intends to share the data with stakeholders.

In the long-run, Alibaba aims to increase its package delivery capacity from around 40 million to 100 million per day. The company is planning to create an ecosystem to achieve it. JPMorgan analyst Alex Yao said in a research note that he expected China’s retail marketplaces to account for 14% of the company’s total consumption in 2018, up from 7% in 2013. Alibaba’s platforms Taobao and Tmall have 83% share in Chinese e-commerce market. JPMorgan has an Overweight rating on Alibaba with $115 price target.

Alibaba shares fell 0.80% to $109.94 in pre-market trading Wednesday.

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