retail news in context, analysis with attitude

Interesting story in the Seattle Times about Alibaba's decision to sell 11 Main, its US operation. While 11 Main was a small operation taken within the context of Alibaba's $12.3 billion in revenue last year, "the setback ran counter to the remarkable growth that Alibaba has enjoyed."

Christopher Tang, UCLA distinguished professor in the school's Anderson School of Management, tells the Times that despite Alibaba's global reputation, the company "misjudged the market completely, and there was no traction. They didn’t understand American consumers’ expectations and that the market is highly competitive. And they didn’t understand how logistics support is crucial."

A core problem for 11 Main was that, much like Alibaba does in other global markets, it served largely as a portal for other retailers to sell their products; Alibaba owns no inventory and does not handle fulfillment. While a sale made be on Alibaba's site, the transaction is between the merchant and the consumer, with Alibaba having no role in whether the customer is satisfied or the retailer lives up to expectations.

"American consumers by and large are e-savvy and, thanks to Amazon and eBay, they are used to a mostly good experience in terms of e-commerce," Tang says. "They expect many products to be available at a competitive price, they expect two-day delivery, they know they can trust the order and return the products usually without any hassle ... If you buy something at Amazon, the product is either shipped by Amazon or by the merchant through Amazon. Alibaba wasn’t doing that. After a sale at 11 Main, the transaction was between the consumer and merchant. Alibaba was more like an agent. That is the business model they run in China."
KC's View:
This reflects the degree to which Amazon continues to shape consumer expectations about the online shopping experience, but one should not underestimate Alibaba's pocketbook nor its desire to make a go of US online retailing. I suspect they'll learn from their mistakes, and they'll be back.