I interviewed Jim Tompkins who discussed Alibaba Effect. This development will have a huge impact because consumer-products companies and retail companies have to decide how they’re going to take advantage of Alibaba and of the benefits that this is now putting in front of them. This is highly relevant to retailers, consumer-products companies, wholesalers, distributors, and third party logistics providers.
Will Alibaba ever sell product in the United States? Well, that is a particularly naïve question because the first Web site Alibaba had in 1999, called Alibaba.com, was an English Web site for selling Chinese business-to-business to America. Alibaba has been in America since the day they existed. In addition to that, they’ve made a large number of acquisitions in the United States over the past year, over a billion dollars they’ve spent on acquisitions. They are very intimate with some very important e-commerce players to include folks like Fanatics, one of the biggest sports players out there; including 1stDibs, which is a very large company that is doing some very cool things with unique product. They have done some very interesting acquisitions in the technology space with QuickC, they bought Tango; they spent $200 million on 39 percent of ShopRunner; they spent $250 million on Life, which is a competitor of Uber.
They are all over America, and on June 11 they came out with the first real American Web site called 11 Main. 11 Main is just an amazing story unto itself. I have senior writers from nationwide American newspapers, I have executive vice presidents of strategy for $40-billion retailers saying to me, “Alibaba? I thought that was the name of a book I read to my son when he was growing up.” This is the executive vice president of strategy for a $40-billion company literally doesn’t know Alibaba is a company. It’s the largest Internet player in the largest Internet nation in the world. They are the fastest-growing Internet player in the fastest-growing Internet market in the world, and people don’t know who they are. You kind of go, “Oh wow!”
The video (see Youtube video here which currently has over 70,000 views) was done to answer: What should I know about Alibaba just so that I have the capability to understand how I should respond? I think the video is critical to watch. For example, the video was published on June 22, it was taped on June 3, and June 11, 11 Main was first introduced to America. You’ve got to think about it. If you are a Chinese e-commerce player who’s very successful and you’re now going to open your first real American-only site—it’s not buying something that already exists; you’re going to open a new site, and you’re going to go in competition with the Wal-Marts and the major online players in the world, how in the heck can you do that?
How do you, a country boy show up to America and going to take some market share. Well, what Jack Ma, who is the founder and chairman of Alibaba, does is what he always does, and it’s based on his thinking of kung fu. Kung fu says, “Okay, Dustin is younger than I am, he’s in better shape than I am, and he’s a better fighter than I am, but if I can figure out how to take Dustin’s strength and turn it into my asset, I can win this war.”
What would you do if you wanted to do a kung-fu thought process against Wal-Mart and all the other big titans in the American market? Well, what I would want to do is the opposite of mass merchandising. Mass merchandising is going to some huge Web site or it’s going to pack your kids in a car and go to Wal-Mart and walk around this huge, big box. What I want to do is the opposite of that. What I do is learn from my investment in 1stDibs, where 1stDibs says you’re buying unique things and “I want first dibs on this item.” It’s a unique, kind of eclectic thing, so it’s opposite of mass merchandising. Then you want to call it something unique so it has a different feel to it. Why not call it 11 Main?
Main is in Main Street. The thought process, instead of you packing the kids and the wife in the SUV and going to a mass-merchandising store, what you’re going to do is grab your wife’s hand and walk down Main Street, USA on a Saturday morning with a cup of coffee and kind of enjoy the experience of shopping.
And then, why call it 11? The 11 number, it’s not like 8 or 9 that has some good-luck aspects or some long-lasting faction. Eleven doesn’t mean anything except 11/11, where 11/11 is, as you know, Singles Day, which used to be like the Valentine’s Day in China; now it’s the world’s largest shopping day. On 11/11/13, Jack sold $5.7 billion of product in 24 hours; not a bad haul for 24 hours. The 11 number indicates a singles, it’s a relationship between a man and woman. What 11 Main means is: I want you to walk down Main Street and establish a personal relationship between a merchant and customer, but I’m still going to do this online.
It’s a marketplace where I want a relationship based on the uniqueness of the product. Further to emphasize the reality that this is just the start and also to indicate the uniqueness, you can’t go to 11Main.com and get online. If you go to 11Main.com, it will ask if you’d like to be invited into the shop. You have to fill out a form to get invited, and then two to three days later, you’ll get an invitation. It’s the exact opposite of anybody who can walk in to a mass merchant. You need to be invited. And then when they invite you, obviously, what they’re going to do is, they’re going to be watching where you go and what products you’re interested in so that when they get really serious about B to C in the United States in 2015, they have a wealth of information as to what items you’re shopping for, so they’ll have a head start on that outreach.
It’s just so very, very important that people understand what this is about. The folks that, I got a call the other day that said, “Well, I think eBay and Amazon and Alibaba, they’re all really the same, aren’t they?” You say, “No! No, no, no.” Jack began back in 1999; there were four important things he said. Number one, he said, “I will be global. My goal is not China; my goal is the world, and that means we must do well in America, because America is where business thrives.”
The second thing Jack said is, “I will never be a retailer because I am a marketplace. My goal is not to sell things; my goal is to connect buyers and sellers. If I ever become a retailer, I will be going in competition with my merchants, and I never want to compete with my merchants because they’re very important to me.”
The third thing Jack said is, “I will never become a bank,” and that lasted for only four years. The reason he had to change his view on that is, his original site in China was Taobao, and Taobao, which means “looking for great treasure,” is a site that has, today, eight million merchants on it, selling over a billion different items. It’s a very, very, very large site, and it’s consumer-to-consumer. In that way you can kind of think of it like an eBay.
The problem is that people in China do not trust giving their credit card to other people, so Jack had to become a bank to allow the business to grow. He created Alipay. Alipay is a unique payment system because it holds in escrow. Let’s say I decide to buy something from you on Alibaba. What happens is, you will give our credit card information to Alipay. Alipay will give me nothing. I then send you the product. Once you receive the product, I tell Alipay that you’ve got the product. Alipay then asks you, “Are you happy with it?” If you’re happy with it, then Alipay will give me the credit card information. It’s an escrow system. that was required, so Jack had to go back on what he said.
The fourth thing Jack said is, “I will never get involved with the logistics of the product,” and he never had until 2012, when he realized that in Chan, the logistics—the delivery of the merchandise—was becoming a constraint to the growth of his business. He started to get involved in logistics. He is now building the largest logistics network in the world. He’s going to be investing $24 billion over the next eight years in developing this network.
Last year in China, Alibaba was responsible for the delivery of five billion parcels. If you look at the U.S., Federal Express does about one billion a year; UPS does about four billion a year. Alibaba caused the same volume of parcels to be delivered in China as UPS and Federal Express combined do in the United States. By the year 2024, Alibaba will be delivering two hundred million parcels a day; that’s just mind-boggling the scale in which they are moving.
This is a phenomena. It’s the new way. It’s a new day and there are all sorts of retailers and all sorts of consumer-products companies that are waking up this morning, not realizing that the world is changing as we sit here. That’s a huge, that’s the biggest story of all time.
When there was a big discussion would Alibaba go public in China, in Hong Kong, in London, in the U.S., or if it was in the U.S., would it be on NASDAQ or would it be on the New York Stock Exchange. Excuse me, you weren’t listening to what Jack said in 1999. He said, “We will be global and the United States is where we want to be.” There was no question in my mind. NASDAQ does not stand for the U.S.; New York Stock Exchange does stand for the U.S. Guess what? He is on New York Stock Exchange, and that’s where it’s going to be tomorrow and he’s going to go, the handle for Alibaba is BABA.
As you know, the word ba also stands for the number eight, and the number eight means “good luck.” It’s going to be “good luck, good luck,” and as you also know, in China, things that come in pairs have higher emphasis. If I say, “Good morning, Dustin,” that’s a nice greeting, but if I say to you, “Good good morning, Dustin,” that’s more than double the good morning. That’s why it’s baba and that’s why his trading signal is BABA.
I’m going all over the place here, but it’s just so phenomenal to see what is going on; it’s just very, very cool.
You were mentioning in the beginning about the IPO and some of the details and numbers about that. Can you mention that again?
Sure. The experts, whoever they are, were saying the stock valuation would be someplace between $60 and $66. I have been saying, “No, it’s going to be closer to seventy.” The experts changed their minds yesterday and said it’s now going to be between $66 and $68. I think it’s going to be higher than $68; I think it’s going to be around $69. The overall size of the IPO is actually defined by the dollars raised. The largest IPO of all time was the Agricultural Bank of China in 2010, and that was $22.1 billion. The largest in the U.S. ever was Visa back in 2008, at $19.96 billion. Of course, Facebook, which got a lot of press, was only a $16-billion IPO in 2012.
I think we’re going to see somewhere between $24 and $25 billion as an amount of money raised, and that’s going to beget a valuation of something north of $160 billion. I’ve been saying those types of numbers since last October. It’s interesting now that’s where we’re going to wind up. Very, very, very cool. Largest IPO ever, larger valuation than Amazon on its first day out. The stock is a very good value, and it will go up, in my opinion. Goldman-Sachs’ responsibility, they will make sure that it goes up.
The title of this interview is “Alibaba Effect.” What would you say is the effect of Alibaba on the world?
That is an excellent question; much better than the question I get sometimes: What’s the effect on the U.S.? That’s an interesting question. But what this is really about is the global competition is now really in the game.
Look what’s going on in Brazil, where there was an article earlier this week in the Wall Street Journal that was well done, and it was talking about a Vans sweatshirt that, I don’t know, in Brazil was $500 or something, and you could buy it through Alibaba for $50.
What we’re finding is, competition will be global. Just like if you’re in Chicago, you go online at Groupon to buy something, and you see it costs $100. Well, you then travel to California, and you’re going to find it still travels for $100 because California and Chicago are both in the U.S. What’s really interesting is what Alibaba’s going to do is level the prices around the globe. If I’m in Brazil, where there are all sorts of crazy import duties and taxes and so forth, what you’re going to find is the globalization of competition, so the impact is going to be absolutely huge.
Similar in Russia. It’s not surprising that Alibaba has huge outreach in Russian and in Portuguese, to go into those countries. They are moving very rapidly in bringing goods to China with something they now call TMall. TMall used to be called Taobao—which is the first Web site they had in China—but it’s very difficult to say Taobao Mall, so they just call it TMall. TMall is where folks are bringing international goods—French, English, Italian, American goods—to China to be sold to the middle-class. That’s the basis of the IPO, the going middle-class.
Reality is, what is happening is you see Alibaba bought 10 percent of the Singapore Post. Why the Singapore Post? The Singapore Post covers all of Southeast Asia, and it delivers to Southeast Asia. A company bought 10 percent of Singapore Post. They bought 10 percent of the Australian Post. They bought 10 percent of the Brazilian Post Office; they handle the delivery of goods.
This is a scale beyond anything that’s ever been done before, and it’s global. It will impact the United States in a huge way in 2015. It’ll have an impact on Europe in a huge way in 2016. This is a global phenomenon that companies need to figure out how they’re going to engage.
Thanks for sharing today. Did we cover all the important points you wanted to make today?
Well, I don’t know. I didn’t have any points I wanted to make; I’m just talking. Yeah, it’s a story that people need to get engaged with, and then they really need to understand it so they can figure out what they’re going to do to benefit from this opportunity.
I guess one other point. A lot of folks think this is a retail play. Well, it is but you’ve got to look at the new definition of retail. What we find is lots of retailers are very active in private label. Wal-Mart, for example, has 36 different private labels. Trader Joe’s, 50 percent of the items they sell are private-label. For breakfast this morning, I had the granola from Trader Joe’s because it’s the best granola made; it’s really great granola.
As retailers become more and more and more focused on private label, the brands are suffering. If you look at Kroger, they have a 20-foot section of diapers, and that used to be 20 feet of Pampers, made by Procter & Gamble. Today you look, they still have 20 feet for diapers, but half of that, 10 feet, is for Procter & Gamble Pampers; the other 10 feet is for Krogers’ own brand. The customers have found that own brands have good quality, the same type of benefits and sometimes even better, and they’re cheaper, so people are buying those.
Pampers, what are they going to do? Are they going to stop selling to Kroger? Well, no, you can’t stop selling to Kroger; they’re huge. What Pampers has done is said, “Well, I guess I need to now become a retailer. Consumer products companies are becoming retailers. In 2012, only 21 percent of American consumer-products companies sold directly to the customer. In 2014, that’s 52 percent; 52 percent of all companies that we call consumer products are now selling products directly to customers, which means they’re retailers.
This is growing, so this has a huge impact because consumer-products companies and retail companies have to decide how they’re going to take advantage of Alibaba and of the benefits that this is now putting in front of them. I think that’s a huge point as well, who should be interested in this. It’s retailers, it’s consumer-products companies, it’s wholesalers, it’s distributors, it’s third-party logistics providers. This is a big deal.
Thanks again for sharing.
Great, Dustin, good to talk with you. Let me know if I can help.
About Jim Tompkins
Tompkins International Supply Chain Consulting CEO