What the west's tech giants can learn from Alibaba's retail collaboration strategy

Gordon Young, editor of The Drum, offers his insight and opinion on various matters relating to media and marketing.

In the west, giants like Amazon have been accused of decimating the retail sector with the mantra of ‘your margin is our opportunity’. However, in China at least the story is more nuanced with big tech such as Alibaba working in partnership with independent traders.

The Drum visited a family store in the Chinese city of Hangzhou, which showed this partnership in action. Our trip coincided with the Alibaba cloud computing conference which is currently taking place in the city. A few years ago, this was just another drab store with its owners struggling to turn a reasonable profit.

Today, it is a different story at the Weijun Grocery, which is run by Huang Donghai and his son. It sports a bright interior, eye-catching promotions from big brands and a sales uplift of 30% over two years.

For it was two years ago they signed up to an Alibaba program called Ling Shou Tong – which translates as ‘retail integrated.’

The deal means that in return for agreeing to order a certain proportion of its inventory through the Alibaba business, the family now benefits from a system that uses AI to recommend what products sell in particular areas and how they might be priced.

For example, Alibaba knows the store is in a student area, so can recommend products for that demographic and suggest what may sell. The store system is built around Alipay, the cashless system based on barcodes and Alibaba also shares the data it can access through these transactions. The store owners get insights on the age of the customers, who buys what products and what items are in highest demand and from whom.

The shop has the option of using Alibaba’s Tmall branding and logo which adds a sense of polish, and benefits from its central buying power and promotions its runs with big brands.

“In the past we had a lot of difficulties,” said Huang. “We could not catch up with this day and age. We had to transform. This arrangement gave us access to new technology and big brands we could not get before.”

Today there are around one million – one million! – mainly mom-and-pop stores using the systems. But they also benefit from another part of the Alibaba ecosystem – such as the three million registered El.me delivery riders who can deliver the groceries direct to customers.

As well as independent stories, Alibaba is also collaborating with big business. For example, it recently signed a deal with Starbucks to allow its Ele.me riders to deliver coffee.

Now, Alibaba is also competing head-on with bricks and mortar retailers through businesses such as Hema, a Chinese equivalent of Whole Foods. Nevertheless, it seems happy to collaborate with other retailers to leverage their audiences and generate data for the machine learning systems at the heart of Alibaba. So the big question for policymakers in the west could be – rather than destroy the high street – perhaps big tech players adopting Alibaba's strategy, actually be its saviour.