Alibaba Group (NYSE:BABA) wants to be like America’s largest retailer,
In a big shift from Amazon.com’s long-standing business model--which has relied on on-line sales and remote warehouses to compete effectively against major discount retailers like Wal-Mart—the company is to open its first physical store on 34th St in Manhattan, across from the Empire State Building, according to a CNBC report.
Though the store will function as a small warehouse and showroom rather than a large retail store, Amazon’s move into physical retail space represents a convergence between on-line and physical retail. In the last two years,Wal-Mart has been expanding into the on line space by acquiring online search technologies and building warehouses.
In 2013, for instance, Wal-Mart acquired @WalmartLabs, an e-commerce technology arm, and acquired a number of start-ups — Torbit, a cloud-based website accelerator service; Inkiru, a predictive intelligence platform; OneOps, a cloud based automation technology; Tasty Labs; and recently Adchemy, a search engine marketer.
There are signs that Wal-Mart’s online strategy has been working. The company scored a big win against Amazon.com, with online sales growth outpacing the sales of Amazon.com for the period ended Dec.31.
Still, Wal-Mart has a long way to go before catching up with Amazon, which remains the online leader, beating Wal-Mart by 7-1.
Nonetheless, the merging of on-line and physical retailing is changing the rules of the game in the two industries: Bundling physical with on-line retailing seems to have certain advantages over plain physical retailing or plain on-line retailing.
Alibaba versus Amazon.com AMZN -1.95% and Wal-Mart Stores WMT -0.44%
Company | Alibaba | Amazon.com | Wal-Mart |
Revenue (ttm) | 9.36B | 81.76 | 480.48 |
Qtrly Revenue Growth (yoy) | 46.30% | 23.20 | 2.80 |
Qtrly Earnings Growth (yoy) | 179.10% | – | 0.60 |
Operating Margins | 48.10% | 0.22 | 5.53 |
Return on Assets (ttm) | – | 1.14 | 8.21 |
Source: finance.yahoo.com
At the same time, this new business model is expected to shave Amazon’s and Alibaba’s operating margins—a big problem particularly for Amazon.com that has thin margins to begin with; and a big disappointment for the momentum crowd that has been chasing after the stock.