China driving Alibaba sales

Internet Retailing

6th May 2016

In posting its strongest revenue growth for the past four quarters, Alibaba has rounded off its fiscal year on a positive note. Although growth at the international division picked up strongly, it is China that has underpinned the group’s success.

Despite the more challenging economic headwinds in China, Alibaba’s revenue from its various retail platforms in the country surged by 41 per cent over the quarter. Part of this is down to the growing audience, with active buyers across the various marketplaces growing by 16 per cent to an astonishing 423 million. Mobile platforms also saw growth with the number of monthly active users rising by 17 per cent to just over 410 million.

This uplift was boosted by the rise in average revenue per buyer which increased by almost 11 per cent over the same period in the prior year. For mobile users the increase was even sharper, up by just under 109 per cent on the prior year.

Much of this success can be attributed to three main factors.

The first is that of reach. Here, Alibaba’s investment is allowing it to reach large swathes of the Chinese population – including in rural areas through its Rural Taobao platform – in a way that other e-commerce firms struggle to do. That it now has a presence in over 14,000 rural villages is a major advantage when it comes to growing its user base.

The second factor comes down to customer engagement and understanding. While many of its platforms are based around e-commerce, they are much more than just distribution systems. Taobao, for example, has a strong community element where consumers can look for news, understand trends, and interact with brands. This helps to drive up activity and user engagement which, in turn, aids sales conversion.

The third is the group’s continued success with Western brands expanding into China. Arguably Alibaba is now the Chinese partner of choice for foreign firms, both because of its distribution network and its capability in providing intelligence and insight into consumer trends and habits. This ability to attract Western brands has made Tmall the destination for many Chinese shoppers. It is notable that in March alone, more than 100 new international brands joined the Tmall Global platform.

As successful as Alibaba is in China, it has found international more challenging. However, the group is now taking a more selective approach to expansion, focusing on embryonic or underdeveloped e-commerce markets where its expertise can drive growth. The stake acquired in Lazada, an e-commerce platform in Southeast Asia, is typical of this strategy; we expect more such investments over the coming year.

Despite its dominance in China, growth prospects remain good – especially as it grows its content and entertainment business, and expands into services like cloud computing.

Neil Saunders is CEO of retail analyst Conlumino.