Cross-Border E-Commerce Really Is Hot. So How Far Has Jack Ma's Tmall Global Come?

Tmall Global has turned big companies and brands into its buyers, but Alibaba still hasn't worked out how to expand overseas. It remains a long way from what Jack Ma calls "buy global, sell global."

All day on September 8, the Huanglong Hotel in central Hangzhou was in chaos. A large e-commerce industry forum, co-organized by Alibaba Group, was under way.

Some company representatives squeezed into the packed hall just to swap business cards with Tmall directors they could never normally reach. A representative from a "Taobao village" said that once he had heard Alibaba CEO Zhang Yong's half-hour speech on "the future of digital commerce," he could go home.

Liu Peng, who became general manager of Tmall Global four months ago, turned up that afternoon at a breakout session on cross-border e-commerce. When he arrived, he found that both earlier speakers had run over time. One was from Metro, which had signed a strategic partnership with Tmall Global that morning; the other was from DHL, which had brought Bayern Munich to Tmall.

Tmall Global, Alibaba's B2C cross-border trade business, was formally launched as a brand in February 2014, almost exactly when "cross-border e-commerce" became a hot idea in China.

But the public only really learned about Tmall Global in the month before Singles' Day (November 11) in 2014. Almost every shopper who had loaded a cart in advance was flooded with ads for Costco mixed nuts from the US or Nature's Bounty supplements.

In the run-up to Singles' Day 2014, nearly every Alibaba executive at a media briefing said the shopping festival got harder to pull off each year. Tmall Global, a fresh idea with a higher average order value, was one of the forces that pushed that year's Singles' Day sales to 57.1 billion yuan, and Alibaba declared 2014 the company's "first year of global online shopping."

According to figures Alibaba released in December 2014, Tmall Global had by then attracted more than 5,400 overseas brands from 25 countries and regions, and 30 of its stores had each sold more than 10 million yuan. Its sales in November were more than ten times those of February, the month it launched.

At the time, The Wall Street Journal asked a pointed question: how much had the Tmall Global platform actually done for the sales of the international brands that set up shop there?

The Journal cited data from the web-traffic tracker Alexa showing that among China's 3,500 most popular websites at the time, Taobao and Tmall both ranked in the top five, while Tmall Global came in only 311th. It also reported that Tmall Global took a 3%-6% commission on every transaction, and that its practice of hand-picking which brands to recruit was not fair enough.

According to a follow-up report by Bloomberg Businessweek, Alibaba said most of the figures and claims the Journal cited were inaccurate, or lacked a basis for comparison.

Still, here was a strongly international new business that had shone during Singles' Day, and outsiders could not help wondering: with a huge business at home to protect, why did Alibaba keep pressing the idea of "internationalization" now?

On June 9, Alibaba Group Executive Chairman Jack Ma gave a keynote at the Economic Club of New York and set out Alibaba's long-term goal of "buy global, sell global": "In the next 10 to 20 years, wherever you are, you will be able to buy products from anywhere, and sell your own products anywhere in the world."

Two months later, Alibaba named Michael Evans, a former Goldman Sachs executive, as president, in charge of the group's global business. Europe, the Americas and the rest of Asia top his list of regions where Alibaba's overseas business must expand first.

Yet according to the group's 2014 annual report, nearly 80% of Alibaba's revenue still came from its three domestic retail businesses: Taobao, Tmall and Juhuasuan. The whole overseas business, retail and wholesale combined, brought in just 8%.

In its latest quarterly results, released in August, Alibaba's sales growth in China fell to a three-year low. Add a string of other bad news, including the yuan's depreciation and hedge funds selling out, plus another recent cut to its third-quarter sales forecast, and Alibaba, which listed on the NYSE with great fanfare last year, is now worth less than Hong Kong-listed Tencent.

Any company naturally looks to keep growing beyond its existing businesses. But meanwhile, the lead those businesses hold is not guaranteed forever. Clothing, especially women's wear, is still one of Tmall's most important and strongest categories. It includes "Taobao-native brands" such as Inman and Handu Yishe, which grew up on Taobao and are now in a position to go public.

So how are other e-commerce platforms doing in this field? JD.com, which started out selling consumer electronics, is pushing hard into fashion. Despite setbacks such as Uniqlo closing its flagship store on JD.com, it has signed up a group of quality brands willing to sell exclusively through it, and it is now a rival strong enough to worry Alibaba. Vipshop, which began with a flash-sale model that in effect cleared brands' excess inventory, eventually went public. Mogujie, which turned from a shopping-guide site into an e-commerce platform, recently announced a partnership with Harper's Bazaar China and signed the actor Li Yifeng as its spokesperson, hoping to lift sales.

For brands, unless an exclusive deal ties them down, the real question is how to make money on every platform. According to figures Handu Yishe founder Zhao Yingguang gave QDaily, its Tmall flagship store accounts for only about half of its sales; the rest come from sites such as Jumei, JD.com and Vipshop.

The categories Tmall is now focusing on, including appliances, beauty, fresh food and supermarket goods, all face challenges, to a greater or lesser degree, from companies that specialize in a single category. Beyond its long-term plans, Tmall has few short-term answers, so much so that for cherries and gift packs of household goods, it too has resorted to cash coupons and subsidies.

Over the past nine months, news has trickled out of international brands, including Macy's, Metro, Bayern Munich and Matsumoto Kiyoshi, setting up on Tmall Global. But Tmall Global almost never discloses key figures such as sales, profit or the number of brands.

In earlier interviews, QDaily was told more than once that, as one of Tmall's sub-businesses, Tmall Global reports its sales and profit as part of the listed company, and the figures are too sensitive. "One thing I can tell you is that internally we no longer look at year-on-year figures, only month-on-month, because growth is just too fast," Liu Peng told QDaily.

But he did not explain what return all this investment is bringing, and Alibaba's financial reports disclose nothing on it either. Later in the interview, Liu Peng also said that traffic from Taobao, Tmall and Juhuasuan, along with slots in major campaigns, is in fact being steered toward Tmall Global. He put this down to "strong consumer demand."

In earlier public presentations, Tmall Global has also highlighted what it has done to meet Chinese consumers' demand for better goods:

• Bonded warehouses: Tmall Global has links with all six of China's existing bonded warehouses. After full customs declaration, overseas goods reach consumers fairly quickly and at relatively low prices;
• Targeted recruitment: It analyzes which brands consumers like most, or which trends are starting to emerge, then brings in brands selectively and helps them pick their most popular products for new listings;
• Traceable logistics: Order, shipping and payment records are combined and submitted to customs for clearance, so that when consumers file a complaint, the problem can be traced quickly to a specific step;
• Support for small brands: For distinctive niche brands that Chinese consumers also like, Tmall Global helps with promotion to cut the cost of finding customers.

Alibaba is happy to talk about all this, and the message it sends is that Tmall Global already seems to have considerable control and clout in these areas. But it may not have as much say over bringing in strong brands as it claims; brands have set up on Tmall and then pulled out before.

Tmall Global is indeed still bringing in big brands. But beyond making big companies and brands its buyers, it has not solved the problem of expanding its market, which means reaching overseas users.

Liu Peng was previously China vice president of the children's brand Goodbaby, and in his conversations with QDaily he talked mostly about what he knows of Chinese consumers.

According to Liu Peng, the keenest shoppers on Tmall Global are usually 25 to 35 years old, mostly women. Most have been abroad, and they come to Tmall Global to stock up around the time they marry or have children. This also explains why Kao diapers became the benchmark product of the cross-border e-commerce industry.

"In China today, talk about cross-border e-commerce and you have to talk about mother-and-baby products; talk about mother-and-baby products and you have to talk about diapers; talk about diapers and you have to talk about Kao. In Japan, a pack of Kao diapers retails for 65 yuan. Once it comes through traditional import channels and a domestic distributor puts it on the shelf, the price is 130 yuan."

"Why such a big gap? The business environment and many other factors play a part. So in its first stage, almost every cross-border e-commerce company has a warehouse piled high with Kao diapers, which usually make up 65%-70% of sales. Only later does it slowly expand to the whole mother-and-baby category, and then to other categories."

Like ride-hailing, food delivery and fresh-food e-commerce, cross-border e-commerce has been through several rounds of subsidy wars funded by investors. In March and June 2015, nearly every cross-border player, including Tmall Global, JD Worldwide, Amazon Global, Jumei, Mitao and NetEase's Kaola, ran waves of promotions built around mother-and-baby products, especially diapers, with subsidies of more than 100 yuan per order.

"But Chinese mothers are very smart. They come to stock up while the deals are good, and when they find nothing worth buying in other categories, they naturally move on to the next platform offering subsidies. So if you don't build range and become a platform, all you win is a short-term position."

Since they are all chasing the same consumers, every player in the price war hopes short-term subsidies will win it loyal, long-term customers with steady demand.

Liu Peng said Tmall Global now covers six major categories: mother and baby, beauty, food and drink, nutrition and health, clothing and bags, and electronics and home appliances, and that it already offers the widest range of brands and products in the industry. But even that is not enough to make consumers loyal to the platform itself, because the subsidy logic above applies to every product in every category.

When Alibaba announced the cut to its third-quarter sales forecast, Jane Penner of its investor relations department said, "The biggest problem is that consumers are spending less. Overall, consumers' financial situation has not changed ... We think this is more down to psychological reasons."

If Alibaba could quickly win more consumers, that problem might be solved. But in China, the only market with much untapped potential left is the countryside, which is still at an early stage; overseas, consumers are still not familiar enough with what Alibaba offers.

As Alibaba's Tmall, Taobao and other businesses expand abroad, they will inevitably run up against companies such as Amazon and eBay, which already enjoy every first-mover advantage. In his New York speech, Jack Ma deftly sidestepped the issue. He said he held both companies in awe, but Alibaba's aim was different: to help small and medium-sized American businesses get into China.

Another way to avoid head-on competition is to buy established local companies overseas and make them Alibaba's outposts abroad. After all, Amazon only truly got into the Chinese market in 2004, by acquiring Joyo.com. But even Michael Evans, who spent some thirty years at Goldman Sachs, may struggle to find good acquisition targets for Alibaba in mature markets like Europe and the US.

Two months ago, Alibaba sold 11Main, the e-commerce platform it had launched in the US only a year earlier. 11Main was pitched as a "boutique e-commerce" site: buyers joined by invitation, and merchants were strictly vetted. Yet even with such a sharply defined niche, it could not win a satisfactory market share against Amazon and eBay, which dominate B2C and C2C.

With 11Main, the "American Tmall," having failed, some of Alibaba's globalization work will move to Tmall Global, which for now does business only in China.

Liu Peng told QDaily that from 2016, Tmall Global will work with brands already on the platform to try expanding into Southeast Asia, near China, and then into the rest of Asia and global markets. "Right now, 'buying global' means using the platform's current strengths to sell good products from around the world into China. In the future, I still hope to sell global, which means helping these brands reach regions they can't yet cover. That is something we will definitely try within five years."

But that is still some way from Jack Ma's goal of "selling global" within ten years.