Business opens showroom

By Joe McDonald (China Daily)
Updated: 2011-05-31 07:39
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People wait for the opening of Taobao's new mall in Beijing on Friday. The mall is a new excursion into the territory of China's real-world retailers by e-commerce rivals, which are growing so fast some suggest they could become the country's leading retail force. Provided to China Daily

Mall allows consumers to see items before making online purchases

BEIJING - One of China's e-commerce giants has stepped up its heated rivalry with brick-and-mortar retailers by launching a five-story home furnishings showroom in Beijing.

Alibaba Group's, an Internet platform through which an estimated 3 percent of all retail sales in China pass, opened the showroom on Friday. Customers can try out sofas, tables and other big-ticket items before placing an order online with one of Taobao's merchants.

The mall is a new excursion into the territory of China's real-world retailers by e-commerce rivals, which are growing so fast some suggest they could become the country's leading retail force.

"The dominant retailer in China someday may be an online retailer," said Morgan Stanley analyst Richard Ji.

Taobao said its Beijing mall is aimed at overcoming a hurdle hampering the growth of China's Internet commerce even though online retailers offer significantly lower prices: Customers don't like to buy furniture and other major items without examining them in person.

"It's hard for people to shop for home furnishings if they haven't seen them," said Justine Chao, an Alibaba spokeswoman.

Alibaba Group also includes, a giant business-to-business Internet commerce platform. The company, in which Yahoo Inc owns a 43 percent stake, operates Yahoo's Chinese arm.

Global e-commerce outfits have struggled to gain a foothold in China in the face of aggressive local competition. Inc operates through a local partner,

The Chinese industry has produced success stories including the bookseller E-commerce China Dangdang Inc, which trades on the New York Stock Exchange, the consumer electronics retailer and, a clothing outlet.

Industry analysts expect China's online commerce to grow at explosive annual rates of between 30 and 40 percent in the coming years, defying early fears it might be hurt by low rates of credit card use and underdeveloped delivery services.

With no need for an expensive chain of storefronts, Web merchants charge between 30 and 50 percent less than traditional retailers.

Sales through Taobao alone totaled an estimated 400 billion yuan ($60 billion) last year, according to analysts. Taobao does not disclose its revenues from fees charged to retailers and other income.

Its platform has led to the emergence of a cottage industry of small retailers, many of them lone traders working from home, who sell clothes, shoes, toys, costume jewelry and other goods to a nationwide market.

Taobao said its 25,000-square-meter Beijing mall will display 22,000 items from some 300 suppliers. Orders and payment will only take place online. Taobao says it plans to open similar showrooms in other major Chinese cities.

Other Internet retailers such as the jewelry seller have also opened showrooms to encourage customers to buy higher-priced items online.

Such outlets could help e-commerce sites to compete even more aggressively with traditional retailers by boosting consumer confidence in a market where online sellers have an uneven reputation, said Ji. "By having a display room, it clearly will help raise the seller's credibility," he said.

On the opening day, shoppers at the Taobao Mall were test-sitting sofas and flipping through channels on big-screen TVs.

"Compared with photos on the Web, I can really touch the things, so I can put more trust in them," said Yu Jingyuan, an engineer for a computer company who was looking at a stall displaying kitchenware, "I can trust the sellers online."

China has by far the largest number of Web users, with 457 million people online as of Dec 31. However, just 10 percent of them shop online, compared with the US level of about 70 percent, leaving room for expansion.

In contrast to the United States, Europe and other developed markets, China's online merchants enjoy the unusual advantage that they face no entrenched retail giants with decades of market dominance and strong brand names.

Brick-and-mortar retailing is fragmented, leaving competitors without the financial might of their counterparts abroad. The top 20 account for less than 10 percent of China's annual sales, far below the 50 percent market share of the US top 20.

Alibaba and other companies have developed online payment systems to serve customers without credit cards. In response to concerns about product quality, some release the money only after the buyer is satisfied.

In big cities, delivery services that draw on China's abundant supply of labor can supply purchases from local sellers to buyers the same day.

Taobao says it has no plans to open showrooms to display other goods, but the manager of its new Beijing mall had a warning for rivals.

"In the online world, nothing is impossible," said Ye Peng.

Associated Press

(China Daily 05/31/2011 page16)