As Chinese stocks continue to tumble, Alibaba, one of the country’s biggest tech companies, is spreading its bets and upping its investments in companies that focus on cross-border commerce and making its e-commerce operations more efficient.
Alibaba today announced that it has made a strategic investment into Mei.com, a flash sales site; and it has increased its stake in Singapore Post Limited (SingPost). Alibaba will put $206.85 million into SingPost and a subsidiary to increase its stake to 14.51 percent and form a new JV.
Alibaba has not disclosed the value of the stake in Mei.com but we’ve confirmed with reliable sources close to the deal that it is over $100 million.
While the government has been trying to halt China’s wider stock market decline, tech stocks have been hit particularly hard, losing over 40 percent of their value in the last month. Alibaba’s, traded on the NYSE after a record-breaking IPO last year, is also at one of its lowest-ever points. It’s currently trading at just under $80/share and down slightly in pre-market trading.
In that regard, it makes sense for a number of reasons for Alibaba to be investing in Mei.com and SingPost. While the two businesses are different, they address the same issue for Alibaba. Each offers the potential to extend Alibaba’s bigger e-commerce platform and make it more efficient.
In SingPost’s case, Alibaba’s investing in logistics and delivery operations to cut down on the costs of getting items to customers or between other businesses, especially in countries in Asia outside of China.
And Mei.com’s flash sales platform offers another way of extending the lifecycle for how Alibaba’s marketplace customers might be able to shift inventory, while also adding more scale to Alibaba’s bigger supply chain — the two points also cited in Alibaba’s own reasoning for the investment.
“Alibaba Group’s ecosystem and its multi-level cross-platform retail services will be further enhanced with our investment in Mei.com,” said Daniel Zhang, CEO of Alibaba Group, in a statement. “We hope that Mei.com will exert its advantages to create synergy with Tmall in providing more premium luxury goods to consumers. At the same time, Alibaba will help Mei.com and other brand partners enter our ecosystem to allow more efficiency in helping them locate consumer groups, conduct brand marketing and establish an online supply chain system.”
The SingPost investment comes on the heels of Alibaba’s initial investment last year. At that time, the e-commerce giant took a page out of Amazon’s playbook by focusing more on delivery and logistics, and bought a 10.35 percent stake in SingPost for $249 million, to expand its logistics operations outside of China into the rest of Asia and to invest into new technology to underpin that.
“Over the past year, Alibaba and SingPost have worked closely to explore cross border e-commerce opportunities and created a series of customized logistics solutions in various markets. This additional investment into SingPost and establishment of a joint venture signify our commitment in expanding our global logistics footprint, which in turn will help Chinese businesses sell, and global brands deliver more easily around the world,” noted Zhang in a statement.
For SingPost, this is about extending its delivery business, which will have been hit by the decline in people using “snail mail” for basic letters and is looking to growth in new delivery areas to fill that gap.
Indeed, SingPost’s chairman — a little alarmingly — even uses the same metaphor that a CEO of Nokia once used when describing the fall of their legacy mobile handset business.
“The pace of transformation at SingPost has been accelerating steadily. As a postal service provider, we are on a burning platform, facing a global decline in mail revenue with trends like e-substitution and lifestyle changes,” said Lim Ho Kee, Chairman of SingPost. “It is a win-win situation for both of us because we share similar goals and have a natural fit between our operations across Asia. On behalf of my fellow directors, I welcome Alibaba as one of our partners on the next phase of the journey.”
Today’s agreement with SingPost comes in three parts. The first of these is will be a $67.85 million (S$92 million) to take a 34 percent share in Quantium Solutions International, a SingPost subsidiary that focuses on e-commerce logistics, warehouses and fulfilment services in 10 countries in the Asia Pacific region.
The second of these will be Alibaba making a bigger overall investment into SingPost. It’s taking an additional 5 percent of shares for $138.6 million (S$187.1 million), subject to regulatory approval.
The third part will involve a much closer collaboration between the two in a strategic business framework to invest more into building out services and technology in areas like last-mile delivery. “SingPost and Alibaba will share their respective knowledge and leverage each other’s strengths to scale across the e-commerce logistics value chain,” Alibaba notes. As part of that, Alibaba says QSI will be reorganizing to become the focus of Alibaba’s and SingPost’s joint venture.
“We are now taking the next step by building a regional e-commerce logistics platform and infrastructure for e- commerce players across Asia Pacific based on Quantium Solutions – our e-commerce logistics subsidiary,” said Dr. Wolfgang Baier, Group Chief Executive Officer of SingPost, in a statement. “Alibaba started as our customer and then last year became our shareholder and business partner. Today with the significant growth in e-commerce ahead, both of us are convinced of the long term value of working together in a win-win partnership for e-commerce businesses in Asia Pacific.”
Why Cross-Border E-Commerce Is Important
The e-commerce giant’s decision to march ahead with investments in cross-border e-commerce underscore how important it is for the company to grow its footprint beyond China. Its ambitions to serve shoppers in other countries have met with mixed results. 11Main, its U.S. marketplace, recently ceased as a standalone operation, while Alipay, the mobile payments company that was spun off by Alibaba, faces formidable competition from established players like Paypal.
Alibaba can still expand globally, however, by striking deals with overseas companies that may make its shopping sites and apps the top destination for people in search of international brands.
An important growth segment for Alibaba and rivals like JD.com, cross-border e-commerce is meant to make it easy for customers to buy products that are hard to find in China without having to navigate language differences, foreign payment systems, lengthy delivery times, or exorbitant shipping and custom fees. According to Alizilia, cross-border purchases by online shoppers in China jumped from $2 billion to more than $20 billion between 2010 and 2014.
The success of cross-border e-commerce hinges on having strong distribution and logistics networks across the world, which is why its continuing investment in SingPost is significant, because their joint ownership of QSI and business development deal expands Alibaba’s delivery chain not only in Asia, but around the world.
From another perspective, investing in Mei.com makes sense for Alibaba because many of the items sold through cross-border e-commerce transactions are high-end products, like specialty food or designer goods. This lets it take advantage of the rise in China’s middle-class, as well as government tax initiatives and projects meant to make overseas payments easier.
While platforms like Alibaba.com, the company’s wholesale platform, and B2C marketplace Taobao, are known for cut-rate deals, cross-border e-commerce tends to target customers with more spending power who believe goods made in the United States, Europe, Australia, and New Zealand, are better quality. In the case of food, many people believe foreign products are safer than their Chinese counterparts, which have been hit with a constant series of safety scandals over the past eight years. This is also driving yet another Alibaba vertical, on-demand distribution of fresh groceries.
Alibaba will use services from its site Tmall.com to help Mei.com grow its logistics, online supply chain, and IT infrastructure, which in turn will help it acquire more users. Tmall.com is already China’s largest third-party platform for retailers and already features many international brands. Mei.com sells goods from 2,400 brands (including Armani, Michael Kors, Longchamp, and Guerlain) through its flash sales, which are scheduled every morning at 9AM. With Tmall’s resources, Mei.com can now offer a wider array of goods at lower prices, and deliver them to customers more quickly.
“We are very pleased to receive this strategic investment from Alibaba Group,” said Thibault Villet, founder and CEO of Mei.com. “The two parties complement each other and together with Tmall, we will bring premium and trusted genuine brands to consumers. In the future, we see a significant opportunity to provide enhanced shopping experiences for Chinese customers in search of affordable fashion and luxury products.”
Prior to Alibaba’s investment, Mei.com’s parent Glamour Sales had raised $100 million in funding, including a $65 million investment from Investec and Chow Tai Fook, a Hong Kong retailer. U.S. high end retailer Nieman Marcus is also a previous investor, taking a 44 percent stake in the company for $28 million in 2012, subsequently exiting the company. According to SCMP, it currently has around 6 million customers in 1,200 cities, and posted sales in 2014 of $155 million, nearly double the $82 million from a year ago.