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How Alibaba Transformed Shopping in China's Second-String Cities

Checking deliveries from online marketplaces Tmall and Taobao at an express delivery company in Beijing

Photograph by AFP/Getty Images

Checking deliveries from online marketplaces Tmall and Taobao at an express delivery company in Beijing

Li Yuxin remembers when she had to travel from Zhangjiekou, her northern Chinese home town, to visit her half-sister in Beijing so she could buy the right clothes. Sure, Zhangjiekou has large shopping malls full of cheap t-shirts and baggy jackets, but not stores where the aspiring fashionista could purchase accessories from such foreign luxury brands as Prada (1913:HK) or even popular Western sportswear made by Nike (NKE) and Adidas (ADS:GR).

But since she started ordering clothes from Taobao and Tmall—websites owned by Alibaba Group—her options and her wardrobe have dramatically expanded. “Maybe I spend too much money now, but I have to catch up with Li Zhu,” her half-sister who lives in China’s capital, she says.

E-commerce has quickly changed the face of shopping and consumer marketing in China. Mirroring the rise of Amazon (AMZN) in the U.S., the ascendance of Alibaba in China has greatly accelerated this trend and turned China into the world’s second-largest e-commerce market.

The U.S.-China analogy isn’t exact for online shopping. Chinese e-commerce isn’t typically replacing trips to Macy’s (M) or Best Buy (BBY)—it is “stimulating consumption that would not otherwise take place,” according to “China’s e-Tail Revolution,” a May 2013 report from McKinsey & Co. National chains have never been well established in China, so consumers never developed the same loyalty to brand stores. Today, “only a small portion of Chinese e-tailing takes place directly between consumers and retailers, whether online pure plays or brick-and-mortar businesses on retailers’ own websites,” according to the McKinsey report. “Instead, most occurs on digital marketplaces.”

Alibaba owns the most important Chinese digital marketplaces. Shoppers such as Li Yuxin now have access to an array of items they previously couldn’t obtain. Perhaps in part because she and her friends don’t have the option of shopping for many items locally, online purchases make up a larger percentage of shoppers’ disposable incomes in China’s small and midsize cities (up to 27 percent) vs. those in China’s biggest cities (18 percent).

In addition to bridging the gap between more- and less-developed cities in China, Alibaba’s retail platforms are also used by some creative shoppers to get around luxury and import taxes, albeit less legally. “Dai Gou” (help buy) sites on Taobao allow customers to place orders with small businesses that often use family members to carry back small quantities of clothing from, say, Seoul or New York—making international fashion available quickly—sometimes without taxes.

Larson is a Bloomberg Businessweek contributor.

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