Alibaba CEO Eyes $4 Trillion Offline Market by Being Middleman

  • Zhang says cloud unit could help brands react in real time
  • Unit’s revenue surged 156 percent with push into U.S., Japan

After taking control of China’s online shopping market, Alibaba Group Holding Ltd. wants to bring the business of instant feedback to a brick-and-mortar sector that’s 10 times bigger.

The nation’s biggest e-commerce company is building a network that would allow physical stores -- and the brands they sell -- to monitor transactions as they happen, Chief Executive Officer Daniel Zhang said. That data then would be used to adjust inventories more quickly in response to demand, an undertaking that now requires several layers of reporting between the store and the brand.

“Why do brands need so many layers of distributors?” said Zhang. “Retail stores can directly place orders online with the brands.”

The venture by the Hangzhou-based company would be powered by its cloud computing business, where revenue surged by 156 percent in the June quarter. Alibaba hosts 35 percent of the websites in China and is set on gaining the top spot in cloud computing in Japan in two years. It’s also bolstering efforts in the U.S. and the Middle East, and executives said in August the business was approaching break-even.

Alibaba has highlighted trillions of dollars in Chinese household savings as a key driver of growth, with the company pledging to continue investing in expansion even if it drags down earnings in the short term.

The company founded by Jack Ma notched 3 trillion yuan ($445 billion) in online transactions and sees even greater opportunity in an offline market valued at as much as 30 trillion yuan. In an interview Thursday, Zhang said Alibaba wants to create a network where in-store sales are recorded as they happen, giving both retailers and brands the ability to adjust in real time.

For example, if a particular brand of soft drink is selling briskly at a supermarket, the retailer can restock its refrigerators sooner and order more supplies. The beverage maker can then ship more cases to the store from a warehouse, or transfer them from another store nearby.

“The brands will be able to see -- in real time -- their inventory in millions of stores,” he said. “This would drastically improve efficiency.”

Alibaba is working with partly owned Suning Commerce Group Co. and Intime Retail Group Co. to integrate the online experience.

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