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Alibaba's "New Retail" Concept Threatens Amazon's Global Dominance


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Alibaba Group BABA impressed investors with the release of its financial results for the December quarter on Tuesday. The Chinese e-commerce giant posted revenue growth of 54% year-over-year, and while its traditional business performed well on the back of a solid Singles' Day, the real story was the growth of Alibaba's newer segments.

Financial Results

Alibaba posted earnings of $1.09 per share and revenues of $7.669 billion, which surpassed our consensus estimates of $0.85 per share and $7.483 billion. Revenues from core commerce increased 45% year-over-year to $6.708 billion, while revenues from Alibaba's cloud computing and digital media and entertainment units grew 115% and 273%, respectively.

(Also Read: Here's Why Alibaba Stock Popped After Earnings )

Alibaba's biggest competitor in the world is clearly Amazon AMZN , which holds a uniquely different share of the e-commerce market; nevertheless, the actual head-to-head battle between Amazon and Alibaba will continue to heat up as both companies look to grow internationally.

For Alibaba, this solid growth in cloud computing and digital media is a good sign for its ongoing war with Amazon. It goes without saying that these segments are answers to Amazon Web Services and Amazon Prime Video, so it must be encouraging for Alibaba investors to see the Chinese giant also succeeding in these endeavors.

However, Alibaba's biggest threat to Amazon could be something mentioned further down the report.

"New Retail"

The fight between Alibaba and Amazon may actually come down to Alibaba's "New Retail" concept. According to Alibaba's earnings report, New Retail is a strategy that will allow the company to "tap into the entire US$4.8 trillion retail sector in China by eliminating the distinction between online and offline commerce."

To execute this plan, Alibaba is partnering with several brick-and-mortar retailers. The company detailed its new relationships with a pair of retailers in the report, and it looks like Alibaba is really putting some serious cash into the idea.

Alibaba's first partnership was with Sanjiang Shopping Club, a leading neighborhood grocery chain in the Zhejiang Province. In November, Alibaba scooped up a 35% stake in the chain for $302 million, and now Sanjiang will pilot a new shopping format powered by Alibaba's technology.

Alibaba also detailed its $2.6 billion offer for a controlling stake in Intime Retail Group, an operator of department stores and shopping malls throughout China.

Of course, Amazon has also been busy with its new brick-and-mortar concepts. The company has recently opened bookstores in California, Oregon, and Washington, with locations in Illinois, Massachusetts, New Jersey, and New York coming soon. Some reports have indicated that Amazon has plans to open hundreds of bookstores throughout the country.

(Also Read: Amazon to Open Brick & Mortar Bookstore in New York City )

Beyond these bookstores, Amazon is also exploring a revolutionary new retail concept known as "Amazon Go." The company recently soft-launched the first Amazon Go convenience store in Seattle, and it will be open to the public early this year.

Amazon Go operates with a "Just Walk Out" shopping format that is devoid of cashiers and check outs and thus will not have long customer queues. As customers shop, a mobile app adds items to their virtual cart, generates a digital receipt, and charges customers from their Amazon account.

(Also Read: Will Amazon's Convenience Stores Transform Retail? )

According to a report from The Wall Street Journal , Amazon has a broader plan to open over 2000 brick-and-mortar stores in three different formats depending on the success of the concepts.

What Does It Mean?

Both companies have not been shy about their plans for global dominance, and Alibaba commented on the success of its international expansion in its latest report. These two brands are massive e-commerce players, but their entrances into cloud computing and digital media underscore their desires to become global factors in several industries.

With that said, it looks like Alibaba and Amazon's biggest impact will continue to be in the world of retail. These companies have been integral in the worldwide shift to online shopping; now they want to take over what is left of traditional retail.

From our domestic perspective, it might seem like Amazon has a big head start in the battle to rule the world. Today's report tells us Alibaba is not that far behind.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Stocks
Referenced Symbols: AMZN , BABA


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