IN WAREHOUSES WORLDWIDE they are waiting: toys, phones, clothes, TVs, blankets, sneakers, laptops and much more. In China, online retailers are gearing up for Singles Day, November 11, the world’s busiest shopping day. Last year, Alibaba, by far the largest e-commerce giant in the country, made $18 billion in sales on the occasion, the highest single-day sales ever spent anywhere in the world. Much of the rest of the world is gearing up for the Christmas rush. Gift seekers used to exhaust themselves tramping around crowded stores. Now they are increasingly ordering from the comfort of their own homes or offices.
Over the past decade, global e-commerce has grown at an average rate of 20% per year as brick-and-mortar stores faltered. Nevertheless, their share of total retail trade was still modest at 8.5% worldwide last year. Even in South Korea, the country with the highest share of online retail sales, it was only 18%, according to Euromonitor, a research firm. In America, the largest consumer market in the world, it accounted for about 10% of the total. And in many middle-income countries, its share was much lower: less than 5% in India and Brazil, for example.
But there’s every reason to believe it’s going to get a lot bigger. In rich countries, millennials who grew up buying goods online are entering their spending prime. In poorer countries, rising incomes and the spread of mobile phones will bring more shoppers online. Although e-commerce growth in China has slowed, bank Goldman Sachs still expects online spending to more than double between 2016 and 2020, accounting for nearly a third of total retail sales. In America, Euromonitor forecasts that its share will increase from about a tenth last year to about a sixth in 2021. In the UK, the number could rise to a fifth.
The unstoppable growth of e-commerce may eventually reach its natural limits. In America, argues Frederick Smith, founder and CEO of FedEx, a logistics company, rising shipping costs will make e-commerce less attractive. And different parts of the world will develop at different speeds. In India, for example, growth has stalled. However, there is no doubt that e-commerce has much further to go. What is less clear is how far and how fast it will rise, where it will perform best, and how big its impact will be.
America and China, the world’s two largest economies, gave birth to the industry’s two titans, Amazon and Alibaba. Both are relatively young. Amazon was founded in 1997 by Jeff Bezos as an online bookstore and went public in 1997. Alibaba was founded in 1999 by Jack Ma industries such as logistics, entertainment, advertising and manufacturing in their home countries. Both have also expanded their empires abroad. Amazon already has e-commerce sites in 14 markets and plans to continue growing. Alibaba’s overseas operations range from Southeast Asia to Brazil and Russia.
The two giants don’t have the field all to themselves. In America, Walmart remains the largest retailer and spends heavily to fend off Amazon. It also has a stake in JD.com, a Beijing-based e-commerce company that had 13% of China’s market last year. In China, Alibaba not only faces JD, but also Tencent, a messaging and payments company that is now JD’s largest shareholder. Smaller e-commerce companies around the world have the backing of big investors like SoftBank, Naspers and Tiger Global. Size matters in this business. Thanks to the power of data, technological know-how and large distribution networks, the largest e-commerce companies are only getting bigger.
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Since retail affects the economy and society in so many different ways, e-commerce is already having a broad impact far beyond the industry. Retail is the largest private employer in many countries. In America, it accounts for one in nine jobs. It also affects the way other types of companies do business. Logistics companies are trying new ideas to meet ever-increasing expectations for fast and free delivery. The ease of selling goods online allows small new manufacturers to challenge large, established manufacturers. Mountains of consumer data, the most valuable asset of 21st century commerce, are helping manufacturers to develop products and interact with buyers, not only online but increasingly in physical stores as well.
The impact is all the more profound given that Amazon and Alibaba, the two most innovative companies in the industry, don’t define themselves as retailers at all. Amazon doesn’t just sell goods: it rents out cargo planes, produces films and offers a voice assistant with Alexa. Its cloud-computing business, Amazon Web Services (AWS), powers its own operations along with those of many other companies and is a key source of profits that keeps its investors patient. Alibaba’s business is even broader than Amazon’s, encompassing not only shopping, entertainment, and cloud computing, but also payments and social media. Both companies’ activities generate money and massive streams of data that can be used to improve their existing services and add more services. Alibaba describes itself as a supplier of tubes and cables for all types of businesses. “In a way, we’re a utility company,” says Managing Director Daniel Zhang. “We’re trying to provide an infrastructure for digital commerce.”
Consumers have already benefited a lot from all of this, and more is yet to come. You will enjoy a wider selection of goods and more price transparency than ever before. Instead of spending time driving to shops, picking up goods and waiting in queues, they can now do other things. Companies no longer take them for granted, but compete to offer them better products, more convenience and better service.
These are difficult times for stationary retail. In some parts of the world, malls are being wiped out as their customers go online and are instead served from huge warehouses. Many traditional retail jobs will disappear as stores close and those that remain use more automation. Some new jobs will be created, but they may not be able to make up for the lost ones. And electronic tracking of consumers to sell them more stuff is becoming increasingly intrusive.
This special report examines the impact of these changes on the retail industry and related industries such as logistics, marketing and manufacturing, and assesses their broader impact on society. First, the role of the American and Chinese e-commerce giants Amazon and Alibaba will be considered.
This article appeared in the special report of the print edition under the heading “The New Bazaar”
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