E-commerce takes off

economist (source) :

E-commerce is transforming business and daily life, mostly for the better, says Charlotte Howard

IN WAREHOUSES AROUND the globe, they wait: toys, phones, dresses, televisions, blankets, trainers, laptops and much more. In China, online retailers are gearing up for “Singles Day”, November 11th, the world’s busiest shopping day. Last year Alibaba, much the biggest of the country’s e-commerce giants, rang up sales of $18bn on that occasion, the most ever spent in one day anywhere on Earth. Much of the rest of the world is preparing for the Christmas rush. Present-hunters used to wear themselves out tramping around crowded shops. Now, increasingly, they order from the comfort of their homes or offices.

Over the past decade global e-commerce has been expanding at an average rate of 20% a year as bricks-and-mortar shops have languished. Yet its share of total retail trade last year, at 8.5% worldwide, was still modest. Even in South Korea, the country with the highest percentage of retail sales online, it amounted to only 18%, according to Euromonitor, a research firm. In America, the world’s biggest consumer market, it made up about 10% of the total. And in many middle-income countries its share was much lower: less than 5% in India and Brazil, for instance.

But there is every reason to think it will get much bigger. In rich countries millennials who grew up buying goods online are moving into their prime spending years. In poorer ones, rising incomes and the spread of mobile phones will bring more shoppers online. In China, although growth in e-commerce has slowed, Goldman Sachs, a bank, still expects online spending to more than double between 2016 and 2020, to make up nearly one-third of total retail sales. In America, Euromonitor predicts that its share will rise from about one-tenth last year to about one-sixth in 2021. In Britain the figure may rise to one-fifth.

The relentless growth in e-commerce may eventually run up against natural limits. In America, argues Frederick Smith, the founder and chief executive of FedEx, a logistics firm, rising shipping expenses will make e-commerce less attractive. And different parts of the world will progress at different speeds. In India, for instance, growth has faltered. Yet 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 do best, and how great its impact will be.

America and China, the world’s two biggest economies, have produced the two titans of the industry, Amazon and Alibaba. Both are relative youngsters. Amazon, started by Jeff Bezos as an online bookshop, had its initial public offering in 1997. Alibaba was founded by Jack Ma in 1999. Since then both have been growing at breakneck pace, bringing large-scale disruption not only to retailing but to a range of industries spanning logistics, entertainment, advertising and manufacturing in their home countries. Both have also been expanding their empires abroad. Amazon already has e-commerce sites in 14 markets and is planning further growth. Alibaba’s foreign ventures range from South-East Asia to Brazil and Russia.

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The two giants do not have the field all to themselves. In America, Walmart remains the biggest retailer and is spending heavily on trying to fend off Amazon. It also has a stake in JD.com, an e-commerce firm based in Beijing that had 13% of the Chinese market last year. In China, Alibaba faces not just JD but also Tencent, a messaging and payment company that is now JD’s biggest shareholder. Smaller e-commerce firms around the world have the backing of giant investors such as SoftBank, Naspers and Tiger Global. In this business, size matters. Thanks to the power of data, technological expertise and large distribution networks, the biggest e-commerce firms will only get bigger.

Data day

Since retailing touches the economy and society in so many ways, e-commerce is already having broad effects well beyond the industry itself. In many countries retail is the biggest single private employer. In America it accounts for one in nine jobs. It is also affecting the way that other kinds of firms do business. Logistics companies are trying out new ideas to meet ever-rising expectations of fast, free delivery. Small new manufacturers are able to challenge big, established ones, thanks to the ease of selling goods online. Mountains of consumer data, the most treasured commodity of 21st-century commerce, are helping manufacturers develop products and interact with shoppers, not just online but increasingly in physical shops as well.

The implications are all the broader because Amazon and Alibaba, the industry’s two most innovative companies, do not define themselves as retailers at all. Amazon does not just sell goods: it leases cargo planes, produces films and offers a voice assistant, Alexa. Its cloud-computing business, Amazon Web Services (AWS), powers its own operations along with those of many other firms and is a vital source of profits, keeping its investors patient. Alibaba’s business is even broader than Amazon’s, including not just shopping, entertainment and cloud computing but payments and social media as well. Both companies’ activities generate cash and rich streams of data which can be used to improve their existing services and add more. Alibaba describes itself as providing the pipes and cables for all kinds of business. “To some extent we are a utility company,” says Daniel Zhang, its chief executive. “We are trying to provide an infrastructure for digital commerce.”

Consumers have already gained much from all this, with more in prospect. They are enjoying a broader choice of goods and more price transparency than ever before. Instead of spending time travelling 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, greater convenience and improved service.

For bricks-and-mortar shops these are difficult times. In some parts of the world shopping malls are being blighted as their customers move online and are served from vast warehouses instead. Many traditional retail jobs will vanish as shops close and the remaining ones use more automation. Some new jobs will be created, but they may not make up for those that have gone. And electronic tracking of consumers in order to sell them more stuff will become ever more intrusive.

This special report will examine the effect of these changes on the retail industry and those linked to it, such as logistics, marketing and manufacturing, and assess their broader impact on society. It will begin by looking at the role played by America’s and China’s twin e-commerce giants, Amazon and Alibaba.

 

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