In a shot across Amazon.com's (AMZN 3.24%) bow, ShopRunner, in an interview with Reuters, announced that it is partnering with Alibaba to offer U.S. retailers a window into China. Will this hurt Amazon financially or simply make it more difficult to develop China as a market?
Low-risk pipe into the world's second-largest market
ShopRunner will use Alibaba's U.S.-based logistics infrastructure to launch in China later this year according to Fiona Dias, ShopRunner's Chief Strategy Officer. ShopRunner differs from Amazon because it acts as a portal to retailers' own websites rather than acting as a destination which smaller sellers can plug into. For instance, searching on Lands End to buy a Tote Bag brings you to an item sold by Emuna Gifts rather than the Lands End store itself. Essentially, ShopRunner is more like a delivery service such as UPS than a marketplace but it competes with the logistics component of Amazon.com, which is a key differentiator that drives its online sales.
Accelerating competition with Amazon
Shoprunner made headlines earlier in the year when it responded to Amazon's $20 price increase by offering a free year of two-day shipping for Amazon Prime subscribers who look to try out its service. This offer appears front-and-center on the landing page of shoprunner.com: " Enjoy 1 year of unlimited free 2-day shipping, compliments of ShopRunner."
Pipeline to nearly 100 retailers
Currently, ShopRunner partners with 91 stores in a wide variety of industries that run the gamut you would normally find in an upscale mall: Apparel, Accessories, Technology, Sporting Goods, and Toys, among others. This service would be a way for U.S. retailers to gain a foothold in the world's second-largest economy with a low-cost and low-risk strategy. Retailers would not have to manage distribution or shipping issues. Over the years, many retailers have fumbled when attempting to avoid the unique local pitfalls associated with developing a business in China.
Announcement makes sense considering Alibaba's ownership
This announcement shouldn't be much of a surprise since Alibaba paid $202 million for a 39% stake in ShopRunner last October. ShopRunner offers free two-day shipping within the United States for $79 a year through a service similar to Amazon Prime. The company offers free memberships to American Express cardholders, although AmEx does not appear to have an ownership interest at present.
Big headline has little meaning for financials
Amazon entered the Chinese market with the purchase of a local website in 2004, Joyo.com. At the time, the acquisition cost $75 million, which is peanuts by today's standards considering that Joyo was the country's largest online retailer of books, music, videos, and DVDs. The business has not grown as fast as the company's businesses in other locations. Consumer facing Internet companies have been unable to navigate the cultural issues of the Chinese market. eBay for example had to close down its operations in 2006, after Alibaba emerged as the clear market winner, and partner with a local vendor, Tom Group.
Shoprunner's partnership with Alibaba is a clear shot across Amazon's bow but the reality is that the company won't feel much of an impact from this today. In 2013, Amazon's international business had sales of $30 billion but Germany, Japan, and the UK combined accounted for $25.5 billion of this, or five-sixths of its total international business. This leaves $4.5 billion for the rest of the world, including China.
