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Alibaba Is Still One Step Ahead of Amazon in Brick-and-Mortar

By Natalie Walters – Sep 9, 2017 at 3:16PM

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Less than a month after the Amazon-Whole Foods deal officially closed, reports say that Alibaba is nearly finished constructing its first mall in China. Your move Amazon!

Alibaba (BABA 0.79%) started transforming grocery stores about two years before Amazon (AMZN 2.42%) closed on its $13.7 billion acquisition of Whole Foods in late August. 

For the past few weeks, Amazon has been transforming Whole Foods' 470 stores across the U.S., Canada, and the United Kingdom, including lowering food prices and selling its Echo devices alongside the organic groceries.

But the U.S. e-commerce giant and Chinese e-commerce giant weren't on a level playing field for long.

More Mall

Alibaba is once again one step ahead of Amazon as it finishes construction on its first mall in China, according to Beijing-based news group Caixin. The five-story complex called "More Mall" is slated for an official opening around April 2018. The building will contain retailers, as well as one of Alibaba's Hema supermarkets. 

The mall is being built across from Alibaba's XiXi campus in Hangzhou, where the company is headquartered. The XiXi campus has a number of employees that are focused on its brick-and-mortar strategy, which makes it a prime location for its first mall. This area of Hangzhou is also in a major retail hub that should allow for optimum foot traffic at a time when malls have been hungry for shoppers. 

Young Woman showing credit card and shopping bags.

Image source: Getty Images.

When looking at the broader picture, More Mall gives Alibaba another chance to experiment with its New Retail strategy, which it has already implemented into grocery stores and department stores across China. Alibaba wants to help out brick-and-mortar sales by creating stores that combine the best of what offline and online retail has to offer -- such as allowing customers to order items to be delivered to their house from their local store. 

Why is New Retail essential to Alibaba's future growth? Because only about 15% of China's total $5 trillion retail market is online, Alibaba vice chairman Joe Tsai said in the company's latest earnings call. The other 85% is still done in physical stores. 

Shopping for growth

Alibaba is certainly not starved for growth at the moment. Shares of the company have traded up 94% year-to-date to $170.43 on Thursday afternoon. The company said in June that it estimates revenue growth of 45% to 49% for the fiscal year that ends in March. 

This latest project doesn't necessarily mean that Alibaba malls are going to start popping up all over China. The company is known for taking a calculated approach to its brick-and-mortar expansion plans.

For example, Alibaba wants the transformational work it has done with department stores and supermarkets in China to be seen as prototypes. In the future, the company hopes physical store retailers will come to Alibaba for help and it will be able to implement the same strategy across multiple retailers. This capital-light strategy allows Alibaba access to physical stores in good locations and gives retailers access to Alibaba's data and technology. 

Brick-and-mortar is on trend

Amazon has also been doing some experimenting in the brick-and-mortar space in the U.S. The company has opened up 11 bookstores across the U.S. with plans for two more to open up in California before the year ends. While Amazon has been hush-hush about the financials behind its bookstores, the company says it's pleased with how they're performing and the rapid expansion seems to back up that claim. At this time last year, Amazon only had one bookstore opened. 

Amazon has also been dipping its toes in the grocery scene in preparation for its Whole Foods acquisition. The company envisions grocery stores where customers can walk in, grab the items they need, and walk out the store without waiting in a check-out line. Unfortunately, the items aren't free. Instead, the Amazon Go app would automatically charge customers for items when they walk out of the store. The first Amazon Go store opened for Amazon employees in Seattle in early 2017.

As the online-to-offline competition heats up Alibaba is making great strides. Considering Alibaba reported 56% revenue growth for the June quarter, the company has the funds and the time to perfect its brick-and-mortar retail strategy. Amazon, it's your move. 

Natalie Walters has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

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