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Chinese online retailer Alibaba: in focus

China's Alibaba Group has been gathering attention in the US for some time. Its impending Initial Public Offering (IPO) is expected to potentially be the biggest in history. It didn't take place on the original reported date of August 8 (partly due to some pesky regulatory snafus), but it's coming soon.

While these things sort themselves out, the company isn't sitting just quietly. Its new US-based site 11main.com launched earlier this summer, and I've got to confess, I was really surprised. Not in a good or a bad way particularly, just gobsmacked.

First of all, there's no way the customer can tell that they're buying from a Chinese company. The website is as American as apple pie. In fact, its early offerings all highlighted "Made in America" products in honour of the US Independence Day of July 4. I confess to being just a bit irritated by that one, but that's a personal, not a professional observation.

Then there are the price points. Anyone who has shopped on Aliexpress.com (Alibaba's real retail site) has seen low-priced knock-offs and otherwise inexpensive "stuff". That makes the $59 Batman clock (plus $8 first class shipping) currently for sale on 11main.com look positively Midas-like. I confess, I can't figure out the logic. Why would they do that? Is it a diversion tactic? I'm not a particularly price sensitive shopper, but even for me the products just seem too pricey.

But 11 Main is first and foremost a marketplace. And it's a marketplace that can potentially really mess up Amazon's main profit generator. According to the Wall Street Journal, the site charges a commission rate of just 3.5%, which is somewhere between two and four times less than its chief rivals.

Smaller retailers will have a very hard decision to make. Do they join the site and pass savings along to consumers, or keep prices constant and try to pocket the difference? The answer to that question could become the difference between success and failure for the new site, even with its partnership with ShopRunner (an alternative to Amazon Prime). If retailers try to keep the difference, I believe 11 Main will fail. If they pass along at least some of the savings to their customers, all bets are off. So just as Amazon.com has completely disrupted retail vertical markets like consumer electronics, it could experience a real turn-about, with 11 Main disrupting its own retail model.

A look into Amazon’s financials reveals that much of its ongoing losses are mitigated to the 'free money' it gets through its Amazon Marketplace. If 11 Main takes a big portion of that, Amazon.com could be scrambling for new sources of profitable revenue. Disruptive indeed.

But the issue is bigger than just retail sales. Alibaba isn't just going to be a retail marketplace it's also a marketplace where retailers can buy merchandise at a ridiculously low rate. Alibaba's original retail site is actually aliexpress.com. But alibaba.com itself is pure B2B.

I've traversed alibaba.com before, and I can tell you it has had some serious upgrades in the past 90 days. In fact, since I first wrote about this in Forbes, the site has been anglicised even more. It features Alibaba Logistics right on the homepage, an explanation of how to request quotes, and an opportunity to become an "AliPrimeBuyer" (ouch!), which is essentially certification as a 'real' B2C business.

If you've never seen the site, you really should visit. For example, cases for the iPhone 5s selling for $1.39 apiece with a minimum order quantity (moq) of 10 units. That's a small business dream come true. Velour beach towel, 100% cotton with a minimum 3000 piece order sell for 20 cents apiece. And the supplier can actually crank out 100,000 units a month. The assortment is so broad it defies description.

One big issue with alibaba.com and aliexpress.com has been counterfeit merchandise. The site has been cleaned up significantly. You can't search on "Prada" anymore, for example. You find variations on the theme (like Pra*a), but not the exact name. To be clear, eBay has been accused of selling counterfeit product before as well.

A big winner in the Alibaba.com marketplace is definitely the independent and small retailer, struggling mightily to gain the attention and breadth of assortment he needs from suppliers hunting elephants like Walmart and Targets. Alibaba.com really does provide some amazing wholesale prices.

I confess to mixed emotions here. On the one hand, I'm in favour of most anything that gives the independent retailer a break. On the other hand, I wish we sourced product closer to home.

Retailers, wholesalers and investors all need to pay close and careful attention to Alibaba. Not only is the assortment enormous, but the company's apparent ability to change its websites in almost record time with nary a glitch is well worthy of note.

I have no easy answers about what’s right or wrong about Alibaba, and whether it's ultimately good or bad for the American consumer. The only thing I know for sure is there's a new kid on Main Street and he's going to make some noise. Across all income strata and all parts of the retail ecosystem.

This article originally appeared as 'Is Alibaba the new Amazon' on the RSR Research website. It is reproduced with the organisation's permission.

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