Chinese etailer Alibaba’s IPO is underway and the online retailer has made the largest ever debut on the New York Stock Exchange.
Although touted as the biggest IPO since Facebook, the initial pricing – between $60 (£36.94) and $66 (£40.63) per share – is less than many predicted.
Offering 320 million shares, Alibaba is valued at $160bn ($98.5bn), making it the largest debut on the New York Stock Exchange. The IPO is expected to raise $21bn (£12.93bn), providing substantial funds for future growth. Aladdin’s Cave is being opened.
While very exciting, retailers and wholesalers should be paying closer attention to Alibaba than its IPO. And here is why.
The IPO is not about raising money. Alibaba is cash-rich, with an enviable profit margin of 43%. It has already invested more than $1bn (£620m) in the US and is to invest more than $20bn (£12.31bn) in logistics during the next eight years.
While the IPO will help fund this commitment it is more about building brand awareness.
Its first foray outside China, the niche US website 11 Main, is integral to this. Once awareness levels are sufficient, Alibaba will unleash its main marketplace sites – AliExpress, Taobao, Tmall, and the wholesale site Alibaba.com.
Featuring vast assortments at exceptionally competitive rates, this array of sites will threaten a huge spectrum of retail businesses.
Alibaba also hopes to entice vendors to sell through its Tmall marketplace in China. Attracting more than 200 million Chinese shoppers, it is a viable route to market that those looking at entering China simply can’t ignore.
If successful in adding more international merchants to its marketplaces, the term behemoth won’t do it justice.
In combining its rapidly enhancing logistical capabilities with its payment platform Alipay, Alibaba has created an ecosystem ideally placed to attract Chinese merchants, those looking to enter China and those in the markets into which it expands.
Alibaba is poised to cause a stir across the entire retail ecosystem and should be considered a competitive threat or a commercial ally. I know which I would choose.
So, while focus is on the headline-grabbing IPO, it would be wise to pay more attention to Alibaba’s plans for the future.
- Malcolm Pinkerton, research director for ecommerce, Planet Retail