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Alibaba's Jack Ma: We have to 'embrace the physical world'

Krystal Hu

Alibaba (BABA) dominates China’s giant e-commerce arena, but that’s not enough for its founder and chairman, Jack Ma. He’s eyeing the physical space — which accounts for 85% of total retail sales in China, according to Alibaba — by using what he calls a “new retail strategy.”

“With new retail satisfying increasing consumer expectations, it’s no longer an incremental gain. It is a disruptive gain in the sense that you will have to disrupt e-commerce first and embrace the physical world,” Ma said on Alibaba’s earning call on Thursday, on which the company reported higher-than-expected revenue growth of 56%.

Alibaba had been exploring the brick-and-mortar space before its US counterpart Amazon (AMZN) began venturing into that territory. It launched a grocery store called Hema in 2015, which expanded to 13 locations across five Chinese cities by this July.

Alibaba wants to digitize the shopping experience in these physical stores. In Hema, consumers can scan barcodes to learn about product information and check out with an app. Hema customers can order restaurant-style meals there; they can also order groceries online and wait for store associates to pick up groceries and deliver them within 30 minutes. 

Alibaba’s chairman Jack Ma eats in Alibaba’s grocery store Hema, which he sees a key part of the e-commerce giant’s “new retail strategy.” Courtesy: Alibaba

Alibaba hasn’t revealed numbers on Hema store sales, but those stores aren’t just about sales. They allow Alibaba to collect data about customers’ shopping patterns. The app remembers purchase preferences and makes personalized recommendations. The database also powers data-driven selection of fresh food and products that are tailored for urban Chinese consumers based on their locations. Interestingly, Hema’s practices are what some experts expect to happen to Whole Foods (WFM) after Amazon’s acquisition.

“Our new retail strategy is an invention that anticipates and catalyzes changes in consumer behavior, where time, place and method of purpose and consumption will be different from what we were used to before,” Ma said. “What makes new retail possible are Alibaba’s scale, technology, consumer insights and ability to innovate.”

Krystal Hu covers e-commerce for Yahoo Finance. Follow her on Twitter

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