Joe Tsai on the “Alibaba Economy” and New Retail

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Alibaba Group reported its June 2017 quarterly earnings today.

Alibaba Executive Vice Chairman Joe Tsai kicked off the company’s analyst call with his perspective on the future of retail and what he termed “The Alibaba Economy.” The transcript follows:


When thinking about what I would say on this quarter’s earnings call, the first words that jumped to my mind were “the numbers speak for themselves.” In short, we had a great quarter.

However, I wanted you to know that these exceptional results did not come from anything specific we did during the quarter. The reason we are able to deliver these results is that we sowed the seeds years ago by investing in technology, by investing in innovation, by investing in people and by being bold with a vision that nobody thought was possible. Today, the Alibaba Economy is self-reinforcing, and it is as strong as ever. It is in this spirit of vision that I want to share with you a couple of things to look forward to in the future.

NEW RETAIL

First, let’s talk about New Retail. The macro way of looking at the landscape is e-commerce accounts for 15% of total retail in China. That still leaves 85% of retail that is offline. Whether this is just something to look at or presents tremendous opportunities for us depends on our ability to innovate.

Our goal is not to simply ride the wave of converting purchases from offline to online. Our New Retail strategy is an invention that anticipates and catalyzes changes in consumer behavior, where the time, place and method of purchase and consumption will be different from what we were used to before. In this new world of consumer expectations, the distinction between online and offline will disappear. I’ll give you a couple of examples.

In traditional retail, the shopper goes into a store and buys what’s only available on the shelf, and they come away with bags of stuff to bring home.

Imagine a store where you can pick items from the shelf, and at the same time, purchase other items not from the shelf, but from your mobile phone. And then you tell the store to send everything you just bought to your home because you need to go catch a movie.

Another example: You buy groceries from your nearby supermarket. You only shop for what you need for dinner that night because you have no idea what you want to eat for the rest of the week.

Next day, you remember seeing something from the same store but you had no time to go because you had to rush home, so you order it on your mobile phone on the way home. The same store, the one you visited yesterday, is the same store that handles your online order today and delivers the item to your home.

That’s the kind of spontaneity, convenience and speed that modern day consumers are going to expect. And Alibaba is setting the standard for fulfilling this high expectation. What makes New Retail possible is Alibaba’s scale, technology, consumer insights and ability to innovate.

With New Retail, satisfying ever-increasing consumer expectations is no longer an incremental game. It is a disruptive game, in the sense that you will have to disrupt e-commerce first and embrace the physical world.

THE ALIBABA ECONOMY

Next, I have a few words about “The Alibaba Economy.”

Alibaba has a number of businesses, from commerce to cloud computing to digital entertainment. As a financial reporting matter, we break out our business into segments for transparency and ease of investor understanding. In addition, we have affiliate companies and investees in financial services, logistics and local services. And I have no doubt you are interested in the P&L of those businesses, so we show that to you clearly.

As an investor, your perspective is how do we put a value on each piece of the business in order to understand the value of the entire company. But that’s not how our customers look at us. As a platform, the question we need to focus on is how do our businesses work together to create more value for consumers and enterprises than if these units were just stand-alone entities.

Synergy creation is easier said than done. Management needs to have both strategic vision and execution discipline in order to achieve synergies. What unifies the businesses in the Alibaba Economy is our mission: to make it easy to do business anywhere. We believe the path to value creation becomes extremely clear when we focus on a single mission.

In the next 5-10-15 years, you will see an unfolding of how we execute the New Retail strategy, as it becomes an integral part of the Alibaba Economy. Shareholder value will follow when we create value for our customers.

Understanding this is important to understanding a long view of Alibaba.

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