Alibaba Group Holding Ltd (NYSE:BABA) Sets The Stage To Bring Procter & Gamble (PG) And Other Foreign Brands To Chinese Consumers
Alibaba Group Holding Ltd (NYSE:BABA) is looking to reignite its growth by riding on the shoulders of foreign brands. The company is courting multiple U.S. and European brands such as Estee Lauder Companies Inc (NYSE:EL) and Procter & Gamble Co (NYSE:PG) to sell to Chinese through its marketplaces. Analysts say that the strategy of working with international brands could generate $2 billion annually in additional revenues for Alibaba. However, there are also risks to the strategy, which raises the question about whether Alibaba or its foreign partners stand to benefit from the “sell to China” arrangement.
The slowdown in Chinese economy and growing competition from archrival JD.com Inc (ADR) (NASDAQ:JD) along with pressure from multiple other small competitors have combined to frustrate Alibaba’s growth. The challenge that Alibaba has found itself in can be seen in how the stock has tumbled from the highs of $115 in the post IPO period to hover around the $80s.
Targeted U.S. brands
Alibaba Group Holding Ltd (NYSE:BABA) is wooing many international brands, especially iconic companies, with the promise of simplify their foray into China, The strategy is not only aimed at improving Alibaba’s sales and revenues, but also boosting the company’s profile. In e-commerce business, credibility matters, and Alibaba needs it to rise above the competition.
American companies that Alibaba is enticing to use its online highway to China include retailer Macy’s, Inc. (NYSE:M). The likes of Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY) have also found ways to plug into Alibaba’s broad Chinese ecommerce network.
Personal care products manufacturer and vendor Estee Lauder and packaged consumer goods provider Procter & Gamble are some of Alibaba’s other foreign targets.
$2 billion topline boost
Alibaba Group Holding Ltd (NYSE:BABA) takes a cut of between 2% and 5% on transactions completed on its marketplaces. Purchases worth billions of dollars are made every year on Alibaba’s platform. In fiscal 2015, the company generated $12 billion revenue. It is estimated that bringing in American and Europe brands to China through its channels could give a $2 billion a year boost to Alibaba’s revenue numbers.
While Alibaba Group Holding Ltd (NYSE:BABA) may initially benefit from simplifying the process for foreign companies to sell to China through its platforms, the long-term viability of the strategy is in question. What if the companies only use Alibaba to penetrate China and later defect to other ecommerce channels that offer competitive deals? That’s one of the major questions for Alibaba’s founder Jack Ma will have to ponder in the New Year.
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