Jack Ma Alibaba Copyright ChinaFotoPress/Getty Images

Alibaba founder, Jack Ma, is bringing his multinational e-marketplace conglomerate to the U.S. If it works, it could change business here forever.

Alibaba: The New Face of American e-Retail?

Alibaba Group's move to the U.S. is threatening to change everything we know about e-retail. Manufacturers need to get ready.

Right now, Alibaba Group – the $200 billion online marketplace that has been dominating China and most of Asia for the last 15 years – is preparing for what has been described as "perhaps one of the largest IPOs in history."

By some reports, Alibaba's move into the U.S. has the potential to disrupt everything we know about e-retail, about online markets, really about selling just about anything anywhere. EBay is under attack, they say, along with Wal-Mart and Target and all of the big boxes. Even the untouchable Amazon might see its first real competition if the whole thing works out.

But that's a big if.

As of today, Alibaba's only real presence in the U.S. is a tiny, quirky little website called 11 Main. It's an interesting concept – it sells one-offs and unique, artisanal pieces mostly. You can't even get in until you request a membership. (Note, that's not, "until you register." Access requires a whole invite process like the old school Gmail days.)

As it stands now, the only threat it seems to be offering is to sites like Etsy – a far cry from Amazon.com.

But, as James Tompkins, CEO of supply chain consultancy firm, Tompkins International, argues, this is just the start. And it's all part of a much, much bigger plan by Alibaba's charismatic founder, Jack Ma.

"The fact is, if Jack [Ma] comes in the U.S. as a mass merchant, he will get the stuffing beat out of him," Tompkins explains. The successful retailers in the U.S. – Wal-Mart, Target, Amazon, all of the "physical and electronic big boxes mass merchants" – are too big to take down all at once. So Ma has had to take a different approach, he says.

That explains the whole exclusivity part of the site, which goes beyond even the customers. Retailers have to make a case too.

11 Main homepage
The gated homepage of 11 Main entertains applications to join from both buyers and sellers. Here, my request is still being considered. (click to enlarge)

"There have been 14,000 companies who have applied to sell merchandise on 11 Main, but Alibaba has only accepted 1,400. That's 10%," Tompkins explains. "If you want to go there and you want to sell regular shoes or shirts or chairs, they're going to say no. But if you have something that's unique or different, something that you would find on Main Street in a shop, then they are going to welcome you into their store."

And that's fine, but it doesn't really explain how Ma or Alibaba plan to take over anything but the Pinterest niche.

That's because taking over the world isn't until step two.

"All Ma is doing now is trying to establish recognition," Tompkins says. "That's what the IPO is all about – it's not about money. Jack doesn't need money."

2014, he says, with 11 Main and the IPO, is all about building brand awareness. Ma wants a full market buzz. Once that buzz hits high pitch, then he is going to start with the real site – the full-power, Alibaba marketplace selling everything from office products to women's shoes at rates that could blow Amazon and other e-sellers totally out of the water.

It is an enormous, brilliantly conceived scheme to do nothing short but take over the Internet. To change everything. To escape the search spiders, the Amazon fees, the shopping experience and the system American consumers have come to except.

"It's all kung fu," Tompkins says. "Ma is a kung fu mass merchant."

 But what does that mean to manufacturers? A lot, it turns out.

Manufacturing Logistics

Unlike Amazon, Alibaba is not an actual retailer. It is a marketplace, just a venue for other retailers to sell their wares. It will have no warehouses, no distribution centers, no logistics resources. It won't ever touch any of the merchandise it sells.

In that sense, Alibaba is more like eBay – individual sellers in a community of sellers all pitching their own goods.

Only for Alibaba, the sellers aren't individuals, they are major manufacturers and brands. They are the Colgates and Palmolives of the world: big time makers of big time things who will suddenly be selling directly to the consumers. And that's a big change.

"All of these companies now need to be retailers," Tompkins explains. "Now, instead of shipping truckloads of Pampers to Wal-Mart, they need to figure out how to ship a case of Pampers to individual buyers. And they need to figure out how to take a tube of toothpaste, some mouthwash and laundry soap and put it in a box with it. They don't know how to do that stuff."

And that's the real test of the system.

If Ma's scheme works out and American consumers suddenly flock en mass to Alibaba next year, the manufacturers and retailers are either going to have to build their own logistics network overnight or find third party logistics providers to do it for them.

Either way, it means new expenses, new directions and new systems. It's a million new headaches for a million manufacturers. And that's a hard sell. One that could choke the whole deal even if the consumers sign on.

That's what we'll be watching with the IPO and into 2015 with the big Alibaba reveal: if Alibaba is going to change everything, everyone needs to start changing soon.


For more, check out Tompkins' breakdown of Jack Ma and the Alibaba group: "The Alibaba Effect."

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