Alibaba is building a brick-and-mortar mall (BABA)

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Alibaba is planning to open its first brick-and-mortar mall in April at its headquarters in Hangzhou, China, MarketWatch reports. “More Mall,” as it is reportedly called, will be five stories tall and offer products from brands on Alibaba’s Taobao platform and elsewhere. It will also feature retail technologies like virtual fitting rooms, high-tech makeup testing mirrors, and Alibaba’s tech-based grocery store.

More Mall is another step in Alibaba’s plan to go after traditional retail. The company has invested as much as $8 billion in brick-and-mortar retail in the last two years, according to Forbes, with its current footprint including Hema, its grocery store chain, and Tao Cafe, its unstaffedconvenience store. Hema stores allow shoppers to get additional product information by scanning a barcode and order items to be shipped from the store, while Tao Cafe offers customers the ability to pick their products and pay automatically upon their exit. These innovations could be featured at More Mall, helping Alibaba to attract consumers to its various brick-and-mortar storefronts.

Brick-and-mortar could boost the company's growth as Chinese e-commerce comes back down to earth. China’s e-commerce growth has normalized at 20%, compared with the 40% it's seen previously, according to Arete research analyst Li Muzhi as cited by Forbes, which means that Alibaba needs to find other ways to grow its business. Brick-and-mortar still accounts for 80% of China’s $4.9 trillion retail industry, and Alibaba likely hopes that its technological innovations and ties to e-commerce will give it an edge as it tackles the massive physical space.

Additionally, Alibaba’s investments in traditional retail have the potential to benefit both its brick-and-mortar and e-commerce sales because of the extra data. Alibaba employs a variety of algorithms and machine learning techniques, and adding physical stores will give it a more comprehensive view of how its customers shop. This data could be applied to help Alibaba personalize the shopping experience both online and in-store, and allow it to merchandise stores based on consumer trends. That could afford the company a critical advantage as it attempts to extend its dominance over all aspects of retail in China.

Brick-and-mortar retailers are caught on the wrong side of the digital shift in retail, with many stuck in a dangerous cycle of falling foot traffic, declining comparable-store sales, and increasing store closures. Over 8,600 retail stores could close this year in the US — more than the previous two years combined, brokerage firm Credit Suisse said in a recent report. Meanwhile, e-commerce pureplays are riding the rise of digital commerce to success — none more so than Amazon, which accounted for 53% of online sales growth in the US last year, according to Slice Intelligence.

In response, many brick-and-mortar retailers have started to use omnichannel fulfillment methods that leverage their store locations and in-store inventory in order to better compete in e-commerce. These omnichannel services, including ship-from-store and click-and-collect, can help retailers manage the transition to digital by:

Increasing online sales by offering cheaper, more convenient delivery options for online shoppers.
Limiting the growth of shipping costs as online sales volumes increase by leveraging store networks for delivery.
Keeping stores relevant by turning them into fulfillment centers that pull customers in to pick up online orders.

However, few retailers have mastered these new fulfillment services. While these companies have spent years optimizing their supply chain and logistics networks for delivering goods to their stores or directly to customers’ doorsteps, most have yet to figure out how to profitably bring their store locations into the e-commerce delivery process.

Jonathan Camhi, research analyst for BI Intelligence, Business Insider's premium research service, has laid out the case for why retailers must transition to an omnichannel fulfillment model, and the challenges complicating that transition for most companies. This omnichannel fulfillment report also detail the benefits and difficulties involved with specific omnichannel fulfillment services like click-and-collect, ship-to-store, and ship-from-store, providing examples of retailers that have experienced success and struggles with these methods. Lastly, it walks through the steps retailers need to take to optimize omnichannel fulfillment for lower costs and faster delivery times.

Here are some of the key takeaways from the report:

Brick-and-mortar retailers must cut delivery times and costs to meet online shoppers’ expectations of free and fast shipping.
Omnichannel fulfillment services can help retailers achieve that goal while also keeping their stores relevant.
However, few retailers have mastered these services, which has led to increasing shipping costs eating into their profit margins.
In order to optimize costs and realize the full benefits of these omnichannel services, retailers must undertake costly and time-consuming transformations of their logistics, inventory, and store systems and operations.

In full, the report:

Details the benefits of omnichannel services like click-and-collect and ship-from-store, including lowering delivery times and costs, and driving in-store traffic and sales.
Provides examples of the successes and struggles various retailers have experienced with omnichannel delivery.
Explains why retailers are having trouble managing costs with their omnichannel fulfillment efforts, which are eating into their profits.
Lays out what steps retailers need to take to optimize costs for their omnichannel operations by placing inventory where it best meets customer demand.

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