This article first appeared in The Edge Malaysia Weekly on November 20, 2017 - November 26, 2017

ALIBABA'S recent 24-hour Singles’ Day 11.11 online sale was an opportune moment for the company to test its new retail technology concept as it had anticipated to generate higher sales this year. It did — recording a 39% increase in sales to US$25.3 billion (RM105.4 billion) from US$17.8 billion last year. The performance even surpassed some analysts’ targets.

The group’s annual 11.11 shopping event, held on Nov 11 every year, is the world’s largest 24-hour online shopping event. It is 18 times larger than the size of Amazon’s annual Prime Day sale, and 2.5 times bigger than the sales of Black Friday and Cyber Monday combined.

The new retail technology, comprising the use of artificial intelligence (AI) and augmented reality (AR), was initially unveiled by Alibaba last year, though this year’s sale was the first time it was put to the test on the mass market. There was also increased marketing and promotional activities on the new digital transformation the group seeks to create.

During this year’s sale, around 100,000 physical stores with about a thousand brands — carrying apparel, fast-moving consumer goods, beauty products and home décor — were upgraded to a “smart store” format. With an aim to fuse customers’ online and offline shopping experience, Alibaba used its data intelligence to put in place various technological initiatives to enable these stores to serve their customers with smarter insights.

Customers could choose to shop in the physical stores, on the brands’ official websites or on other online platforms such as Taobao and Tmall.

For example, with a single scan of their Taobao membership ID on their phone, customers can pay, earn points and use their discount coupons.

Customers could shop in-store too, accompanied by technology-driven experience, such as being able to use a displayed virtual shopping bag, try on apparel or items via Alibaba’s AI-generated fashion mirror and see the display of goods on a cloud-based machine display.

Another example of this new retail model, which Alibaba had successfully incubated, is its technological-driven Hema supermarkets.

Since they were first created in 2015, the stores have been fully digitalised. Hema stores allow customers to scan the barcode of products with their phone, and offer more details and options for payment. Customers can choose to purchase a product in the stores or have it delivered, with the delivery as quick as 30 minutes within a 3km radius.

Mostly targeted at urban folks, the Hema supermarkets — which offer goods at significantly cheaper prices as Alibaba sources them directly from suppliers — have proved popular and efficient, with a higher efficiency rate of 3% to 5% compared with traditional supermarkets. There are now 20 Hema stores in China, with 13 in Shanghai, three in Beijing, and one each in Ningbo, Shenzhen, Hangzhou and Guiyang.

This is interesting seeing as other retail markets, such as that in the US, have reportedly been suffering from poor performance. Bloomberg reported that a rising number of retail chains are closing down, with some 6,800 stores intending to shut down even as 3,000 store openings were announced in the first three quarters of this year.

Bloomberg cited mainly an overload of debt and bankruptcy filings as the main causes, though it did not discount the rise of e-commerce and online shopping as having had an effect on these chains too.

While closing stores may be one answer to address the financial distress faced by these retail chains, they may have to reinvent themselves in order to survive.

One of Alibaba’s core strategies is to redefine commerce by enabling a seamless engagement between the online and offline worlds.

Even though China’s e-commerce industry accounts for only 18% of total retail sales, the group believes it can help transform the stores that are not yet in this space. According to Alibaba CEO Daniel Zhang, China is ahead of the world in using its technology to transform the way shops will operate in the future.

“We are not interested in building another so-called retail chain, to run thousands of stores. Instead, what we want to do is to leverage the technology and data we have to empower offline retailers to go digital. That’s our goal,” Zhang said at a recent press conference after the launch of the 11.11 event in Shanghai.

Although Alibaba has already brought the 11.11 online sales to Southeast Asia, it has yet to roll out the new technology here. When asked whether the region will see the implementation of this new way of shopping, Zhang said the group will have to take a cautious approach.

“I think this is a new animal in the retail format. It’s interesting to copy this model. [But] I think we should not just replicate what we do here. Instead, we have to go down to the individual markets and understand what people there want first.

“For example, in Singapore [and Malaysia], the lifestyle may be similar to, say, Shanghai but a little different from, say, Hangzhou. So, we should try to make a localised model. That will be part of our international strategy. We will be very careful in this regard moving forward,” he added.

Regardless, Malaysia remains an important market for Alibaba and the group intends to increase its presence to empower the local small businesses there, said Zhang.

“The Chinese people there [in Malaysia] love Taobao, and they buy a lot from us. In the past few years, this has been an organic growth, but how can we serve them better, to localise to ensure people enjoy their experience? Moving forward, we will do a lot more in Southeast Asia. But we will not only sell Chinese products there but also promote the local businesses and help them grow. I think that’s very important,” said Zhang.

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