Alibaba Is Exploring Rural Areas to Boost Online Sales
Alibaba Beat Fiscal 3Q16 Estimates, but BABA Stock Fell
Alibaba has a competitive edge
According to a report from The Wall Street Journal, e-commerce giants in China (FXI), including Alibaba Group Holding (BABA) and JD.com (JD), are focusing on building a customer base in the rural regions of China. The objective is to reach out to the untouched user base in rural areas and boost online sales, which in turn will generate more revenues.
Product delivery speed is the most crucial aspect of the business and will help both Alibaba and JD.com stand out. Alibaba has a competitive edge over JD.com in this area. But Cainiao, Alibaba’s logistics infrastructure arm, enables Alibaba to offer its services to rural regions across China. This gives Alibaba access to a whole new demographic of consumers in addition to its developing logistics network in China’s urban areas.
Rural vs. urban
In 2014, many villages in China were introduced to Internet-enabled smartphones through government programs. Many consumers had their first experience with online shopping. According to a report from the CINIC (China Internet Network Information Center), the number of online shoppers grew at a rate of 41% in rural regions in 2014 compared to a 17% growth rate of online customers in urban areas.
The report also said the number of Internet users in China reached 668 million in June 2015. This accounts for 48.8% of China’s total population. The Internet penetration rate in urban areas is around 64%, whereas the penetration rate in the rural region is only 30%.
According to a Wall Street Journal report, Alibaba is planning to invest $1.5 billion in additional distribution centers in China’s urban regions. The company also plans to create around 100,000 more product delivery points in rural China within the next three to five years.
Amazon (AMZN) and Alphabet (GOOG) constitute 9.1% and 8.7%, respectively, of the PowerShares NASDAQ Internet Portfolio (PNQI).
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