Creating Supply Chain Excellence

The Tompkins International Blog

Supply Chains Value To An Organization

January 28, 2015

Jim TompkinsSupply Chains Value To An Organization
CEO, Tompkins International

Today we are faced with a very interesting question on the value of an organization.  Is the value of an organization based on brand, market share, EBITDA, growth potential, stock holding, cash…?  The answer is yes, yes, yes….  Is an organization valued on supply chain, technology and its global penetration? The answers are yes, yes and yes.  So, how does this play out and why are we discussing this today?

We are discussing this today because yesterday Yahoo presented its plans on 85% of its valuation – their holding in Alibaba (The Alibaba Effect video) stock.  Insight into Alibaba gives us a view specifically of how supply chain, technology and global penetration relate to value. Today Yahoo has a value of $46 billion. This $46 billion valuation can best be understood by viewing what was disclosed about the disposition of its major components:

  • Yahoo owns $39.5 billion of Alibaba stock that will be spun off
  • Yahoo owns $7.3 billion of Yahoo Japan stock which will be spun off
  • Yahoo has $7 billion of cash in the bank

So let me see $46B is value, minus $39.5B from Alibaba, minus $7.3B from Yahoo Japan, minus $7B in cash leaves a value of ($7.8B). Yes, a negative $7.8B. How could Yahoo possibly have a value that is less than zero? I mean Yahoo reported revenue of $1.25 billion in the most recent quarter and an adjusted profit of 30 cents a share in the quarter. I believe the explanation to how their value minus their holding and cash is negative is because in the eyes of the stock market:

  1. Yahoo does not have a supply chain,
  2. Yahoo  has technology that was late recognizing the mobile phone and tablet growth for internet access, and
  3. Yahoo except for their stock holding has no significant global penetration.

So, the conclusion we can reach here is that the math done when buying a firm has something to do with brand, market share, EBITDA, growth potential, holding, cash, etc. but, at the end of the day, the real value of a company is a combination of the perceived value of their supply chain, their technology and their global penetration. For example, consider three very different companies Wal-Mart, Amazon (Facing the Titans video) and Alibaba all of which have great value and are highly respected. My view is sure the calculations of value come from many different factors, but the real value of these three firms comes from their tremendous focus on supply chain, technology and global penetration.

It is my view that you and I focusing on the Supply Chain, the Technology of the Supply Chain and the Global Supply Chain is really a BIG DEAL and adds huge value to our organizations.  Sure there are other value drivers, but for me and my friends Supply Chain is a key to the value of an organization.

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Supply Chain Network Design: Picking the Right Tool for the Job

January 21, 2015

By Bruce TompkinsPicking the Right Tool for the Job
Partner

Supply chain network design activities are essential for keeping supply chain operating efficiently and effectively.  The days of doing a network design every two or three years is quickly being replaced with a need for frequent, smaller scoped design activities to fine tune performance.  Clearly a key point of this process is picking the right tool or tools for evaluating the network.

I sometimes find myself shaking my head in disbelief when I hear about hundreds of hours being spent collecting and analyzing data for a network design that just doesn’t need that kind of detail.  That is not to say that all network designs can and should be done on the back of a napkin, but common sense must win out and the right tools need to be used for the network being studied.

Ask yourself some simple questions to understand where in the continuum from napkin to advanced simulation model is right for your network design.

  • How complicated is the network design?
  • How many of the puzzle pieces are in effect fixed due to cost or service or capital needs?
  • How well does the past historical transaction data represent the future?
  • What are your real objectives for the network design?
  • When did you last do a network evaluation covering the same part of the supply chain and what were the results?

There are certainly more questions that we could ponder, but hopefully you get the point.  Completing a network design and what tools are used are an important decision.  Make informed decisions about the right level of tools for your network design.  Experts like those at Tompkins International can be your guide for these decisions.

 

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Breaking Down the Future of Internet Marketplace Success:

January 15, 2015

Looking in the Rear View Mirror to See What is in Front of You

Future of Internet Marketplace Success

Breaking Down the Future of Internet Marketplace Success

By Jim Tompkins
CEO, Tompkins International

To start, here are six indicators of Amazon’s success that can predict the future of retail:

  1. The number of units sold on the Amazon marketplace doubled in 2014.
  2. Amazon marketplace sellers sold 23% more units on Cyber Monday 2014 vs. the same day in 2013.
  3. In 2014, Amazon marketplace sellers from over 100 countries sold products to customers in 185 countries.
  4. Chinese sellers on the Amazon marketplace grew 80% in 2014.
  5. Holiday deals offered by Amazon marketplace sellers increased 250% in 2014.
  6. Units sold on Amazon Marketplaces in 2014 increased 400% over 2013.

So, what does this tell us?

  • Items 1 & 2 tell us that Marketplaces REALLY WORK.
  • Items 3 & 4 tell us that Cross Border Trade REALLY WORKS.
  • Item 5 & 6 tells us that the promotional environment of holiday 2014 was CRAZY.

I find this all very interesting since these are the exact same points that I have made over and over again when discussing Alibaba.

If you look at the most successful internet companies in the US and China you see the same three things:

  1. Marketplaces are a big deal, a really BIG DEAL.
  2. Cross border trade is a big deal, a really BIG DEAL.
  3. Promotions can be huge to an organizations growth and profitability.

To be successful you must turn these factors in assets. The only way to make this happen is to create a plan your firm. To do this, you MUST have:

  1. A PLAN FOR MARKETPLACES
    1. What marketplaces should you sell your products?
    2. What products from others should you place in your marketplaces?
    3. How should you handle the supply chain for your marketplaces?
  1. A PLAN FOR CROSS BORDER TRADE
    1. In what countries should you sell your products?
      In stores
      Online
      On marketplaces
    2. In what counties should you sell through others?
    3. How should you handle the supply chain for your cross border trade?
  1. A PLAN FOR PROMOTIONS
    1. Promotions are marvelous when done correctly, but can destroy a brand when done poorly
    2. Promotions must contribute to Profitable growth, not to unprofitable growth
    3. Promotions need to be done in the context of an omnichannel strategy and not as a knee jerk reaction to competition

So Amazon and Alibaba are both doing many things well.  We need to learn from these giants and put forth a plan for marketplaces, cross border trade, and promotions that allow us to grow both our top and bottom lines.

 

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Location is Critical for Same Day Delivery

January 13, 2015

What Works in New York City Only Works in New York CityLocation is Critical for Same Day Delivery
(Please no emails about how great or how terrible NYC is, NOT my point)

By Jim Tompkins
CEO, Tompkins International

I did not do any research on this, but I think the first thing Dorothy from The Wizard of Oz said upon waking up in Oz was “I don’t think we are in Kansas anymore, Toto.” It is my view that if Dorothy had instead landed in New York City (NYC) she would have said they same thing. My point is that customer service is dependent based upon location. In fact, I recall:

  • Writing a blog saying that NYC was not in Wyoming (and I did get emails from folks saying I should not be negative about Wyoming)
  • Giving several speeches where I discussed the three types of customers;
    • Customers who live in the Top 40 Metropolitan Statistical Areas (MSAs) live in major cities and make up 50% of US population
    • Customers who live in the next 60 MSAs live in big cities that are 17% of the US population
    • Customers who do not live in the top 100 MSAs that are small rural cities and make up 33% of the US population

The point is that I have recently discovered several articles about the “new on-demand customers” of NYC being impressed with eBay, Deliv, Uber, Amazon, etc. All I can conclude is the folks writing these articles do not live in New York City. I mean WOW! There are thousands of companies that offer same-day delivery and, even “instantaneous delivery” in NYC. Of course there are the flowers, gifts, wine, breakfast, lunch, groceries, books, camera, etc. folks who have done this way before e-commerce, but now there is nothing you can’t get in NYC “on-Demand.” So, the relevance of the NYC discussion about “instantaneous delivery” escapes me. Let me be clear, the population of the New York City MSA is over 20 million people, with over 8 million living in NYC – What happens in NYC or the NYC MSA has no impact on the rest of the US. So:

  •  If people desire “on- demand delivery” in NYC, then it has no impact on what is desired by other customers in the US
  •  If companies can be profitable doing “on-demand delivery” in NYC, then it has no impact on the economics of “instantaneous delivery” in the rest of the US
  •  Whether companies offer “On-Demand Delivery” in NYC or not has no impact on what these same companies do elsewhere in the US.

So, we need to be clear, NYC is not a relevant leading indicator of anything “on-demand driven.” New York City and the NYC MSA are unique and what works in NYC and what does not work in NYC has nothing to do with Kansas, Wyoming, Chicago, Oz, or anywhere else.

The bottom line is you need to be very careful when reading the articles that try to translate some aspect of business in NYC to business elsewhere. This did not work before e-commerce and it will not work after e-commerce.  The strategy to be successful in business in NYC and in e-commerce in NYC is different than anywhere else and any attempt to translate “business lessons” from NYC to the rest of the US will not work. Dorothy would have understood this the minute she woke up in New York City. New York City is not in Kansas.

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Getting To the Truth About Alibaba: Three Whoppers and a Good One

January 7, 2015

By Jim TompkinsGETTING-TO-THE-TRUTH-ABOUT-ALIBABA
CEO, Tompkins International

Three of the leading news and business publications recently wrote related stories on Alibaba. Between November 30 and December 22 three articles on Alibaba were published that are just plain wrong. I let the first one pass, I took exception to the second, but now with the third one I just can’t hold back.

In brief:

  • On November 30th, a column on China’s Cyber Monday fake sales claimed that Alibaba’s sales numbers for 11/11/14 were fabricated. The author believes that the Alibaba Singles Day numbers were inflated through a buy and immediately return scheme, and “Outright fakery.” The only source in this article is a research assistant at a capital firm and the report cited is nowhere to be found.  So, in my view, the sales as reported by Alibaba of $9.3 Billion during China’s 11.11 Shopping Festival are accurate and this article is incorrect.
  • In another column, published on December 1st, a lobbying group of big-box retailers said that Alibaba “may decimate local companies unless Congress closes tax loopholes for online retailers.” Don’t forget: 1) it has been the big-box retailers that have been putting main street retailers out of business, and 2) Alibaba is not a retailer. So, I understand that big-box retailers want to place a tax on internet sales, but to say that Alibaba is putting local companies out of business is just baloney.  
  • The one that pushed me over the top was a December 22nd piece on Alibaba’s Tmall Global Site. The writer clearly confuses Tmall with Tmall Global. To set the record straight, Tmall is a highly successful website for companies who are registered as a business in China (Chinese and non-Chinese), whereas, Tmall Global is a site for companies who are not registered as a business in China. The article states that Tmall Global “could be a black eye for China’s best known internet company.”  The priority for Alibaba is Tmall. They began Tmall Global as a secondary route to enter the Alibaba ecosystem last February, but they also have other secondary routes through ePass, Borderfree, ShopRunner, and others. Also more than 100 overseas brands are working to set up stores on Tmall Global. Sales on Tmall have soared since being launched. So, Tmall Global is not a black eye for Alibaba, just a lower priority secondary path.

Just before Christmas, a story was published by a host of leading news and business publications that accurately reported on how Alibaba took down 90 million counterfeit products before its IPO.  However, several major sources have yet to report on how Alibaba spent more than $160 million in the last two years to fight fakes. So, credit goes to most major publications on this positive story on Alibaba’s pursuit of counterfeit products.

My concern with the three inaccurate claims listed above has to do with educating business executives on the importance of globalization, technology, and supply chain. These three megatrends are changing how business works. As a leader of analyzing these trends, I see Alibaba as a critical company to follow and feel it is important to do so accurately.  To help executives understand the impacts of Alibaba, you need to see the The Alibaba Effect video. You can count on me to continue to point out the whoppers, the truths, and the stories that are not covered by major publications.

 

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Is a Put System Right for Your Organization?

December 18, 2014

By Tompkins International StaffPut System

Competition among retailers is rising. Delivery is getting faster. Customer expectations are surging.

What do all of these factors lead to? Organizations across all verticals are looking to cut warehousing costs while maintaining a high level of order accuracy—which is an (understandably) difficult juggling act.

The best way to cut costs while keeping strong order accuracy is to choose the right technology to drive your organization forward. We face so many complexities today, from the presence of multichannel, to seemingly endless new technologies. It can be difficult to navigate your way toward the best solution.

Consider Tompkins’ newest paper your “roadmap” for facing this challenge. Put Systems: How a Put System in Your Distribution and Fulfillment Operations Can Overcome Key Challenges explores the advantages of implementing a put system and can help you decide whether it is right for your operation.

Put systems are an innovative and smart solution compared to the cost and complications of a full sorter. They are a game-changing solution for retail store fulfillment, promotions/flash sales, multichannel operations, high growth operations, and operations that are highly volatile. Consider some of the top benefits of a put system:

  • Exceptional order accuracy
  • Improved labor management
  • Reduced training requirements
  • Time phased investments

It all comes down to developing processes and operations that are flexible enough to effectively meet all of the requirements to deliver personalized logistics. Download the paper to learn more about put systems and start thinking about the best way to ensure a multichannel operational design that can meet—and exceed—your customers’ expectations.

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Alibaba is an Opportunity (Not a Threat) for U.S. Retailers

December 9, 2014

By Jim Tompkins
CEO, Tompkins International

Update (December 11, 2014): USA Today published a column yesterday written by small business owner Rex Solomon. The column, “Local Retailers Face New China Threat,” depicts Alibaba as an online retailer and major enemy to American “Main Street” businesses. As I previously discussed in my blog post below, Alibaba is not a retailer or the enemy. Alibaba will flourish in the U.S. with or without tax benefits from Congress. The column discusses Alibaba as if it has not yet arrived on U.S. soil—but you and I both know this is not true. Alibaba.com has been in the U.S. since 1999, and it has been making key investments since 2009 and growing the 11 Main marketplace. Therefore, while I agree with the author’s stance that Congress needs to address tax incentives for online retailers, we need to remember that Alibaba is not the “bad guy” in this discussion. In fact, Alibaba isn’t even related to the discussion of online retail tax incentives at all. Alibaba is an online marketplace, not a retailer.

Alibaba is an Opportunity Not a Threat for US RetailersThis month a series of videos and ads hit the airwaves and the Internet from a group calling itself “The Alliance for Main Street Fairness.” The ads are meant to pressure Congress into passing the Marketplace Fairness Act, which would end sales tax exemptions for online retailers. The group is using scare tactics about a “foreign invader” (i.e., Alibaba), who will “destroy” main street businesses across America, to move lawmakers to action.

Let’s be clear about who is behind this effort. It is NOT an alliance of small and mid-sized “main street” retailers. The truth is that it is a lobbying group fronted by FP1 Strategies, a political consulting firm, and funded by many mega-retailers. There is nothing Main Street about this campaign.

Its efforts to date have been less than successful, so it is now turning to nationalism, protectionism, and xenophobia to move the ball forward.

Previously Amazon, eBay, and other major U.S. e-commerce companies were its targets and illustrated as the villains—to largely no effect. This new campaign inserts China as the threat (with Alibaba as the proxy).

In our ongoing effort to educate U.S. retailers and brands about what Alibaba is and to shed light on the opportunity it represents, I offer these points regarding this story:

  1. Contrary to the Alliance pronouncements Alibaba is NOT a retailer. Alibaba provides platforms for retailers and brands to sell to customers primarily in China (i.e., Tmall for big companies and Taobao for individuals and small businesses) and secondarily to more than 200 other countries, including the U.S. But Alibaba does not sell anything—it is a pure marketplace. It makes its money only via fees and advertising.
  2. Alibaba provides opportunities for U.S. retailers to connect with new customers overseas and opportunities for U.S. customers to connect with companies from around the world. But, again, Alibaba does not sell anything.
  3. Alibaba has no immediate plans to enter the U.S. as a retailer, or to compete with retailers.
  4. It is ridiculous to believe that U.S. retailers, under the banner of “fairness,” would use Alibaba as a scare tactic for domestic legislation. After all, Alibaba is not even in the market, and the Alliances real targets are online retailers.
  5. Retailers need to remember that omnichannel sales and omnichannel supply chains are the key to success. The Alliance needs to get on with pursuing its tax agenda with more integrity and its omnichannel evolution. It needs to stop viewing brick-and-mortar and online as competitive channels.
  6. Demonizing Alibaba as an online retailer risks alienating 1 billion Chinese speaking consumers in China and around the world. This is not a good position to take as China becomes the largest economy on Earth.

The misunderstanding and disinformation propagated about Alibaba and online retail in general by retailers indicates that many of them still do not understand the role of retail in a globalized marketplace.

Borderless e-commerce will be the defining opportunity of the next five years. I encourage retailers to seek ways to profit from Alibaba, not demonize it. A good starting place is to watch The Alibaba Effect video.

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Is Alibaba the Global Farmers Market?

December 4, 2014

By Jim Tompkinsglobal farmers market
CEO, Tompkins International

A week after Alibaba’s mid-September IPO, Jin Jianhang (Alibaba Group President) said: “Business-customer e-commerce in the agriculture sector, along with big data and cross-border e-commerce, will be the company’s main business focuses after the stock market listing.”

Mr. Jianhang also explained Alibaba’s commitment to establishing a dedicated agriculture platform on Taobao.com for farmers to sell products. They could enjoy services including marketing and logistics support, as well as product tracing.  These comments are of significant interest to all consumers, farmers, and grocery businesses even though they are not new thoughts coming from Alibaba. In fact, they are a continuation of many of Alibaba’s philosophies and actions in the past few years:

  • Alibaba’s philosophy of helping small business in China.
  • Alibaba’s focus on cross-border trade: China to the world and the world to China.
  • The growth of the Alibaba cold chain agri-food business that has grown 18 times from 2010 to 2014. It will be greater than $13 billion in 2014.
  • Alibaba is harnessing the desires of the fast-growing middle and upper classes; they are hungry and thirsty for delicious agricultural products. (See the new book China’s Super Consumers by Michael Zakkour to learn more.)
  • The evolution of Alibaba’s interest to expand upon its online grocery business.  Two interesting facts here:
    • My search on Alibaba.com for “Sell Fruit” yielded 4,764 suppliers. These suppliers were 72% East Asia, 6% South Asia, 6% Southeast Asia, 2% North America, and 14% other. The markets included 3,612 wholesalers in North America, 3,502 in Western Europe, 3,373 in Eastern Europe, 3,302 in South America, and many more throughout the world.
    • Alibaba’s Taobao grocery business continues rapid growth in both “center-of-the-store” pantry items and “outer ring” cold chain items. Add to this the prediction made in the video The Alibaba Effect that Alibaba will be entering the U.S. online grocery business over the next two years, and the importance of the role Alibaba plays in the global food chain is clear.

Online grocery in the U.S. today is only 3.5% or about $23 billion per year. Over the next 5 years, I believe this number will surge to more than $100 billion. Alibaba has good experience in this sector in China and has a good start working with suppliers, plus a strong desire to pursue the U.S. market.

So, is Alibaba the global farmers market? I’m not convinced yet, but stay tuned. I do know that Alibaba will soon have a substantial outreach in filling your pantry, refrigerator, and freezer in the years to come.

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Michael Zakkour Talks “Top Gear” TV Show in China

December 3, 2014
Top Gear TV Show

www.bbcamerica.com/top-gear

By Tompkins International Staff

Ever watched the British television show “Top Gear”? If you haven’t, you are missing quite the party.  The show is hosted by three presenters who offer a humorous, quirky, but factual dialogue about motor vehicles of all shapes and sizes.

In the past few years, the “Top Gear” show platform has spread to other countries, including the United States, Russia, and Australia. The BBC recently announced that it has signed a deal to produce a local version of the car series in China. The first episode premiered in November of this year and is hosted by three Chinese celebrities.

Michael Zakkour, a principal at Tompkins International and author of China’s Super Consumers, recently spoke with the BBC about the motoring show debuting in China. Watch the video below and learn how Chinese consumers who love cars and foreign entertainment will make “Top Gear” a huge entertainment success in the region.

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Retail E-Commerce: Don’t Get Your Head Buried in the Sand

December 2, 2014

By Jim TompkinsRetail E-Commerce
CEO, Tompkins International

Would you be surprised if I told you there are still many who are in denial about the reality of retail transformation? There are business leaders with their heads buried in the sand, refusing to accept and understand that retail and shopping are forever changed. What is most interesting is that many North Americans are those that are in denial. The U.S., Canada, and Mexico are all very different, but they all have their “retail heads” equally buried in the sand:

  • United States: A recent Businessweek article argued that Singles Day will not catch hold in the U.S. because 1) November 11 is already Veterans Day, 2) There is not room between back-to-school sales and holiday sales for even more sales, and 3) We already have enough U.S. holidays. But I disagree with all three of these arguments. I am a proud U.S. Army veteran, but that does not occupy my entire November 11. Also, most Black Friday Sales, Thanksgiving Sales—and yes, even Cyber Monday Sales—begin in early November. I think November 11 would be a smart U.S. sales date because it is roughly 90 days after back-to-school sales and 45 days from December 25. In addition, the Alibaba Group 11.11 Shopping Festival is not considered a holiday or an official day off work.  
  • Canada:  Last week I wrote a blog post about Alibaba in Canada and how the Canadian Prime Minister met with Alibaba’s founder Jack Ma to discuss the possibility of selling Canadian agricultural products to China. This resulted in very little feedback, with some even focusing on why Canada would want to “have a relationship with a Communist country.” (Sigh.)
  • Mexico: In discussions with several business leaders in Mexico, I was told e-commerce in China is not and will not be relevant because most Mexicans do not have credit cards and logistics for e-commerce delivery in Mexico is difficult. But that would mean Alibaba could never have been successful in China because fewer Chinese people had credit cards in China than in Mexico, and the logistics for e-commerce delivery in China was impossible. Some leaders in Mexico are clearly overlooking an important opportunity.

Overall, the U.S. is in denial about the huge success of Alibaba and its implications on cross-border trade. To learn more about Alibaba, you need to see the The Alibaba Effect video. Next there is Canada, who is in denial about Chinese consumers and the unlimited potential for Canadian farmers to sell agricultural products to China. To learn more about China’s consumers, read the new book China’s Super Consumers. Finally, Mexico is in denial about the challenges Jack Ma faced when he began Alibaba in China. Jack has not only overcome these challenges, but he has created what will become the world’s largest retail platform in 2015.

Alibaba’s IPO this past September was the largest in the history of business and its goal is cross-border trade. China is the fastest growing economy in the world, and is in close competition with the U.S. to become the largest economy in the world. Plus, Alibaba took in $9.3 billion of retail sales on Singles Day this year.

E-commerce and omnichannel retail will change the world and the supply chains of the world. If your head has been in the sand, don’t worry—you’re not alone. Go ahead and pull your head out, comb the sand out of our hair, and embrace the largest business transformation of all time.

Photo credit: www.graphicstock.com

10 Facts You Didn’t Know about China’s Super Consumers

November 11, 2014

10 Facts You Didn’t Know about China’s Super Consumers By Tompkins International Staff

China’s super consumers are the biggest and most important consumer class in history. In his new book China’s Super Consumers: What 1 Billion Customers Want and How to Sell it to Them, Tompkins International Principal Michael Zakkour explores the extraordinary birth of consumerism in China and explains who these super consumers are. Take a look at 10 interesting insights from the book:

  1. No matter what products or services you are selling, you cannot succeed in China or with Chinese consumers without first mastering culture, history, language, and philosophy.
  2. There is no “how to succeed in China” formula. Every company must start with the above to determine strategy, then implement structure and adjust every six months.
  3. China is not a “market,” but rather it is comprised of 22 distinct market clusters. The old model of marketing to Tier I, Tier II, and Tier III cities no longer applies.
  4. China has the second highest number of billionaires, only surpassed by the US. It also boasts 2 million millionaires and the world’s largest middle class at 350 million (will grow to 500 million in the next 5-10 years).
  5. China went from Sandpaper to Sephora and Feudalism to FENDI in 30 years. Consider this: in the late 1970s, Chinese women used sandpaper on their faces because there was no makeup. French cosmetics retailer Sephora now has more than 250 outlets in China. 
  6. There is now a “China Global Consumer Demographic.” Companies must have a “China-US-World” strategy to engage them everywhere, not just in China.
  7. China has more e-shoppers (400 million) than the US has people (320 million).
  8. Alibaba, the world’s largest e-commerce company, generated $100 billion more in revenue than the second and third largest e-commerce companies (Amazon and eBay) combined in 2013. (Click here to watch The Alibaba Effect)
  9. The Chinese are thirsty—they drink more beer and wine than any country on Earth and have made China Starbucks’ #2 market in the world.
  10. Companies must rethink their global, regional, and local supply chains for China as the country is now a market as well as a production hub.

Click here to order your copy and visit www.chinasuperconsumers.com to learn more.

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What’s the Big Deal: 9 Most Interesting Alibaba Facts

November 10, 2014

9 Most Interesting Alibaba FactsBy Tompkins International Staff

Alibaba made a big splash with its recent IPO and subsequent publicity. But that’s not the only reason this company is such a big deal. The more you learn about Alibaba and its leader Jack Ma, the more fascinating the story really is.

We’ve outlined nine of the most interesting facts about Alibaba, with more happening on a regular basis. Let’s check them out:

  1. Alibaba boasts 81% of online business in China, also known as the world’s largest e-commerce market.
  2. In 2014, Jim Tompkins estimates that U.S. e-commerce with reach $475B, China will be at $540B, and Alibaba will be at $450B. Alibaba alone will nearly equal all e-commerce in the U.S. in 2014.
  3. By 2020, we believe China’s e-commerce will be larger than that in the U.S., UK, Japan, Germany, and France combined. That is the power of China’s super consumer. Order your copy of Michael Zakkour’s new book, China’s Super Consumers, to find out why we think this will be true.
  4. We predict that Alibaba will be the world’s largest retail platform next year. Yes, bigger than Walmart.
  5. Alibaba is the fastest growing e-commerce company in the world in the fastest growing market. The company’s growth rate since 2003 has approached 120%/year and has grown at a rate of 70% between 2009 and 2013.
  6. In the 24 hours of “Singles Day” (11/11/2013), Alibaba handled $5.75B in sales. This was 80% more than 2012 and 3 times what U.S. retailers sold on Cyber Monday. Tompkins’ prediction for 2015 “Singles Day” is $8B in sales.
  7. Last year UPS and FedEx handled 5 billion packages. In China, Alibaba spurred the delivery of 5 billion packages.
  8. Alibaba is profitable with 2013 revenue of $8B–a profit of $3.6B for a profit margin of nearly 45%.
  9. Alibaba’s September 2014 IPO was the largest IPO in history.

Is Alibaba more than you thought it was before reading this blog? Keep the bigger picture in mind of how significant this company is to retail and e-commerce. To learn more, watch The Alibaba Effect video.

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Photo Credit: Andrew Burton Getty Images

Why Have 80,000 People Watched The Alibaba Effect?

November 6, 2014

Alibaba-Effect-Video-Goes-Over-80kBy Jim Tompkins
CEO, Tompkins International

More than 130 days ago we released the video The Alibaba Effect. Yesterday, the video surpassed 80,000 views. Yes, 80,000!

Why? The majority of business videos do not get 80,000 views in a little over 130 days. If you search Alibaba or Alibaba.com, you’ll find only a handful of videos with more than 80,000 views and many of them were released years ago.

So the question is: Why have 80,000 people watched this video? We went straight to the source and asked viewers. Here are the top 8 reasons:

  1. I had never heard the name Alibaba and I wanted to understand what they do.
  2. I saw the 60 Minutes show on TV and I wanted to learn more about Alibaba.
  3. My co-worker said the video was full of startling facts that he felt I needed to understand.
  4. I was looking at doing business in China and a search of online businesses in China led to this video.
  5. A friend felt this was a big deal and suggested I needed to see it.
  6. I read an article about Alibaba and the article said if you were in retail I needed to watch this, so I did.
  7. My boss sent me a note saying: “Watch this video and then let’s discuss.”
  8. I heard a speaker at a conference mention the video and so I wanted to see what all the excitement was about.

Very interesting!  I would love to hear your feedback and why you watched—or are going to watch—the video. Let me know in the comments section below or tweet me @jimtompkins.

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Photo credit: www.graphicstock.com

Five Retail Industry Statements that Missed the Mark

November 5, 2014

e-commerce fulfillment centerBy Jim Tompkins
CEO, Tompkins International

There was a brief news article last week (read it here) about the future opening of an e-commerce fulfillment center. What made the article jump off my computer screen were the uninformed statements made about American retail business. Let’s take a look:

  1. On the third line, there is a quote from the Governor of Illinois: “We are in the middle of the United States, with excellent transportation, and great air and rail connections.” The Governor does not seem to grasp the e-commerce mandate of “Get local” or the reality that the Illinois-based fulfillment center has nothing to do with air or rail transportation.
  1. The next quote is from a Senator from Illinois: “This is also our history — it’s Sears, Montgomery Ward, every retail giant comes here because they understand Chicago is the focal point when it comes to retail operations.”  The Senator is actually suggesting that a reason for locating a fulfillment center close to Chicago is so you can follow in the footsteps of the “retail giants” Sears and Montgomery Ward.
  1. Quoted from lines 10 and 11: “The trends include the reshoring of manufacturing to the US…” is a reason to locate the new fulfillment center “into the middle of the US…”The “reshoring” thing has not been a huge success. Yes, some companies are bringing manufacturing “back” to the US, but more are moving manufacturing offshore or via nearshoring to Mexico. Nevertheless, this has nothing to do with a fulfillment center in the middle of the US.

There were several other areas that missed the mark about e-commerce:

  1. E-commerce sales only being only 3 to 10% of total sales, thus meaning e-commerce is not that important.  Shopping is not about online or in-store, but omnichannel. The reality is that 94% of all US retail sales start online. So to say that e-commerce is not very important is far from reality.
  1. Similarly, the next statements about retail were made recently in a report entitled “On Solid Ground: Brick-and-Mortar Is the Foundation of Omnichannel Retailing.” The report includes mind-blowing statements such as:
    • “Physical stores remain the foundation of retailing.”
    • “Physical stores are clearly customers’ preferred shopping channel and a place where the most significant consumer and retailer value continues, and will continue, to be created.”
    • “The future of retail is solidly anchored in the brick-and-mortar channel.”

Let’s be realistic about changes happening in retail and get informed on the consumer expectations facing the retail industry today. Today’s consumer won’t wait for anyone to catch up.

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Photo credit: Ross D. Franklin AP Photo

A B2B Question from the Floor (that Almost Knocked Me to the Floor)

October 1, 2014

Major impacts of globalization, technology, and supply chain on commerce

By Jim Tompkins
CEO, Tompkins International

I was speaking at a large conference about the major impacts of globalization, technology, and supply chain on commerce. At the beginning of my presentation I defined commerce to include retail, consumer products, wholesale, and distribution.

At the end of my presentation, someone asked: “I really understand what you are saying for B2C, but is there anything happening in B2B? Is anything you said relevant for B2B?” 

My first reaction was, Good question, I really need to help B2B people grasp the magnitude of what is coming their way.

But then the words “is anything happening” and “anything relevant” burst into my mind. To be honest, I was speechless for the first time in many years. I answered the question by explaining how B2B is in as much of a transition as B2C, and everything in my presentation was relevant to both B2B and B2C.

Obviously I was totally floored by this question. Over the next few days, I contemplated my response. Now that I’ve (figuratively) gotten up from the floor, I’d like to share what I think is the best answer to that question.

The B2B space is undergoing massive transformation as a result of major changes in customers, distributors, and technology. In fact, every aspect of B2B is changing and B2B players who are doing the same things today as they did 5 years ago will become obsolete.

The first area in B2B where major changes are occurring is with the B2B customer. Today’s B2B customer demands low prices, great experience, very broad selections, and convenience that were considered unachievable only a few years ago:

  • Low prices: B2B customers have traditionally not been as sensitive to price as B2C customers. But with the power of the internet and the large number of manufacturing companies selling online, today’s B2B customer is shopping online for prices. A recent survey showed that 61% of B2B customers believe product price is extremely important and 31% think it is very important. A total of 92% of B2B customers feel that price is at least very important. If 92% of all B2B customers find their industrial distributor total delivered price is significantly higher than the manufacturer’s price, they will buy directly from the manufacturer (which was not even an option 5 years ago).  In addition, most of today’s B2B customers have more than one preferred B2B provider and more than one-third of all B2B customers shop online outside of their existing supply base to ensure competitive pricing. Contrary to traditional B2B thinking, low total delivered price is a critical factor in B2B buying decisions
  • Great experience:It’s clear that today’s B2B customers have very high expectations of their suppliers. This includes everything from real-time product availability and enhanced search to improved product descriptions and streamlined checkout/invoicing.  The B2B buying experience includes mobile ordering, ability to see estimated delivery dates, order status, order history, repeat ordering, personalization, workflow management systems and transparent shipping, and return and restocking fees.
  • Broad selection: Today’s B2B customers demand a selection of products that is both broader in variety and deeper in offerings. One of the major drivers of B2B mergers and acquisitions is the buying of distributors who offer different products and then integrating these distributorships to offer a broader selection to customers. Another way to achieve a broader selection is by acting as a marketplace. (To understand more about marketplaces, watch the video The Alibaba Effect.) Marketplaces place product offerings on your site for sale even though you do not have any inventory of these items. Orders for these “stockless inventory” items are simply passed to your marketplace partner who drop-ships the products to your marketplace customers. These stockless inventory items can allow you to literally offer an “endless aisle” of product offerings without increasing inventory.
  • Convenience: Customers generally equate “convenience” with the ability to order online and the speed at which they can obtain their order. Recent research shows that 67% of all B2B customers believe the ability to order from a website is either extremely or very important. B2B customers are like B2C customers in that 25-30% is willing to pick up their order. For both pickup and delivery of orders, the speed of delivery is facilitated by having by the “Get Local” concept of having branches near the customer’s location. In fact, 92% of all B2B customers say having a physical location where they can easily purchase or pick up product is extremely or very important. In addition, 85% of all B2B customers say that having an accurate estimate of the delivery window is extremely or very important.

In addition to B2B customers, industrial distributors have also undergone massive transformations. Just a few years ago, industrial distributors were predominately family-owned businesses built on decades of service and personal relationships. The industrial distribution industry has been highly fragmented, with the sales representatives considered the most important employees who help guide the B2B customer to the products they need. However, due to a combination of the customer wanting to deal with fewer industrial distributors and mergers and acquisitions among industrial distributors, traditional family-owned distributors are becoming a rarity.

Research shows that 68% of all B2B customers prefer doing search on distributor websites and only 58% of all B2B customers feel having that a sales representative is extremely or very important. In the 2013 white paper “Industrial Distribution at a Crossroads,” we presented the reality that for industrial distributors to continue to be successful, they need to adopt the right strategy, the right technology, and the right supply chain. Failure to do so leads to turmoil and eventually bankruptcy.

Let’s not forgot about the changes in technology too. B2B customers have forced industrial distributors to adapt technology and the industrial distributors themselves have understood and embraced this need for technology. B2B customers rely on technology, from the initial research on what they want to buy all the way to the delivery of their desired products. There is no aspect of creating a happy B2B customer that is not driven by or supported by technology.

A recent UPS report on B2B purchasing Insights concluded that e-commerce needs to be embraced (but not exclusively). Suppliers who are not yet online risk being excluded from consideration by buyers at all spending levels. While traditional selling methods should not yet be abandoned, it is difficult (if not impossible) to compete if you are not present on a platform where the majority of buyers are spending their budgets.

So let’s ask the question again: Is anything happening in B2B? You bet. In fact, as more people grasp the transformational implications of e-marketplace Alibaba, we are left considering the real question: Is there anything in B2B that is not changing?

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Alibaba IPO: Just Give Me the Facts

September 9, 2014

Alibaba IPO: Just Give Me the FactsBy Jim Tompkins
CEO, Tompkins International

I’ve been reading a lot of articles lately that toss around Alibaba IPO numbers. There are so many variables and this is really a big deal. (I have never tried to sell $20+ billion of stock—but it can’t be easy.) Given the many variables, I’d like to present the ranges I believe are reasonable for the Alibaba IPO, as well as the emotions and significance of these numbers (which is maybe even more important than the numbers).

Of course, I am not an employee of Alibaba, I don’t own stock in Alibaba, and I have never done consulting work for Alibaba. But I am a CEO of a supply chain consulting and implementation firm that does a lot of retail and consumer products consulting. I am student of Alibaba and I have conducted extensive research on the company, its founder Jack Ma, and its past, present, and future. Watch my video The Alibaba Effect to learn more about the Alibaba phenomenon.

Let’s look at the IPO share price and cash raised first. I believe the Alibaba IPO share price will be between $60-$70 and that the IPO cash raised will be between $20-$25 billion. To be the largest IPO ever in the world, Alibaba needs to raise more than the $22.1 billion that was raised by the Agriculture Bank of China, Ltd. in 2010. To be the largest in the U.S., Alibaba needs to raise more than $19.96 billion raised by Visa in 2008 (Facebook was only $16 billion in 2012). The Alibaba team will be conducting 100 meetings globally over the next ten days, and the result of these meetings will affect where Alibaba will land in these ranges.

I believe the valuation range for Alibaba’s IPO will be between $155-$170 billion. A fun side note: Amazon’s current valuation is $160 billion, and Alibaba may think it would be cool to be valued at more than Amazon. My view of today’s actual current valuation is $190-$220 billion. So why would Alibaba position its IPO at a valuation lower than the actual valuation? Good question. The reason is because Alibaba has unique IPO objectives. Alibaba is not going public to raise cash. Alibaba’s objectives are to:

  1. Increase its brand recognition as a result of the IPO. In turn, this will grow the participation of global companies on TMall, increase U.S. awareness of Alibaba, and position Alibaba as the leading global retail platform.
  2. Boost its momentum. Alibaba is very aware of poor publicity that befell the Facebook IPO due to the poor performance of its stock shortly after their IPO. This will not happen to Alibaba. Its goal is to see its stock price increase after the IPO by offering shares at their IPO at a conservative price, thus almost assuring significant gains going forward. This gives Alibaba the much desired momentum going into the 4th quarter.

Are you wondering if going with a conservative valuation makes Alibaba shares a good deal? Yes—I believe buying Alibaba stock is a very good deal. (But hey, that’s just me.)

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Photo Credit: Photographer Andrew Harrer Bloomberg

What’s Happening with Alibaba: Profits Soar as IPO Nears

September 2, 2014

Alibaba initial public offering (IPO)By Jim Tompkins
CEO, Tompkins International

The Alibaba initial public offering (IPO) is just weeks away and things already look promising for the Chinese e-commerce giant. In a recent New York Times article, “Mobile Sales Lift Alibaba Profit Nearly Threefold, Ahead of I.P.O,” profit numbers for the last quarter have tripled to $2 billion, with sales jumping 45% to $2.5 billion.

The New York Times now says what I have been saying for the last 10 months—that the Alibaba IPO has the potential to be one of the biggest ever and that the offering could raise up to $20 billion. Alibaba’s financial success is a result of its increase in mobile capabilities, and thus, mobile sales. The article says that “nearly a third of Alibaba’s gross merchandise volume, or the value of goods sold on Alibaba’s marketplaces, comes from mobile transactions, compared with just 12 percent a year ago.”

This rings true to what I discuss in my video, The Alibaba Effect. Alibaba and its founder Jack Ma are changing the way supply chains are viewed and clearly Jack Ma will do whatever it takes to succeed.

As Alibaba’s numbers continue to climb, make sure you have watched The Alibaba Effect video and create your game plan. From the “get local” movement to e-commerce planning, you need a firm understanding of how to optimize your supply chain and e-commerce strategy in order to be successful as Alibaba’s IPO looms.

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Photo Credit: http://logonoid.com

Confusion Reigns as the Question Persists: What Exactly Is Omnichannel?

August 27, 2014

Confusion Reigns as the Question Persists: What Exactly Is Omnichannel?

By Jim Tompkins
CEO, Tompkins International

I recently read a July 2014 report titled “On Solid Ground: Brick-and-Mortar Is the Foundation of Omnichannel Retailing.” While there are a few points in the report that show some understanding of omnichannel, I also disagree with many of the points it presents and believe it only adds to today’s confusion surrounding omnichannel.

Consider the following quotes from the report, as well as my thoughts:

  • “Digital retailing is capturing headlines and inspiring spirited debate as retailers plan how best to invest for future success. But beyond the headlines, physical stores remain the foundation of retailing, evidenced by the fact that 90 percent of all retail sales are transacted in stores.” This is simply untrue. Omnichannel means all channels work together to provide a great customer experience. Most customers use multiple channels to shop, so to credit the channel where the actual transaction takes place indicates a total lack of understanding of omnichannel.  In fact, where a sale is transacted has nothing to do with the importance of omnichannel. Think about it this way: If a customer finds an item that they like online and then goes to the store to buy it, is this an online sale? No. Is it an in-store sale? No. It is an omnichannel sale. Accounting systems that track where a sale takes place have nothing to do with the concept of omnichannel. Therefore, it is critical to identify the capabilities of your many segmented supply chains and enable them to achieve omnichannel sales potential at a minimal cost.
  •  “Physical Stores are clearly customers’ preferred shopping channel and a place where the most significant consumer and retailer value continues, and will continue, to be created.” This is also completely untrue. Place this in the context of the August 8, 2014 Wall Street Journal article “Shoppers Flee Physical Stores.” The opening sentence reads: “US retailers are facing a steep and persistent drop in store traffic, which is weighing on sales and prompting chains to slow store openings as shoppers make more of their purchases online.”  Omnichannel is not about a competition between channels.  In fact, retailers need to realize that customers do not even think about channels. Channels are the retailers’ issue. Customers want to buy from you and use your various channels to support that purchase. Shopping is not about having a preferred channel—it is about finding the price, selection, experience, and convenience that fills your needs. Shopping must be omnichannel! Look at requirements of today’s final delivery to customers and you can see the major transformation that is occurring with same-day, next-day, second-day, and local delivery service providers. Innovation in final delivery is clearly being driven by the shopper fleeing the physical store and preferring alternative shopping channels.  This may lead to a need for retailers to be creative in driving traffic to the stores, but clearly how retailers make innovations in their delivery capabilities is the key to future growth.
  • “The store plays a crucial role in online purchases, as two-thirds of customer purchases online use a physical store before or after the transaction.” The whole point is that all channels work together for omnichannel success.  All channels are critical, and a strong channel management strategy is the answer to the success of retail.  Stores that support online are what omnichannel is all about. In a similar way, online helps stores: more than 60% of all retail purchases are influenced by online. But, this does not mean stores or online are the keys to success. This means that omnichannel holds the true key to success.
  •  The future of retail is solidly anchored in the brick-and-mortar channel.” Again, this is nonsense. If a portion of your channel management strategy is to have stores, then these stores will play a key role in your omnichannel strategy. But the future of retail is not in one channel or another, but in omnichannel.  Retailers that do not recognize this will not only operate with a channel strategy that is inflexible and unable to adapt to the rapid changes in customer preferences, but the supply chain will be a huge driver for escalating costs and act as a bottle neck to achieving best-in-class customer satisfaction.

When I first read the article, I was confused. But then a second, more careful read brought an answer: A short excerpt about the study reads: “This independent survey of consumers and retail executives was funded by, and completed in cooperation with, leading U.S. shopping mall real estate developers.” There you have it—so much for trying to make sense out of nonsense.

Photo Credit: Tim Reckmann

Doubts About Alibaba and Jack Ma? Find Out Why the Critics Are Mistaken

August 18, 2014

By Jim Tompkins
CEO, Tompkins International

Doubts About Alibaba and Jack Ma? Find Out Why the Critics Are Mistaken

Jack Ma, Alibaba founder

I was fascinated this past week when it was reported by the The New York Times (among others) that “Doubt is Cast on Vetting of Deals by Alibaba.”

As everyone knows, I am a keen student and researcher of Alibaba. In my recent video, The Alibaba Effect, I discuss not only the amazing story of the e-commerce giant—nearing its announced IPO in just a few weeks in the U.S.—but I also comment on the intelligence, entrepreneurship, foresight, and risk-taking of its renowned leader, Jack Ma.

The newspaper reported, essentially, that Alibaba has been on a buying spree since 2013, spending billions to acquire stakes in businesses such as department stores and mapping services in China, as well an array of technology start-ups in the U.S. In addition, the article indicates that its recent acquisition control of a Hong Kong film company just two months ago (now called Alibaba Pictures Group) might not have been “fully vetted,” and that “possible non-compliant accounting issues” have since been discovered.

The article further asserts (via “experts”) that “Alibaba has little expertise in many of the new businesses,” which means that it has to rely on incumbent managers in business decisions; and, that “Alibaba, like most Chinese companies, does not have the ability to manage the increasing number of unfamiliar yet decentralized divisions and people.”

I find these assertions fascinating because the so-called “experts” are most often those who do not take risks, do not experiment, and do not learn by doing.  Jack Ma has been pushing the envelope, out-learning them, and moving forward with a speed unheard of by Western analysts. He has a great vision, is on a path to learn rapidly, and is following that with passion.

Whether or not a financial or accounting detail was missed by his highly qualified advisors is not the point, and it is certainly not any criticism to be considered in the soon to be conducted IPO.

Interestingly, the critics have also recently reported certain structural weaknesses or irregularities in Jack Ma’s corporate organization. Amazingly, he acted within a week to adjust these to provide more clarity and transparency, as well as reorganize them to meet more “commonly accepted standards.”

Jack Ma has publically discussed his goal of growing a major global business for the long term, while moving quickly to build his presence in the short term. As I discuss in some depth in The Alibaba Effect, he is doing just that. The ramifications for any business in the world are significant, and we are encouraging, and working with, many companies to prepare for and take full advantage of these effects.

As Alibaba’s founder follows this rapid roadmap, he is quickly learning about different industries—e-commerce, Internet and store retail, banking, Internet video, mapping services, microblogging, web browsers, and now entertainment, as well as learning more and more about different countries and cultures.

I very much doubt this fast-paced “study, acquire, learn, and profit model” will slow down, either before or after the IPO. He is taking calculated risks to apply this model and turning it into a big advantage.

Others can criticize and use old-school criteria to find faults, but Alibaba and Jack Ma are changing the world while the debates persist. As some wise people have stated before, “Either get on the fast-moving train or get out of the way.” And as the video conveys, smart companies will prepare now for the growth and profit ride.

What are your thoughts on Alibaba’s fast track towards success? How are you preparing to compete?

 

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Photo Credit: World Economic Forum

Thoughts on Upcoming Alibaba IPO: What’s in a Name or Number?

July 7, 2014

By Jim TompkinsAlibaba IPO

Since 1999, when Alibaba first started their marketplace of Alibaba.com, it has been clear that the Chinese company has a strong passion for the U.S.

With the recent news of Alibaba going public, some are surprised that they selected the New York Stock Exchange (NYSE) over NASDAQ, that the ticker symbol will be “BABA” and in my view, puzzled as to why the date and price of the IPO will involve the numbers “8” and “9”. None of these things come as a big surprise to me.

A few revealing points to consider on the Alibaba IPO:

  1. There was an active discussion about where Alibaba would go public. To some, the two finalists were New York and Hong Kong. Unless there were compelling business reasons to the contrary, the answer was always going to be New York because Jack’s vision has always been to be a global firm with a Chinese philosophy and an American base.
  2. The selection of the NYSE over the NASDAQ. For the same reasons that #1 is not a surprise: the NYSE is the largest stock exchange in the world by market capitalization and can also be classified as “more American.”
  3. The ticker symbol “BABA” also was predictable. The two Chinese translations for the word BA are “8” and “fortune”, “wealth” or “prosperity.” Additionally, 8s are very prominent in China—from flight numbers ending in 8, to the opening ceremony for the Beijing Olympics on 8/8/08. Telephone numbers with 8s are also valued, as is the 88th floor of buildings. This significantly stands out in pricing as many ending with 8 (1.88, 2.88, etc.).
  4. Consistent with #3, I anticipate the date and price of the IPO to involve the numbers “8” and “9” (the number 9 translates into “long lasting”). Also, for the exact opposite reasons, I do not expect to see the “unlucky numbers” 4, 5, or 6 associated with the date or offering price for the stock.
  5. The new “All-American” name of the Alibaba marketplace, 11 Main. We get that 11 Main is on Main Street, as in Main Street USA. So, the connotation is not a supercenter or a mall, but rather on Main Street. This is a clear indication that 11 Main will be anti-big box, anti-mass merchant, and a pro-neighborhood shop—a place not to buy everyday common products, but a venue to buy unique and exciting products. But what is so special about 11? This instantly makes me think of 11/11, which is Singles Day in China. Before November 11 was the big Chinese shopping day, it was the big relationship day in China. November 11 was traditionally the day that boy meets girl, who then lived happily ever after. The number 11 then, not from Chinese tradition, but from Singles Day, means a personal relationship. So, what the 11 in 11 Main translates to is a neighborhood place where there is a strong relationship between the merchant and customer. It is a very cool marketplace for the first wave to hit the American shore. But it is not BABA Main, I mean 88 Main, it is 11 Main.

And finally, it is fascinating to watch how Alibaba is changing the way supply chains are viewed in the U.S. In my new video, The Alibaba Effect, I discuss these points in more detail. What you will hear is critical and will help you plan your counteroffensive now and lead your company to success in omnichannel.

 

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Photo Credit: Daniel Foster