E-commerce in the cross hairs

By Wang Cong Source:Global Times Published: 2015-11-16 19:13:02

Alibaba faces criticism for knockoff products, undermining physical retailers

After scoring big on November 11, the day Alibaba Group Holding has cultivated into the biggest online shopping day in the world, the e-commerce giant has found itself the subject of a debate about whether e-commerce is good for the economy as the booming industry has caused problems for many bricks-and-mortar stores. At the same time, the company continues to face persistent allegations of facilitating the sale of counterfeit goods. Experts and consumers have called for it to implement more measures to ensure the quality and authenticity of the goods sold by its vendors. For its part, Alibaba has insisted that it has confronted the issue head on.

Photo: CFP

Business was good in 2008 when Li Guoguang opened his wholesale electronics store in Taizhou, East China's Zhejiang Province. But in the past two years, Li has seen his revenue fall, forcing him to cut his staff and consider closing his store.

"I will try to keep it open, but it doesn't look promising," he told the Global Times on Sunday.

Li said every electronics wholesaler is facing a similar situation, and a lot of workers and their families are affected.

The trouble of physical retailers is largely the result of the boom in China's e-commerce industry, which has changed the buying habits of millions of Chinese consumers, who now turn to online shopping sites like Taobao for most of their needs.

"There are so many more options online, and I can buy same products at lower prices and sometimes with better quality," said Hailai Xiaoping, a resident of Chengdu, capital of Southwest China's Sichuan Province, who has been shopping online for six years.

With more consumers like Hailai who prefer to buy everything from clothes to food online, local bricks-and-mortar stores are losing business.

"Most people don't come to our store to buy products," Li said. "They just come in and look at our products and then go online to buy them."

Revenue for Li's store has fallen by more than 20 percent a year since 2014, and staff has been cut almost by half. Li has tried to adapt to the changes in the industry, but it hasn't gone as well as expected.

He opened an online store in 2013, but sales did not improve, and advertising costs were high. Worse yet, the profit margins on his online sales were slim because "you have to lower your prices to compete with others," he said.

Debate of the day

As physical stores struggle amid the e-commerce boom, a debate has emerged about the impact of the e-commerce on the overall economy.

An article circulating on social media has accused Taobao of "strangling creativity in many industries" as price cutting has become the only way for sellers to compete.

The article went on to say such a price war was waged by Chinese e-commerce conglomerate Alibaba Group Holding to profit, and it's disadvantageous to consumers and the overall economy.

However, such a view is a "total exaggeration" that has no basis, said Xu Zhipeng, an industry analyst at Beijing-based market information provider Zero2IPO Group.

"It's actually good for the economy because even though sales at physical shops might go down, overall consumption is growing," Xu told the Global Times on Sunday.

In response to questions regarding the impact of its business on the overall economy, Alibaba said it has launched programs to boost demand and help businesses.

Alibaba said in an statement sent to the Global Times on Sunday that its business-to-consumer platform Tmall can help businesses make production decisions based on market demand, while its "Made in China" program was specifically designed to help companies build their brands.

In addition, Alibaba has been able to boost demand by starting the Singles' Day mega sale, which offers small businesses a better chance to showcase their wares to the market, the statement said.

Alibaba started its annual Singles' Day event on November 11, 2009. It has since become the world's largest online shopping day. This year, Alibaba reported a record $14.3 billion in sales on its online shopping platforms.

Knocked for knockoffs

However, cutting into the business of physical retailers is not the only thing Alibaba has been accused of. The company has also been criticized for the illegal or imitation products being sold on its online platforms.

Experts said counterfeiting is a serious issue in China, but it is even worse on Alibaba's platforms, and the company needs to address the issue to achieve its global ambitions.

Alibaba has long been accused of facilitating the sale of knockoff products. It's currently the subject of a lawsuit by Paris-based Kering SA, which owns luxury brands such as Gucci and Yves Saint Laurent, for copyright infringement and the sale of counterfeit products.

After Alibaba Chairman Jack Ma Yun ruled out the possibility of settling the case out of court, Kering asked a US judge to be relieved of the obligation to mediate, saying the process looks "futile" at the moment, Reuters reported last week, citing court document submitted by Kering's lawyers.

Ma said that there was no chance Alibaba would settle the case, according to an article in Forbes.

"I would [rather] lose the case, lose the money … but we would gain out dignity and respect," he told the magazine.

The sale of counterfeit goods is a "fatal injury" for Alibaba, Xu said. The company needs to address the issue soon because it will take a while to "eradicate" knockoff products on its platforms.

Consumers also said addressing the counterfeit issue would help boost their confidence in the company, and encourage more shopping.

"Customers will lose confidence if they receive a fake product when they expected a real brand," said Fredrik Vold of Norway, who uses Alibaba's global shopping site aliexpress.com. He said counterfeit goods hurt the company's credibility.

Alibaba insisted that it has taken a number of measures to eradicate counterfeit products on its sites.

"At Alibaba, we have never relaxed in our fight against counterfeit products," the company said in the statement, adding that it has spent more than 1 billion yuan ($157 million) on such efforts from 2013 to the end of 2014.

Alibaba has also introduced multiple authenticating processes and return policies that involve counterfeit goods.

Also, in an interview with Bloomberg News last week, Ma said his company has been working with law enforcement agencies in the fight against knockoff products. The company's efforts have helped catch 500 offenders and destroy millions of phony products.

Alibaba will continue to fight against counterfeit products because it's in the company's interest, said Li Chao, an analyst with iResearch Consulting Group.

He told the Global Times on Sunday that although Alibaba didn't create the problem, as the largest e-commerce company, it should take the lead and create a "clean and fair" market that benefits businesses and consumers.

Posted in: Insight

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