What’s At Stake Behind Alibaba-Office Depot’s ‘Strategic Collaboration’ by Forbes – Entrepreneurs

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Office Depot and Alibaba in a ‘strategic collaboration’ will target U.S. small and medium-sized businesses.Office Depot and Alibaba

In a sign China’s online giant Alibaba Group may increasingly face off Amazon on the U.S. online giant’s home turf,  office-supplies chain Office Depot Inc. and Alibaba’s international wholesale marketplace Alibaba.com inked a “strategic collaboration” to provide a one-stop shop of products and services that will go way beyond providing office supplies for U.S. small and medium-sized businesses.

Office Depot and Alibaba, through a co-branded online business-to-business wholesale marketplace, said the arrangement will allow each to benefit from the other’s respective strengths. Office Depot: its 10 million plus U.S. business customers, a sales team of about 1,800, a logistics network that it said can reach nearly 99% of U.S. businesses with next day delivery, and about 1,350 combined Office Depot and OfficeMax retail locations. On Alibaba.com’s end: a global network of over 150,000 suppliers and “an end-to-end” platform that offers services including sourcing, manufacturing and financing.

An Alibaba spokesman said there’s no equity investment involved and that both companies’ initial focus is  “on customer acquisition.” They will “work out the revenue model as collaboration progresses,” he said.

For Office Depot, the deal represents CEO Gerry Smith’s bid to focus more on services and on small-and-medium-sized businesses as it and larger rival Staples have struggled with faltering retail business demand, thanks both to the “digitization” of the workplace that cut demand for traditional office supplies and to consumers’ increased orders of commodity office supplies on Amazon.

Under Smith, who joined the company in early 2017, Office Depot has doubled down on expanding its services beyond its traditional copy and print type offerings. Its $1 billion purchase of IT services provider CompuCom Systems announced in October 2017 was just one example. Service last year jumped 90% to represent 16% of Office Depot’s $11 billion in annual revenue, double from when Smith joined two years earlier, the company said last week when it released Q4 earnings.

The Alibaba collaboration marks “a bigger step” for Office Depot than even the CompuCom deal, Smith said in an interview. “It provides a new channel and new choice for our customers. It’s a whole platform of goods and manufacturers for businesses…. We aren’t abandoning retail, but we need to have a B2B platform…..This is a sticky relationship.”

B2B business has increased to 70% of Office Depot’s revenue from about 49% when Smith joined two years ago, reversing the ratio with retail business, he said.

Office Depot isn’t the only traditional specialty retailer transforming its business model. Best Buy, for its part, is also increasing its service offerings to areas such as senior care to demonstrate how it can fend off competition from Amazon.

For Alibaba, the move signals its ambition in the U.S. market and will put it more squarely in competition with Amazon’s growing B2B Amazon Business marketplace.

“There’s no collaboration like this inside the Alibaba” ecosystem yet, John Caplan, head of North America B2B at Alibaba Group, told me. “The reason we partner with Office Depot is their breath of (business customer) relationship and their assets providing service to small businesses. It’s not something Alibaba has in the U.S. We don’t deliver next day to small business in the U.S.”

Alibaba.com, the original business of Alibaba Group before it evolved to include its Tmall and Taobao ecom platforms targeting regular consumers, started two years ago to transition from its model as a “yellow page directory to end to end sourcing platform” targeting small businesses, Caplan, who joined Alibaba last year, said.

Amazon Business said on its website it has more than 1 million worldwide customer accounts, more than 150,000 Amazon Business sellers and more than $10 billion in global annualized sales after launching in 2015. “We are growing fast with plenty of room for more,” Amazon said. “It’s only the beginning.”

Alibaba said in January its Q4 “international commerce wholesale business” rose 31%, faster than its much larger core consumer-focused  ecommerce business, to represent 2% of its total revenue for the quarter, thanks to growth from Alibaba.com, its global wholesale marketplace. The global B2B e-commerce marketplace was valued at $23.9 trillion, Office Depot and Alibaba said Monday, citing data from the U.S. International Trade Commission.

“US is the largest market for Alibaba.com,” Caplan said, adding small and medium-sized businesses represent 99.7% of all U.S. companies. “It’s the largest economy in the world. I don’t think you can state enough the importance of U.S. small business.”

The drama surrounding Amazon’s growing U.S. competition is no longer just limited to that of its domestic rivals led by Walmart.

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March 4, 2019 at 06:59PM
Forbes – Entrepreneurs