Why Alibaba will buy Hermes
Alibaba is marking its territory in Europe with the expansion of logistics infrastructure. Warehouses and transshipment hubs are being set up for optimized delivery to end customers. What is missing is a sparring partner for the last mile. With Hermes, the Chinese e-commerce giant would gain a unique opportunity to gain a foothold in Europe. Does a company like the Otto Group have the courage to get involved? It would certainly be a culture shock - but one that could be good for the CEP sector and thus for the entire German/European online trade.
Brief outline of Alibaba's (logistics) ambitions in Europe:
Leasing of 220,000 square meters of warehouse at Liège Airport
There has already been speculation about an Alibaba container terminal in Hamburg since 2017; although there is still no decision here
So far, the German market has also been served from a logistics center near Prague. Another one for the European market is located near London.
However, Alibaba is also quietly developing warehouse space in Germany through its logistics subsidiary 4PX Express, including a 9,000-square-meter space in Ginsheim-Gustavsburg and 25,000-square-meter warehouse in Bingen. T3N has a very readable overview article on this. These warehouses are all likely to serve primarily as transshipment hubs
The importance of Europe for business, meanwhile, is increasing from year to year, as Jochen Krisch has very clearly pointed out:
Non-Chinese business is still below 10% for Alibaba, but grew 233% in 2017 (mainly due to the acquisition of Lazada) and 94% in 2018 and is gaining importance accordingly. Alibaba does not yet report GMV values for this segment.
Jochen Krisch, Exciting Commerce
Alibaba has warehouses & distribution hubs in Europe - only access to the Last Mile is missing
In 2018, Alibaba's logistics arm Cainiao set an ambitious goal: 24-hour delivery within China and 72-hour deliveries worldwide.
Jack Ma sums up the ambition:
World trade will change because of logistics. Global trade will go from containers to packages, from trading between countries to trading between companies. All this change, we should be ready to prepare and fight today
Jack Ma, Founder Alibaba
What does this look like in practice? Alibaba buys into various CEP service providers such as STO Express, ZTO Express, YTO Express, Best as a strategic investor - these in turn also receive shares in Cainiao. These partners will be elevated to a new level of scale via tech and platform approach.
These investments clearly help in achieving the 24-hour target within China. For reaching the 72-hours delivery target globally, Hermes would be very helpful with a well established European network (especially also in the UK). The war chest will be well filled, as no comparable investments in other CEP service providers outside China have been decided yet. Hence our hypothesis: Alibaba buys Hermes!
Alibaba has understood the structural weaknesses in the last mile
Back in 2014, at a conference of CEP and postal service providers, Alibaba clearly identified the weaknesses of local delivery networks:
Different customs procedures in different countries
No one postal service or courier can deliver everywhere, in time and cost efficiently
Very hard to stick with SLA towards endusers due to uncertain or varying service levels of parties involved
Cost of oversize (+2 kg) parcels too high to handle, thus narrowing number of goods to be sold and shipped cross border, although there is high demand
Too many restrictions on items to be carried (no batteries, phones, tablets, etc...)
With this insight, knowledge of platform strengths, and technology leverage, Alibaba appears to be a true strategic investor for Hermes that could also bring about fundamental change.
The main thing is to "save face" at Otto?
Alibaba thus comes into question as a strategic investor for Hermes - apart from a conflict of conscience on the part of Otto scion Benjamin Otto. Bringing one of the "big bad guys" into one's own house (paywall) would be strategic hooking beyond compare. Perhaps the Rothschild Group, which advises Hermes/Otto in its search for investors, would be a good mediating partner. As luck would have it, Rothschild also represents the interests of the Alibaba Group as a financial adviser.
Related links:
Alibaba takes 49% stake in STO Express for $693 million
Alibaba acquires 10% stake in ZTO Express for $1.4 billion
Otto is looking for investors for Hermes