CORRECTED-Alibaba, ShopRunner plan to launch joint China service

Wed May 7, 2014 8:17pm EDT

(Corrects last paragraph to show that Alibaba, not American Express, will offer some customers complimentary ShopRunner memberships)

By Deepa Seetharaman

SAN FRANCISCO May 7 (Reuters) - Alibaba Group Holding Ltd IPO-ALIB.N has struck one of its largest deals with a U.S. e-commerce company, agreeing to help Amazon.com rival ShopRunner expand into China.

ShopRunner, whose partners include Neiman Marcus and Nine West, will use Alibaba's domestic logistics infrastructure to launch in China later this year, ShopRunner Chief Strategy Officer Fiona Dias told Reuters on Wednesday

The move would offer a new way for U.S. retailers to tap the world's second largest economy, where many have stumbled in the past. It also allows Alibaba to cater to booming Chinese demand for authentic American products, in a market flooded with counterfeits.

"The history of U.S. retailers going to China is one that's fraught with peril," Dias said in an interview. "This is a very low cost way to do it that doesn't require them (U.S. retailers) to go to China to figure it out."

In October, Alibaba paid $202 million for a 39 percent stake in ShopRunner, which launched four years ago and sells products from thousands of brands like American Eagle Outfitters and Calvin Klein. The startup, with over a million members, is still a minnow compared with Amazon or eBay Inc, but a move into China could afford a major boost to its growth.

Alibaba and ShopRunner now aim to create a "joint brand" in China, Dias said. The venture will be in addition to Alibaba's other Web sites, including the three marketplaces that make up more than 80 percent of the e-commerce giant's revenue, according to the company's IPO filing on Tuesday.

U.S. retailers from Best Buy to Wal-Mart have long tried to crack a Chinese retail market dominated by strong local players. But many have run afoul of China's patchwork of regulations and competing local interests. Some, like Home Depot Inc and eBay, shut their big-box stores or pulled out of the country.

"Everyone would love to have a way to at least test the market," said Richard Last, a former JC Penney executive and now a professor of retail at the University of North Texas. "If you partner with the Alibaba group, you might have a good shot at being successful."

COURTSHIP

Alibaba, which on Tuesday filed for what could eventually become the world's largest technology debut, has been trying to court U.S. retailers for years. Its Tmall marketplace hosts an increasing number of brands like Gap.

The company also has been investing in U.S. technology startups, from ridesharing service Lyft to mobile messaging service Tango.

Dias said not all retailers have been comfortable selling through Alibaba sites because they are perceived to be cluttered with retailers who might be selling competing, counterfeit goods.

She argued that a partnership with Alibaba could make more goods available to Chinese buyers: while the appetite for American brands in China is large, the selection is narrow at present.

"They do want to access Chinese customers and they want to do it on their own terms," Dias said.

ShopRunner offers free two-day shipping within the United States from a variety of stores for $79 a year, similar to Amazon's "Prime" service.

Chinese consumers will get their products 10 days after ordering on the U.S. website, Dias said. But they will have to pay shipping costs from the U.S. market, which Dias said could wind up as high as 20 percent of the product price, or as much as $10 for a $50 item.

Alibaba will offer some customers in China complimentary memberships on ShopRunner. ShopRunner has a similar arrangement with American Express, also an investor in Shoprunner, in the United States. (Editing by Peter Henderson)

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