China Consumer, Talking Point

Monopoly money

Business booms, as Singles’ Day signals Alibaba’s ascendancy

Ma gestures as he speaks to media and staff in front of a giant electronic screen showing real-time sales figures of the company's and, on the "Singles' Day" online shopping festival, in Hangzhou

Taking off: Jack Ma looks on as real-time sales data for November 11 comes into Alibaba HQ

How was Singles’ Day born? Legend has it that four university students, attending Nanjing University, came up with the idea of celebrating their bachelorhood in 1993. After all, there was no special day (in China or the rest of the world) for singles like there was for lovers. The four settled on November 11, with the number “one” implying single and the 11.11 looking like bare sticks, a common nickname for single men in China.

But it is hardly an overstatement to say that it was Jack Ma who has done most to popularise ‘Double 11’ (the other name for the annual celebration in China). In 2009 the chairman of Alibaba Group created an online shopping event, touting it as a day for pampering and personal indulgence (for our first mention, see WiC94). The intention was to offer big sales discounts to boost business during a slack period (November is stuck between Golden Week in October and the Lunar New Year in January or February). The idea quickly caught on and five years later November 11 is the single most important shopping event in China’s retail sector.

What’s different about Singles’ Day this year?

More eyes are on Alibaba than before because it has new investors keen to see whether the stock justifies its valuation. Alibaba’s shares have run up over 30% since its New York IPO in September and it is now worth more than Walmart. That makes it important, as one seller on Ma’s online shopping site Tmall told Reuters, for Alibaba to “please its new backers on Wall Street”. Sales on Singles’ Day are an early indication of whether it can deliver the performance that its shareholders expect.

Ma himself is asking for time for the company to prove itself. “I am very nervous right now because everyone is saying Alibaba is not good in this or that. People have very high expectations. We are not that good. We are still young,” according to Quartz, a news portal.

So he was probably relieved to find out that Alibaba’s e-commerce platforms sold $2 billion worth of merchandise in the first hour of the Singles’ Day sale. And by the end of proceedings, they had sold more than $9 billion in merchandise, up 58% from $5.8 billion in 2013. That means that the day now dwarfs Black Friday and Cyber Monday, its American equivalents, which sold $2.9 billion between them last year.

But it’s not all good news…

While Alibaba staffers were celebrating the record with champagne, for many merchants and logistics firms the nightmare had only just begun. To handle the surge in orders each year – one estimate puts it at 250 million parcels in 2014 – delivery companies like SF Express and YTO Express are forced to add headcount. YTO Express says it hired an extra 30,000 workers, for instance, staffing more than 40 additional processing centres to handle the workload.

Merchants on Alibaba’s two e-commerce platforms Tmall and Taobao also come under intense pressure. Elle, which sells handbags and suitcases on Tmall, says it normally gets about 200 orders a day. On Singles’ Day it sold about 25,000 items. And while some argue that Singles’ Day is helpful for retailers in generating brand awareness and pulling in new customers, many merchants say they end up losing money during the sale.

One reason is the aggressive discounts offered as part of the bonanza. Merchants on Tmall cut prices by 50% or more, with Alibaba encouraging competition between sellers to drive down prices further. “I sold three cardigans for Rmb80 ($13.06) including shipping. That’s pretty much how much it costs me to buy them from the factory. Worse, other merchants were undercutting me by selling them at Rmb60,” one vendor complained to Tencent, a portal.

While the day boosts sales at many businesses on Alibaba’s sites, it also creates unhealthy competition, Nanfang Daily argues. “Although this huge turnover can enhance the visibility and influence for companies on its platforms, it is based on loss leaders. This kind of distorted market situation is not conducive to sustainable development of enterprises,” the newspaper declares.

LeSportsac, which operates a virtual storefront on Tmall, is similarly unenthusiastic, telling Quartz that the only reward for getting through the crazinesss of November 11 is “the mere fact of having survived an expensive and anxiety-ridden day”.

Moreover, Alibaba employs what it calls a “pre-sale initiative” by advertising what Singles’ Day prices are going to be from as early as mid-October. While the strategy works in drumming up sales on the day itself, vendors complain that business suffers in the weeks leading up to it. Savvier consumers simply hold back on purchases until Singles’ Day begins.

Of course, Alibaba sells no goods of its own, acting as the marketplace on which transactions are conducted, between individual consumers on Taobao (C2C is still Alibaba’s biggest business segment) or between merchants and customers on Tmall (B2C sales are higher margin and becoming a more important part of Alibaba’s sales mix).

Most Singles’ Day sales are on Tmall, with Alibaba charging up to a 5% commission on every transaction. Sellers have to splash out on advertising and online marketing fees too. So factor in the extra staffing and other costs associated with Singles’ Day and the sales extravaganza is often less exciting for the companies selling goods online than for Alibaba, their partner.

“Large quantities don’t always mean big profits,” one merchant complained to Business, a Chongqing magazine.

Can’t merchants opt out?

In theory. But despite the risk that Singles’ Day proves a money-losing proposition, many vendors feel they have little choice in the matter. Some fear a backlash from customers if they don’t participate. Others say they feel pressured to offer lower prices on Tmall than on rival sites like

Certainly, there’s no disguising Alibaba’s dominance of online sales in China. In C2C it has a virtual monopoly, with Taobao’s domestic market share almost 100%. In B2C, its mastery is less, at about 58% of the market last year. But HSBC estimates that Alibaba still processes about 14 times the sales of its nearest rival and that it has more than eight times as many active customers.

Nor does it look like giving up that lead as more Chinese start switching to mobile commerce. According to iResearch, Alibaba accounted for 86% of retail sales on mobile devices in China for the three months to June this year.

That kind of presence leads to claims that Alibaba is too dominant. According to Ebrun, an e-commerce news website, some vendors say their promotional activities are restricted if they displease Alibaba. Some virtual stores have even disappeared from its search engine, which limits those vendors’ access to hundreds of millions of potential customers. “For Alibaba, the most important quality it looks for in a vendor is obedience,” one seller told Ebrun.

Might Ma call a halt himself?

The hype surrounding Singles’ Day can’t go on forever. Alibaba’s marketing costs for the event have been going up and Ma won’t want the focus on a single day to distract the company from its broader goals. Small wonder, then, that Century Weekly reported that he considered cancelling the event earlier this year but later relented.

Perhaps Ma will review his decision in future, especially if it looks like costs will increase and the deepest discounting is damaging the Alibaba brand. “Even though people think Alibaba is the biggest winner from Singles’ Day, this is not going to last,” one employee told Business, the magazine. “As promotions online become more and more frequent, consumers are showing signs of shopping fatigue. Even this year’s Singles’ Day has posted a growth rate that is slower than the year before. And if Alibaba wants to sustain growth rates, it will have to sink even more money into marketing and advertising; it is a bottomless pit.”

There is also bad PR to consider too. While those outside China saw only the record numbers, local media and netizens indulged in a broader debate. There was fretting among some that it was encouraging consumption for the sake of consumption, and the low prices were driving down quality and leading to yet more waste. Indeed in the days leading up to November 11, someone hired 100 vans to drive around cities, plastered with slogans calling for a boycott of Singles’ Day.

Could Singles’ Day go global?

A more positive spin is that it could be key to expanding Alibaba’s sales outside China. The company hasn’t disclosed how much business was conducted with overseas customers, although it says that goods were sold to 217 countries. “This year for Singles’ Day, our keyword is globalisation,” Wang Yulei, chief executive of Tmall, told Sina Tech. “Future Singles’ Days will definitely not just be for consumers in a particular region. Singles’ Day will be for the whole world.”

Currently, Alibaba earns most of its international revenues from AliExpress (a platform allowing overseas consumers to buy direct from Chinese vendors) and (Ma’s first website, set up in 1999) which connects wholesalers and manufacturers). Together, they account for about 10% of total revenues. So Singles’ Day might serve as a spearhead for the push into other markets, although Alibaba will need to grow awareness abroad. Of 3,500 American shoppers surveyed this month, 63% were unfamiliar with Alibaba, according to the Los Angeles-based marketing consultant Connexity.

Still, perhaps aware of the threat, Amazon has tried to go on the offensive, offering Singles’ Day fans discounted purchases on its American and international sites. If Alibaba does start to make inroads overseas, the battle for global dominance may just be beginning…

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