Alibaba spends five times more on subsidies to export Singles Day

BEIJING – Chinese e-commerce giant Alibaba is pressuring overseas markets as competition intensifies over the Singles Day shopping festival the company launched 12 years ago in China.

Similar to Black Friday or Cyber ​​Monday in the United States, the shopping event began as a day of mass discounts on Alibaba’s online shopping platforms on November 11. The promotional period has since extended to at least Nov. 1-11, as other Chinese e-commerce companies such as JD.com have piled up.

This year, JD saw a 32.8% growth in transaction volume to 271.5 billion yuan ($ 40.4 billion) as of 2019. That’s faster than the 26% increase revealed. by Alibaba, although at a much higher figure of 498.2 billion ($ 74.1 billion) in gross cargo volume (GMV). GMV is a measure most commonly used in e-commerce that measures the total dollar value of goods sold over a period of time.

For Alibaba, he said the GMV figure was the total value of orders and shipping charges paid through the Alipay digital payment system for transactions such as those in the company’s China’s retail markets and platforms. international forms of e-commerce Lazada and AliExpress.

AliExpress typically connects Chinese sellers with overseas buyers, allowing overseas businesses and consumers to buy directly from factories in China. While removing middlemen can make products much cheaper to purchase, sheer distance and an underdeveloped logistics network can mean delivery times of several weeks.

To speed up delivery and reduce costs for customers, AliExpress has increased subsidies for logistics operations on Singles Day five-fold, compared to last year, supply chain manager Li Dawei told CNBC AliExpress, in a phone interview this week. The business unit works with Alibaba’s logistics arm, Cainiao, as well as with local delivery companies in other countries.

In addition, Li said the company launched around 100 charter freight flights to Europe during the roughly two-week Singles Day purchase period. That’s about seven flights a day, compared to two during off-peak periods.

Outside of the shopping festival, investments in logistics have reduced delivery times in Spain and France by around 30% to 10 working days for some cross-border products, according to AliExpress. The company is also expanding its warehouse system in Europe, whereby traders can pre-store goods and deliver certain products within three days in Spain, France and Poland, and five to seven days in other parts of Europe.

Ken Chen, who runs a Shenzhen-based LED lighting company called Tranyton, said Europe was his main market and there were pre-stocked warehouses in anticipation of a doubling in sales from singles today. compared to last year. Chen said the average monthly turnover is $ 500,000.

It’s unclear how much AliExpress has contributed to Alibaba’s Singles Day sales this year. The business unit said sales of goods sold in overseas warehouses in the first minute of November 11 matched those in the first 60 minutes of last year.

International retail accounted for 5% of Alibaba’s revenue in the quarter ended September 30, marking 30% growth from a year ago. Overall revenue for the period increased 30% from a year ago to reach $ 22.8 billion.

The opportunity and competition in e-commerce is increasing as stay-at-home policies adopted in the wake of the coronavirus pandemic accelerate demand for online shopping around the world.

Amazon reported a 37% increase in net sales to $ 96.1 billion in the third quarter, which ended on September 30. The company has come under scrutiny from European regulators over the use of data that potentially gives Amazon an unfair advantage over other sellers.

AliExpress has tried to entice local sellers to join its platform, starting with Russia, Spain, Italy and Turkey early last year, according to the company. The platform offers the same live selling tools that have gained popularity in China and launched real-time translation for some languages.

It remains to be seen whether these efforts to replicate success in the Chinese e-commerce market will work in Europe.

One overlooked factor in the rapid growth of China’s online shopping ecosystem is the development of digital infrastructure in that country, noted Felix Poh, partner at McKinsey.

Heavy subsidies are common in China’s fierce internet industry, where survival often depends on a startup’s ability to quickly attract and retain a massive group of users. The strategy is to capture a large base which can then be monetized.

Alibaba shares have fallen more than 10% in the past five trading days, while JD’s have fallen more than 7% after the State Administration for Market Regulation (SAMR) published draft guidelines against Internet industry practices that create monopolies.

“The project mentions that the use of subsidies, rebates and traffic support provided by the platforms, while favoring consumers, can potentially discourage fair competition between market players (i.e. by setting prices below cost), ”Morgan Stanley analysts said Wednesday. “This could affect Alibaba’s promotional activities, although the extent to which these subsidies will be considered a violation of antitrust rules remains unclear.”

Overall, analysts expect the regulatory review to have less effect than it would have in previous years due to existing competition. Morgan Stanley estimates that Alibaba’s GMV will fall to 59% of the Chinese market this year, from 76% – or more than three-quarters – six years ago when the company went public.

Indeed, the company’s latest quarterly report showed that new monthly active mobile users increased by 7 million from June to September, the smallest increase on record, according to an analysis by Chinese tech news site 36kr and confirmed. by CNBC.

The total of 881 million represents well over 90% of the 932 million mobile Internet users reported in June by the government agency China Internet Network Information Center.

In the field of logistics, although there is significant growth of overseas Chinese players, companies often lack overseas personnel with sufficient experience and face many other challenges such as capital and regulation, said Charles Guowen Wang, director of the China Development Institute think tank. He noted that the opportunity in China was still quite large.

Alibaba remains a giant in China, but rival Tencent is gaining ground.

More and more people are also using the popular messaging tool WeChat to shop through in-app mini-programs, which now has more than 400 million daily active users, the app owned by the company has revealed. Tencent in September. From January to August, the GMV of physical products purchased through mini-programs more than doubled from a year ago.

“I think we’ve also seen the rise of the direct-to-consumer program, which is also the WeChat mini-program,” Poh said. “In terms of scale and relevance, it has grown exponentially over the past 18 months.”