Alibaba broke Gross Merchants Volume of USD 100 million in 40 seconds on November 11 as the eighth annual Singles’ Day online shopping festival kicked off at midnight

The Singles’ Day shopping celebration, akin to America’s Cyber Monday, was initiated by Alibaba in 2009. Since then, the e-commerce giant has generated breathtaking sales revenue from this one-day shopping carnival that continues to grow year by year. In 2015, the volume of online purchases made through Alibaba in just eight hours of Singles’ Day topped RMB 41.7 billion (US$6.56 billion), equaling the total online sales volume of America’s five-day Thanksgiving shopping season in 2014.

Rising as the preeminent annual occasion in China’s e-commerce industry, Singles’ Day is highly significant for Alibaba Group, as well as the entire retail industry. But apart from the astonishing sales figures, considering its lightning-fast development over the past seven years, what does Singles’ Day mean to both Alibaba and the e-commerce industry today? How did Singles’ Day evolve and what challenges to its continued success is it confronted with today?

Explosive growth of Singles’ Day sales from 2009

Before 2009, Singles’ Day was an unofficial celebration for college bachelors. November 11 was picked as the day, due to it being the calendar date with the most 1s, implying loneliness.

In 2009, Alibaba prepared to spin off the then Taobao Mall from Taobao as an independent commerce-only online shopping mall. In contrast, what remained of Taobao would still be a marketplace open to individuals. The Business-to-Consumer branch, Taobao Mall, was later rebranded as what’s known today as Tmall.

Also Read: Alibaba Singles’ Day is a mobile affair, beats sales record set last year

In order to make a big name for Tmall at its birth, the idea of creating an online shopping festival was floated. With the intention of celebrating singlehood, Tmall.com teamed up with 27 merchants on Novemeber 11 to offer steep discounts as high as 50 per cent off in order to lure customers. This tactic saw instant success, with a total Gross Merchandise Volume (GMV) of RMB 52 million (now US$7.6 million) in the first year. Menswear provider, Jack Jones, alone achieved sales totaling RMB 5 million (now US$730,000). In contrast, the monthly revenue of Lenovo’s official Taobao store was only around RMB 3 million (now US$438,000) back in 2009.

The one-off sales promotions during Singles’ Day ignited the powerful consumption capability of netizens and also attracted the attention of the entire e-commerce industry, both competitors and store owners. In the following year, the GMV of Tmall saw a whopping 1, 772 per cent increase, skyrocketing to RMB 936 million (now U$136.65 million). That represented more than a single day’s offline sales volume for all of Hong Kong back then.

In addition to the soaring sales volume, the Singles’ Day shopping festival also achieved its original aim of boosting Tmall’s brand among store owners. More and more brands lined up to take part. In 2011, around 2,200 merchants were involved via both of Alibaba’s platforms. This number soared to 27,000 in 2014.

Meanwhile, as the penetration of e-commerce in China keeps growing, Singles’ Day is no longer simply an online shopping festival. It has now begun to impact offline retailing business as well. In 2013, Tmall involved over 30,000 offline stores in Singles’ Day, enabling customers to try on clothes and then make orders and transactions online. This can be a win-win for both parties in driving traffic and sales volume. Yintai, a department store brand, was the first to announce a partnership with Tmall for Singles’ Day, later achieving RMB 7 million (US$1.02 million) in sales at its flagship store on Tmall in just 25 minutes. Yintai later became an investee of the Alibaba Group in 2014, indicating Jack Ma’s ambitions beyond e-commerce.

Also Read: Jack Ma: Alibaba to invest more in the ASEAN region

Today, e-commerce represents an increasingly important sales channel for China’s retail industry. As of June 2016, 63.1 per cent of Chinese web users are engaged in e-commerce either as customers or purveyors, according to CNNIC.

Consumer passion is also abundant. According to a survey conducted by China Tech Insights, over 70 per cent of respondents have a shopping plan for Singles’ Day among which 16.33 per cent are new participants who didn’t purchase any item during the festival last year. In contrast, the number of consumers who made purchases before but who are choosing not to engage in the event this year accounts for only 8.23 per cent of the total this year, which shows an 8 per cent net annual increase in participation. These data imply the continued strong growth potential for this sales event.

Protruding problems

Nevertheless, after seven years of glory, some problems have arisen. Although sales figures for Singles’ Day have set new records each consecutive year, these numbers no longer seem to impress the public. At the same time, complaints and critiques are tainting its glorified status.

Complaints arise

From a macro level, we can see that e-commerce is getting close to a saturation point in urban China, while online shopping is yet to reach fashionable status in China’s rural areas. As of September 30, Alibaba saw 439 million active buyers annually, representing 62.8 per cent of China’s total web users and 98.2 per cent of China’s online buyers according to CNNIC’s semi-annual report in July.

However, as the market begins to plateau, issues concerning user experience are wearing down consumer passion for Singles’ Day sales. According to a survey by China Tech Insights in November, over 46.7 per cent of respondents who are not planning on shopping online during Singles’ Day say sham discounts is their biggest discontent among all the reasons that they aren’t shopping online during the sales period any more. To meet users’ expectations of huge discounts, some store owners quietly raise the price of products before the sales season which eventually ushers in wild discontent when discovered.

Another challenge for all e-commerce sites during the Singles’ Day season in China is the busy logistics. The sudden boost in the amount of delivery orders that need to be made during the Singles’ Day season strains China’s logistics network annually. Orders placed on November 11 can be delayed over ten days compared to normal delivery times. Meanwhile, the peak workload frustrates front-line logistics staff and leads to a steep drop in the quality of service. This year, China’s State Post Bureau predicts that there will be a record-high one billion packages delivered for Singles’ Day, which will be an unprecedented challenge for the entire industry.

Another party that is put to the test is sellers.

Great sales performance on Singles Day means more publicity for top players. But for small- and medium-size businesses, the effort to earn publicity and traffic can spread profits so thin that it becomes tricky to be engaged in the Singles’ Day shopping festival. With major promotional channels flooded by top players, less prominent sellers have far fewer chances to get great traffic from the platform without paying unbearable costs and giving up on profits.

It’s reported that even though the majority of participating store owners see a boost in revenue and an increase in paying users, profit-wise, most of them are landing in the red. Under these circumstances, for small e-commerce operations, it’s more of a calculation of how to minimise losses rather than maximise profits.

Alibaba’s globalisation ambition may hit a wall

Since 2014, globalisation has become a top strategy for Alibaba’s e-commerce branches. According to Ali Research, the total volume of China’s cross-border e-commerce reached RMB 4.8 trillion in 2015, registering a 28 per cent increase year over year. The Ministry of Commerce of China predicts that that number will climb to RMB 6.5 trillion (US$950 million) in 2016. National collaborations like the China-Australia Free Trade Agreement are also energising China’s cross-border trade.

After reaching offline retailing sectors, Singles’ Day’s expansion is now looking to reach the global market. Since 2014, Alibaba has promoted its cross-border business sector with the theme ‘Buy Globally’. In 2015, 30 million consumers purchased imported commodities via Alibaba’s cross-border e-commerce branch from over 232 countries and regions during Singles’ Day sales. This year, apart from inbound trading, Alibaba expects to register more outbound deals with an upgraded theme of ‘Buy Globally & Sell Globally’.

However, based on our survey, 46.48 per cent of our respondents say that they have no plans to buy any imported products on Singles’ Day this year, while only 14.75 per cent report that they have made plans to do so. Quite a few of the respondents who have no shopping plan think there’s no need to buy imported products with similar domestically-made items already available on the market. Also, 31.73 per cent think imported goods are too pricey.

For Alibaba, cross-border e-commerce opportunities lie in China’s trend towards a ‘consumption upgrade’. According to our survey, respondents with a monthly income higher than RMB 10,000 (around US$1,.500) show much stronger interest in purchasing imported products during Singles’ Day sales.

The Credit Suisse’s Global Wealth Report 2015 indicates that China’s middle class population has reached 109 million. These 109 million are now driving a ‘consumption upgrade’ in their pursuit of quality over quantity in consumption. For this subset of the population, exclusivity and uniqueness that best represents their identity and personality are more important than price. Catering to the needs of this segment of consumers may be the key to driving China’s cross-border e-commerce growth.

Can this carnival give us a hint of the future of e-commerce?

From a single sales campaign to a national shopping carnival, in its eighth year, the Singles’ Day sales festival has become one of the most prominent online events in China. But for Alibaba, it’s now a test of its entire system from e-commerce and payment, to logistics and cloud computing. Can Alibaba hand out a satisfactory answer to investors this time?

As of 2:00 a.m. China Standard Time on November 11, the total GMV of Alibaba surpassed US$7.16 billion. It’s predicted that the GMV for Alibaba this year may top RMB 120 billion (US$17.7 billion).

On this answer sheet, apart from the GMV in the e-commerce sector, we also see Alibaba’s other businesses and strategies on the list including Countryside Taobao, globalization and even its ambitions in the entertainment industry (naming rights for Alibaba’s 2016 gala sold for hundreds of millions of RMB this past August).

Apart from all these, Jack Ma proposed, at Alibaba’s Computing Conference in October, that New Retail will one day replace e-commerce and that “pure” e-commerce will no longer exist in the future. Will Ma’s predictions on the future of e-commerce come true? Maybe this Singles’ Day can give us a hint.

—-

Article by Rhea Liu and Danielle Li, with editing by James Hutchison

This article is originally published on China Tech Insights.

The views expressed here are of the author’s, and e27 may not necessarily subscribe to them. e27 invites members from Asia’s tech industry and startup community to share their honest opinions and expert knowledge with our readers. If you are interested in sharing your point of view, submit your post here.

Featured Image Credits: Alibaba

The post This rose is not without thorns: Alibaba’s 8th Singles’ Day fest appeared first on e27.