Once Singles' Day Arrives, E-Commerce's Busy Year Is Almost Over

We took stock of how China's e-commerce landscape shifted over the past year and made a few predictions about the Singles' Day ("Double 11") shopping frenzy a month from now. Our advice: get a good night's sleep.

Lately, whether you open Taobao, Tmall, JD.com or Amazon on your phone... or even Weibo, you can't escape the keywords and landing pages coming at you: half off, discounts, presales, Double 11.

It means that the once-a-year day designed to tempt you into spending big is coming round again.

On October 13, Alibaba filled its Xixi campus in Hangzhou with display stands and merchandise, and used a half-day press conference to launch this year's Double 11 promotion.

The Tmall Global booth at Alibaba's Xixi campus

This year, though, the center of the Double 11 conversation may sit a little farther from Hangzhou. The war room from which Jack Ma and his fellow executives monitor Double 11 will move from a campus meeting room called "Guangming Peak" to Tmall's newly established "second headquarters" in Beijing. The press conference was packed with government representatives and consumers from 39 countries. Ma, CEO Zhang Yong and international business president Michael Evans all spoke entirely in English, and they kept stressing the same thing: a "global Double 11" on a larger scale than last year's.

Double 11 began as an experiment by the Tmall team in 2009, and it no doubt borrowed from "Black Friday" and "Cyber Monday," which had been around in the United States for some years. By 2014, Tmall's sales on Double 11 alone had reached 57.1 billion yuan, nearly 60% more than the 36.2 billion yuan of the year before.

According to figures that sources close to Alibaba previously gave QDaily, the Tmall team expects sales of around 80 billion yuan on Double 11 in 2015, a growth rate close to last year's. But the pressure on the team is of a different order. At the end of 2014, Alibaba, freshly listed on the New York Stock Exchange, was riding high. After a satisfying Double 11, its shares hit an all-time high of US$120.

After nearly a year of turbulence, the stock has shrunk to around US$68. In a recent "letter to shareholders," Alibaba chairman Jack Ma dismissed the claim that "China's slowing economic growth will hurt consumption." That makes this year's Double 11 the best chance yet for Wall Street analysts to test the claim.

Before Tmall's press conference had even ended, e-commerce companies such as JD.com and Mogujie had already sent press releases teasing their own Double 11 plans to media inboxes. In China, Alibaba has registered "Double 11" as a trademark, but in practice the day has long belonged to more than Tmall. It is also a big day for JD.com, Amazon, Mogujie, Yihaodian, Suning...

What they are fighting over is consumers' time, attention, wish lists, deposits and loyalty. With nearly a month still to go, every e-commerce company already has an arrow nocked. Once the bow is drawn and the arrow loosed, this lively year will be almost over for e-commerce.

What changed in Chinese e-commerce this year

"Many people lump us together with other e-retailers, and so judge our model by our GMV growth rate. In fact, e-commerce in the narrow sense is only one part of Alibaba Group's strategy today. ... In other words, simply treating today's e-commerce companies as Alibaba's rivals is comparing an apple with an apple tree, and does justice to neither."

That passage comes from a public letter to shareholders of more than 4,200 words that Jack Ma issued on October 8. It was both an answer to investors' doubts and a public statement that Alibaba sees itself differently now. Alibaba, in other words, is not just an e-commerce company that buys and sells.

In fact, Alibaba argued years ago that although most of its revenue came from e-commerce, the group should not simply be equated with "Taobao plus Tmall." After floating the idea of an "e-commerce ecosystem," it has recently raised its sights again, to an "open, transparent, collaborative commercial infrastructure platform."

But the core business is struggling, and the capital markets aren't convinced

On top of e-commerce, Alibaba has gradually folded in logistics, finance, entertainment, sports, health, marketing and other businesses... Building this kind of "commercial infrastructure" may take longer than anyone imagines.

So since its listing, the financial reports Alibaba gives investors have still been organized around the core numbers of its e-commerce business. Whether in the "China retail marketplaces" that dominate revenue or in the B2B business upstream, it is the plain figures (transaction volume, profit, growth rate) that are tied directly to shareholder returns.

That explains why Alibaba's share price reacted so sharply when its quarterly results came in below analysts' expectations, and why the stock has yet to recover from the slide.

Something similar recently happened to JD.com, another e-commerce stock. A report from the research firm 86Research said that JD.com's sales growth had slowed to 70% during the promotions of the past two weeks, which could also hurt the company's performance during Double 11. JD.com's shares promptly fell to a two-week low.

For a homegrown American e-commerce company like Amazon, things look much better. Thanks to steady revenue growth at its cloud computing business, AWS, Amazon swung back to profit in the second quarter, with revenue up 20% year on year. Its market value even briefly overtook that of the traditional giant Walmart, making it the world's largest retailer.

So in the end, what worries investors in the United States is probably still China's slowing economy, and whether e-commerce businesses that make most of their money in that market can keep growing.

The big offline acquisitions will take time to digest

Alibaba's investments in Suning and Intime, and JD.com's investment in Yonghui, may be the defining moves of Chinese e-commerce's push offline this year.

According to the research firm eMarketer, China's e-commerce revenue totaled nearly US$473 billion in 2014 and is expected to rise to US$672 billion in 2015. Yet e-commerce accounts for only about 16% of China's retail industry as a whole; most consumer spending still happens in traditional channels such as malls, supermarkets and convenience stores. E-commerce companies care a great deal about staking out positions in these businesses early, so they can reach their target customers more often.

Alibaba's 28.3 billion yuan investment in Suning shows what drew it to Suning: mainly a warehousing and logistics network covering nearly 2,800 townships and counties nationwide, along with Suning's long-standing strength in selling large home appliances. Combining stores with logistics lets Alibaba reach shoppers in third- and fourth-tier cities, and even in the countryside, who have not yet taken to online shopping.

JD.com put 4.3 billion yuan into Yonghui for its expertise in fresh produce and its network of more than 350 supermarkets. Ideally, the two would work closely on procurement, logistics and warehousing to drive down operating costs; the physical supermarkets would become JD.com's O2O (online-to-offline) entry point, and JD.com would serve the places the supermarkets can't reach.

It all sounds good. But absorbing traditional retailers whose models differ so much from their own will, it seems, take Alibaba and JD.com a little more time.

O2O services stole much of e-commerce's thunder this year

Speaking of O2O, over the past year it has probably been a far hotter word than "e-commerce."

In home services, e-commerce companies moved in more slowly than you might expect. The first to arrive were companies with close ties to service merchants, such as Meituan and Dianping, or gateways that can deliver huge volumes of traffic and demand, such as Baidu and 58.com. Companies like JD.com, which started O2O by buying groceries at supermarkets for users and delivering them to their doors, are the minority, playing the role of personal assistant.

Alibaba's approach to O2O seems to have several strands. First, as mentioned above, it is using the physical stores of traditional retailers such as Suning and Intime to create settings for O2O spending. Second, it has revived the Koubei brand, starting with food delivery and using subsidies to win some market share from rivals such as Ele.me, Meituan and Baidu Waimai. Finally, there is the investment route common in 2014: 58 Daojia, which recently took money from Alibaba, is one example.

With payment tools and IOU-style credit, e-commerce companies have all become internet finance companies too

As he built Alibaba into a huge e-commerce platform, Jack Ma did not forget to push one step beyond the transaction itself. As Taobao and Tmall rose, Alipay became the largest third-party payment tool by market size, and from there grew into a financial group spanning payments, loans, online banking, wealth management products and credit scoring.

JD.com started much later on this front. That is why you have seen it push installment payments, "JD Baitiao" credit and similar services so hard over the past year.

WeChat Pay also deserves a mention. Its fight with Alipay for offline merchants shows no sign of letting up: taxis, supermarkets, convenience stores, restaurants, parking spaces... Online, the closed, convenient nature of WeChat Moments has kept the idea of Weidian (micro-stores) alive to a degree, and when it is time to pay, the natural first choice is the WeChat wallet.

Cross-border shopping has been hot all year, and the market keeps growing

If the e-commerce companies gearing up for Double 11 had one thing in common this past year, it is surely this: they all threw themselves into "haitao," or cross-border shopping.

That is not only because higher spending per order means fatter margins, but also because haitao targets China's 109 million middle-class consumers. They make up less than 10% of the population, but they are the largest middle-class consumer group in the world, with enormous spending power, and they are the core customers this market hopes to keep winning.

Over the past year, Alibaba and JD.com have both invested heavily in their cross-border retail businesses, "Tmall Global" and "Global Purchase," signing up brands and products at great speed. Even Amazon, whose share of the Chinese market has always been small, hopes to seize this rare chance to take the initiative: on Double 11 in 2014, Amazon's Chinese-language "Global Store" page had only just gone live; it has since been linked to every product category on Amazon's US site.

Data from iResearch show that China's cross-border e-commerce grew by about 30% on average last year, far faster than traditional offline foreign trade. The Ministry of Commerce forecasts that China's cross-border e-commerce imports and exports will reach 6.5 trillion yuan in 2016.

It is not just e-commerce companies: almost every company with something to sell to consumers has entered this market.

As for how this year's Double 11 will go, here are our predictions

Sales should meet everyone's expectations

In Tmall's first few years of Double 11, the base was small, so the final sales total was a surprise every year, with year-on-year growth above 200%. Growth only fell to around 60% in 2014.

Judging from how hard Tmall, JD.com, Mogujie and others have worked on recruiting merchants, planning and presales for this year's Double 11, they should comfortably break the 80 billion yuan target, as long as they go all out to hold growth at 60%.

If they can't, they may truly have no way to explain themselves to those detestable capital-market analysts, and the shares employees hold will shrink by another few dollars.

Delivery may be a little faster than in past years

The 24 hours of Double 11 are usually followed by two weeks of waiting for packages. JD.com says that this year it has given merchants bigger discounts on warehousing, delivery and other services, and that, backed by its in-house logistics team, clothing sold through JD.com will arrive faster than you might expect.

Since teaming up with Suning in the middle of the year, Tmall has also sped up delivery of large home appliances considerably. Under this year's Double 11 arrangements, large appliances ordered online will be dispatched from the Suning store nearest the delivery address, arriving in as little as two hours, with same-day delivery and installation.

As for overseas goods, which sound more troublesome, Tmall Global was already working with bonded warehouses back in 2014: it picked likely bestsellers in advance, imported them in bulk, cleared them through customs and stockpiled them in bonded warehouses, then shipped them out as small parcels after Double 11. This model got goods out far faster than you would imagine, so much so that some called it "fake haitao."

Cross-border shopping may hold some surprises

By scale, Tmall Global is still the largest player in the cross-border market. This year, more than 5,000 overseas brands are taking part in Double 11 and promising "free shipping and tax included worldwide." In addition, nearly a thousand tons of imported fresh produce will be sold through Tmall's own fresh-food store, "Miaoxiansheng."

The first order of this year's Double 11: a bluefin tuna Jack Ma bought for 38,888 yuan

Beyond the usual bestsellers, the bigger spending potential lies in personalized goods. In its Double 11 plans this year, Mogujie says its overseas buyers will bring back a batch of customized, one-of-a-kind fashion items, such as Japanese anime snack gift packs, Minions merchandise, French perfume and Korean accessories, all guaranteed to be sold exclusively on its platform.

And if you are already a seasoned haitao shopper who wants an easier taste of "Black Friday," try Amazon's "Global Store" channel, which is entirely in Chinese. Just remember to go easy on Double 11 itself: Amazon's related promotions run until the end of November.

Huabei and Baitiao will be put to full use

To attract shoppers, Huabei says that during Double 11, on top of its standard credit limit of around 6,000 yuan, it will hand out a total of 50 million yuan in red envelopes, which can be used to pay directly or to raise credit limits.

JD.com says that this year's Double 11 will, as usual, offer Baitiao spend-and-save coupons, straight-discount coupons and interest-free installments, but it has not yet set the size of the discounts.

The price war will go on, so shop around

Spend-and-save discounts, coupons and free gifts with purchase are all standard tactics for e-commerce platforms during Double 11. Yihaodian, now wholly owned by Walmart, will roll out all three in stages from October 26 to November 12, so you could use the coupons you earn from early purchases to stock up again in a later round.

Mogujie's approach is "half off at most across the store": participating items must be priced at no more than 50% of the original price, and must also be at least another 10% below their lowest selling price in the past month.

Rather than relying only on frenzied paying in the first ten minutes of Double 11 itself, Tmall has spent the past two years trying a longer "presale" model: shoppers pay part of the price in advance as a deposit to reserve an item, then pay the balance on Double 11. This year Double 11 has also spawned "deposit inflation": a 99 yuan deposit paid in advance on a Sharp TV, for instance, counts as 149 yuan off the price on Double 11, inflating it 1.5 times.

Some exclusive sales may be worth a look

After Alibaba invested in Suning, we assumed that Suning.com, which used to join in the Double 11 fun, would quietly sit out the festival this year. But Suning says it will still run promotions both online and offline this year, with discounts starting at 50% off for home appliances and 70% off for everything else.

On November 5, Suning will also hold a promotion day in its physical stores, similar to a "brand employee sale." That day, every Suning store in the country will admit only shoppers with an invitation ticket, and the discounts will be deeper than online.

As for the four-hour gala, the lineup is said to be dazzling

In our early-September preview of Double 11, we mentioned that Tmall would also stage a Double 11 gala this year. There is now some news about it: Feng Xiaogang will be chief director, and the production team and broadcast platform will come from Hunan Satellite TV. The gala will begin at 20:30 on November 10 and be broadcast live worldwide across TV, the internet and mobile platforms.

Now that merchants have finished bidding for slots, the gala will no doubt be riddled with product placement. As for the stars, Tmall's official line is: "The lineup is so luxurious that it is no less than the Spring Festival Gala." Those announced so far include Fan Weiqi, Ning Zetao and the Korean rock band CNBLUE.

In the end, for most people the best Double 11 plan is still this: do your homework during the presale period now, pay quickly on the day, and then go to bed early and get a good night's sleep.