Beyond a Day of Number Games, What Has Singles' Day Changed About Alibaba's Business?

At this year's Singles' Day, what showed Alibaba's potential was not that it sold more things.

If you used only numbers to describe what happened on November 11, it would go roughly like this:

In 24 hours, Tmall sold 91.2 billion yuan worth of goods, 60% more than on Singles' Day a year earlier. Over the next ten days, purchases on Tmall alone will generate 476 million parcels, each box holding goods worth nearly 195 yuan.

This was Tmall's seventh Singles' Day shopping festival, and its biggest. Before it, we had already sat through a month of marketing offensives.

Pre-orders that opened a month in advance, a lavish Singles' Day gala at the Water Cube and the phone-shaking scramble for red envelopes that came with it... even the delivery vans now carrying parcels across the city, painted in advance with the Tmall logo, were all part of the push.

The scene at Tmall's Singles' Day gala inside the Water Cube

You could fairly describe this year's Singles' Day, across every company, as one collective marketing campaign that lasted more than a month. At an earlier media briefing, Ying Hong, general manager of Tmall's marketing department, said that Tmall and the several hundred participating brands had together spent 1.5 billion yuan on advertising for this year's event.

Alibaba's Stock Did Not Soar Like Its Sales

This year Tmall has become a more mature e-commerce platform. The trend began with last year's Singles' Day: international brands made up a larger share, goods that once required a trip abroad became available, and even people buying large and small home appliances no longer had to spend their money at JD.com or Suning.

In 2015 these trends grew more pronounced. In the second half of the year, top-tier brands including Unilever, Coca-Cola, Estée Lauder and Harley-Davidson came one after another to Alibaba's headquarters in Hangzhou to sign strategic partnership agreements. Tmall Global, which specializes in cross-border shopping, now carries more than 5,000 overseas brands.

In 2014, Alibaba's first Singles' Day came shortly after its IPO. American investors were stunned by the huge sales total, which helped lift the stock to a high of US$120.

A Tmall Singles' Day advertisement at Madison Square in New York

This year the numbers were prettier. Alibaba bought advertising space at the New York Stock Exchange, in Times Square and even in Silicon Valley, and had the NYSE stage a remote bell-ringing ceremony for it. Yet its share price never rose sharply during the 24 hours of Singles' Day. After the festival ended, the stock actually fell nearly 2%.

If overseas investors did not understand Alibaba, it was not for lack of effort: a month earlier, Jack Ma had made his own public case. When Alibaba released its fiscal 2015 annual report in October, he wrote an open letter to shareholders of more than 4,200 characters. In it he stressed: "In fact, e-commerce in the narrow sense is only one part of Alibaba Group's strategy today. What we are pursuing is an open, transparent and collaborative commercial infrastructure platform."

On the day of the year when Alibaba draws the most attention, Jack Ma again explained to the Chinese and foreign press on site what this "commercial infrastructure platform" includes, and how it grows out of Alibaba's existing e-commerce business:

"Singles' Day is an exam for China's infrastructure. Two or three years ago, nearly every bank went down, every logistics company was strained every year, and every company's customer service and supply chain were strained. But this year, things keep getting better. ... The volume of each Singles' Day today may well become the average daily volume ten years from now, and for that we must invest heavily in technology, logistics, payments and other areas."

Pretty numbers, a more mature Tmall, round after round of explanation... and still Alibaba's stock did not rise.

After all, whether it is Ant Group, a major player in Singles' Day, or the logistics network still under construction, investors cannot for now share in their gains through the listed part of Alibaba.

Singles' Day Owes Its Success to Alipay Too. Whose Singles' Day Will It Be?

This year, Alibaba was clearly not the only one to benefit. On the day itself, Alipay processed 710 million transactions, many of them for Tmall's competitors, online and offline. Such a transaction might be an order paid for on Tmall or Amazon, a bottled drink bought by phone in a convenience store, a lunch ordered on a food delivery platform, or a utility bill paid through the Alipay app.

Ant Group, the company behind Alipay, used the biggest shopping festival to push, with incentives that bordered on inducement, Huabei, a new product it formally launched only this year.

Huabei works like a credit card that can be used only online: you spend now and repay monthly. You can choose installments, or have last month's bill paid automatically when you have cash to spare.

On Singles' Day, 70% of Ant Huabei users had their credit limits raised, by between 30% and 100%. According to Ant Group, more than 60 million transactions went through Huabei on the day of the festival.

Ant Group's current business structure

According to recent data from Analysys, Alipay is still the biggest player in mobile payments. In the second quarter of 2015, China's third-party mobile payment market handled 3.5 trillion yuan in transactions, and Alipay's share exceeded 74%.

With Alipay at its core, Alibaba has gradually built Ant Group, a financial group whose businesses span payment tools, small loans, personal credit scoring and online banking. This business has since been spun out of Alibaba's group structure to develop independently, and it completed a funding round in mid-2015. Because it is so closely tied to Taobao, Tmall and Alibaba's other e-commerce businesses, outsiders see Ant Group as the most promising new business in Jack Ma's hands.

You may even notice that the most traditional shops, department stores and street vendors have begun to welcome Alipay. They are unwilling to cut their prices as low as on e-commerce platforms, but Alipay is as convenient and safe as cash or bank cards, and it can also draw in customers. Why not?

A typical case is the Intime Group, whose core business is rooted in Zhejiang. The company has a sizable network of physical stores (Intime Department Stores) and an underperforming online store, Intime.com. Starting in 2013, Intime proposed teaming up with Tmall for that year's Singles' Day, and a year later Alibaba invested in it.

Before this year's Singles' Day, Intime said it would give up pricing power over the goods in its malls, promising "Tmall prices at Intime, Intime goods on Tmall": shoppers in its physical stores could get Tmall's Singles' Day prices, and could also buy the stores' goods through Intime's Tmall flagship store.

A partner store of Xixuan, the cross-border supermarket business run by Tmall and Intime

But when a QDaily reporter visited four Intime stores in Hangzhou, the model did not seem to have been carried out well: almost none of the four displayed any visible signage about Tmall or Singles' Day, and shop assistants rarely brought it up in conversation.

Merging online and offline with a competitor like Tmall may be hard to accept for some time, even for a department store sector in poor shape. But that has not stopped Alipay from spreading through Intime's shopping districts: restaurants and clothing shops alike are happy to take Alipay payments.

For most retailers doing business in China, offline or online, and whether or not they take part in Singles' Day, working with Alipay is no longer in question. This is a key piece of what Jack Ma calls the "commercial infrastructure platform."

What Exactly Is the Commercial Infrastructure Platform Alibaba Has in Mind?

In June, before a trip to the United States, Jack Ma published an open letter to American investors in The Wall Street Journal: "China does not have a retail infrastructure as developed as America's, built of bricks and mortar. There is no national retail network, and there are only 2 shopping malls per million people, one-tenth of the US figure. But with the internet and e-commerce, Chinese consumers' shopping experience has improved enormously, and the amount they spend online is rising rapidly."

Jack Ma is trying to use e-commerce and online payments, which spread along with the internet, to change how the physical economy works.

His efforts have already begun to pay off. Online shopping's share of total retail sales rises every year, and brands are now willing to work with e-commerce channels, even ranking them alongside traditional sales. The 91.2 billion yuan in total sales largely reflects this structural shift.

Alipay, which grew up almost alongside Taobao, began as a small tool to make transactions easier at a time when China's online payment capacity was weak and there was no credit data on buyers and sellers. But as nearly every bank gradually connected to it, Alipay became a third-party payment platform bigger and more convenient than UnionPay.

Alipay now has more than 400 million real-name users, more than the monthly users of Tmall and Taobao. Another figure shows its scale and prospects: nearly 40,000 offline supermarket and convenience store outlets now accept Alipay, across more than 70 brands including Carrefour, Walmart, FamilyMart and 7-Eleven.

Beyond sales and payments, Alibaba wants to do more. The next step in its plan is to take control of parts of logistics and production.

This year Alibaba, which had already set up the loosely knit Cainiao network, bought stakes first in YTO Express and then in Suning, which runs strong logistics operations of its own.

QDaily visited a large Suning warehouse on the outskirts of Shanghai. Of its 260,000 square meters, besides Suning's own storage for large appliances such as televisions, washing machines and refrigerators, nearly 40,000 square meters is a small-item warehouse dedicated to the "hit products" Tmall Supermarket has entrusted to Suning. In this area you see only a few dozen products, such as Mengniu Moslem yogurt and Huggies diapers, but they add up to 300,000 to 400,000 items.

Suning's warehouse in Fengxian, Shanghai, which also stores Tmall Supermarket's "hit product" Moslem yogurt

Suning's staff not only sort, pack, label and ship these goods, but even stick Tmall Supermarket stickers on the outer packaging. On delivery speed, they match Suning's own goods, with "three deliveries a day."

Working with Tmall means Suning has begun to act as part of the "commercial infrastructure platform," serving more merchants, including some that compete with it to a degree.

Xu Chenghang, deputy general manager of Suning's logistics business in the Shanghai region, told QDaily that this is one of Suning's few warehousing partnerships with outside companies. Under future plans, goods from Tmall are expected to be "mixed in" with Suning's own goods and treated the same in every respect.

In a conversation with media veteran Qin Shuo, Jack Ma described for the first time the "caterpillar-track strategy" he set for Alibaba: "No internet company can stay ahead for 3 to 5 years in a row. So we develop in echelons and fight as one organism. Each company moves to the front, then falls back, and another moves up, in a cycle. This is the caterpillar-track strategy we set seven or eight years ago: Alibaba's B2B business needed repair, so Taobao became the first echelon, then Tmall, then Alipay rose, in two years it will be cloud computing, then Cainiao, round after round..."

Alibaba's past earnings reports partly bear this out.

B2B now accounts for less than 10% of Alibaba's quarterly revenue. Most of the money comes from "China retail," led by Taobao and Tmall. Taobao is still more than twice the size of Tmall, the main force behind Singles' Day, but its growth has slowed sharply: over the past four quarters, its year-on-year growth rate has fallen by 10 percentage points each quarter. And after generating 91.2 billion yuan in transactions, Tmall too may settle into a period of relatively steady growth.

E-commerce runs on thin margins and high volume, and could hit a growth ceiling at any time. Providing merchants with basic services on top of water, electricity and gas may be a better business. That is the opportunity Alipay and the Cainiao network are now fighting for.