Black Friday Was Loud for One Year, Then Went Quiet: Five Changes Behind Online Shopping

Buying overseas brands has become ordinary, and there isn't much room left for small e-commerce players.

November 25, the day after Thanksgiving, is the annual "Black Friday," a traditional American shopping holiday. Last year a handful of small and mid-sized Chinese e-commerce companies spent enough money to turn it into a Chinese holiday too.

But doesn't it feel quieter this year?

It's not your imagination. Open the Shopping category on Apple's App Store and, among the top 30 apps, only Yangmatou, Xiaohongshu and Zhefengle have anything about "Black Friday" on their icons. Most logos still carry the "11.11" label.

Last year the two hottest overseas-shopping (haitao) platforms, Yangmatou and Xiaohongshu, rode Black Friday to No. 1 and No. 2 on Apple's overall App Store chart. This year, at around 6 p.m. on November 24, Yangmatou briefly reached No. 1, but on the morning of Black Friday itself it was overtaken within hours by the card game Zhajinhua and the livestreaming app Yiqixiu, and fell to fifth.

The two companies' subway ads have thinned out as well.

Beijing's Guomao is one of the country's most valuable subway stations for advertising: two major lines meet there, and more than 560,000 people pass through in a day. Yangmatou still took half a wall in the transfer corridor, but the huge ad spot it held in the Line 1 concourse last year now belongs to Meituan's third anniversary and an Agricultural Bank of China credit card. Xiaohongshu's ads appear only on one or two small electronic scrolling screens, for 10 seconds every two minutes.

Last year was different. Counting cash-coupon subsidies, Yangmatou spent roughly 500 million yuan on Black Friday, and to lock down the hottest subway ad spots in Beijing and Shanghai it booked the positions a full year ahead. "Competition among domestic e-commerce players is too fierce. If we don't prepare in advance we simply can't get the spots. We booked this November's subway ads back in October of last year [2014]," Yangmatou co-founder Cai Hua told QDaily at last year's Black Friday press conference.

This year Yangmatou again secured ads at both stations, but it is no longer willing to name a figure.

Last Year You Couldn't Escape Black Friday

In November 2015, even with zero interest in overseas shopping (haitao), you could hardly avoid "Black Friday." Turn on the evening news, watch a variety show on the weekend, stream an American drama, take the subway, step into an elevator, and there was another cross-border e-commerce ad.

A report from Carat Media found that in 2015, ad spending by vertical overseas-shopping platforms such as Meilishuo HIGO, Yangmatou and Xiaohongshu rose 145% over 2014, with 330 million yuan going to straight display advertising.

JD Worldwide ran ads in WeChat Moments built around a game that asked you to invite friends to scan a code. Xiaohongshu, which had bought ads on numerous video sites, sent a bus carrying Canadian male models through Beijing, Shanghai, Hangzhou, Shenzhen and other cities starting a week before Black Friday, promoting its own "Red Friday."

On Black Friday itself, the US online store of Macy's sold nearly 50,000 Michael Kors bags paid for through Alipay, more than 150 times its usual daily volume. Amazon China, using discounts synced with its US site, sold nine times as many overseas goods as it had on Double 11.

Smzdm's director of overseas business told QDaily in an interview last year that the site had run Black Friday shopping guides for years, but the barrier was high enough that many users still wouldn't shop overseas on their own. Last year, she said, was the first time cross-border e-commerce truly brought Black Friday to ordinary users. "With more cross-border e-commerce and tech-enabled daigou (purchasing-agent) companies joining in, beginners can start giving it a try."

This year those companies have gone quiet. Where cross-border platforms once crowded around Black Friday to teach people what "overseas shopping" was, this year they treat it as an ordinary promotion.

At an entrepreneurship course co-run by Stanford and Peking University, Xiaohongshu CEO Mao Wenchao no longer talked about transaction volume; he talked about user value. Yangmatou spent much of its time describing the overseas warehouses it had added over the past year and the chartered "Black Friday" flights it had arranged to protect delivery times.

Outside Alibaba and JD.com, the only companies still genuinely active this year are Amazon and NetEase Kaola, each of which held more than one press conference for its Black Friday promotion. Overseas goods are Amazon's biggest investment in China: it opened a pop-up store in Sanlitun early, and it brought its cross-border, free-shipping Prime membership to China, with a huge banner on the app's home page reading "Prime, free shipping and duties included." NetEase Kaola is the newest source of growth NetEase has found outside gaming; NetEase Cloud Music and NetEase News both funnel traffic to Kaola, and NetEase is already the highest-grossing gaming company on the iOS App Store.

Why did it turn out this way?

Goods That Once Took Overseas Shopping to Buy Cheaply Are Being Absorbed by the Big Platforms

At a briefing in mid-November last year, Yangmatou CEO Zeng Bibo said the company ran its promotion a full week ahead of the American sales, because most Chinese people had no idea which day "Black Friday" actually fell on. What mattered was using the idea to get more people buying.

Last year's Black Friday promotions were mostly a pretext: a way to get more people used to buying things from abroad. Put simply, buying overseas brands at a fraction of the domestic price was the difference cross-border e-commerce wanted to press against Alibaba and JD.com.

And bringing in international brands is exactly what the big platforms have spent the past year doing. As of November 7, JD.com's published figures showed JD Worldwide carrying more than 7.5 million products, and news of Tmall Global signing overseas brands never stopped. Brands once considered "niche" on Chinese e-commerce platforms, such as Kumamon, Victoria's Secret and MIKIHOUSE, have all opened flagship stores on Tmall. The most recent company to announce a partnership with Alibaba is Isetan; the flagship store of Japan's largest department-store group opens on Tmall on November 25, the day of Black Friday.

Globalization was the focus of this year's Double 11, and by the time Black Friday arrived, the overseas brands that had already gone all out for Double 11 simply kept their promotions running on Tmall and JD.com. Whatever the occasion is called, Double 11, Black Friday or Double 12, what users care about is a low price and getting hold of things they couldn't buy before.

Last year the smaller companies also tried to set themselves apart in format, not just in goods. The community Xiaohongshu had spent years building supplied good content for its e-commerce business; Bolomi invited brands to livestream product sales, which narrowed the information gap in the buying process; and buyer-curated models like Yangmatou's widened the range of where products came from.

Those advantages are no longer so obvious. During the Double 11 that just passed, Alibaba ran 60,000 livestreams in all, and that was only a concentrated display of the content-driven shopping guidance Taobao and Tmall had been building all year. JD Live, two months after launch, has also been pairing celebrities with e-commerce.

Once platforms with enormous traffic learned the small players' tricks, the small players had a much harder time holding on to what made them different.

The Overseas-Shopping Rules Hadn't Even Taken Effect, and People Were Already Scared Off

In August 2013, the General Office of the State Council issued the Opinions on Implementing Policies to Support Cross-Border E-Commerce Retail Exports, and cities including Shanghai, Chongqing, Hangzhou, Ningbo and Zhengzhou began piloting customs clearance services for cross-border trade e-commerce. In July 2014, the General Administration of Customs issued Circular No. 56 and Circular No. 57, affirming that cross-border e-commerce was legal.

Over the following year and a half, every link in cross-border online shopping changed.

Almost every large company set up a separate cross-border business. Alibaba built Tmall Global, Jumei built its Jisu Duty-Free Store, JD.com pushed JD Worldwide hard, Suning launched a standalone overseas-shopping app called Xiaohaishi (Little Sea Lion), and even Tong Ren Tang launched a cross-border site selling overseas health supplements. Many of these new companies chose to keep goods in bonded warehouses, to get fast delivery and low cost at the same time.

Across all of 2015, the cross-border e-commerce sector grew more than 30%.

That pace held until April of this year.

That was when cross-border e-commerce entered its period of greatest customs-policy change: a new cross-border e-commerce tax system and a retail import goods list arrived one after the other.

QDaily once worked out what prices looked like under the new rates. The categories hit hardest were mother-and-baby products and daily necessities, both of which now carry an extra 11.9% in tax. Cosmetics priced under 100 yuan took a heavy hit too: previously tax-free, they now carry a 32.9% tax. Rates on luxury goods and on clothing above 300 yuan rose accordingly. But rates on personal-care products and on cosmetics above 100 yuan actually fell.

Cross-border companies did not raise prices across the board overnight. Beyond adjusting prices to the new rates, whether certain goods could still be imported and sold the old way also changed, because of the import goods list the Ministry of Finance and other agencies issued jointly. In May the Ministry of Finance announced it would suspend enforcement of the new rules in ten pilot cities.

A week ago the industry got more good news: enforcement would be suspended for another year. But in consumers' minds the effect of the policy was mostly psychological. Once the rules existed, a price increase could come at any time.

The research firm Analysys's China Cross-Border Import Retail E-Commerce Market Quarterly Monitoring Report put the market size for China's cross-border import retail e-commerce in the second quarter of this year at 68.64 billion yuan, down 4.1% from the previous quarter.

Liu Nan, CEO of Mia.com, which pivoted out of cross-border mother-and-baby e-commerce, said in an interview: "Capital will no longer treat cross-border e-commerce as an investment target in itself. Cross-border e-commerce isn't a standalone proposition; it can only help a company optimize."

Zhang Zhendong, CEO of Bolomi, a cross-border company focused on Japan and South Korea, said when enforcement was suspended for a year: "From the industry's point of view, we call on all our peers to abandon the old vicious competition, answer the country's call, and return to the essence of business: to use the buffer period the government has given us to build, as early as possible, a business model that is their own, healthy, self-sustaining, and fully compliant with the country's future regulatory needs."

After more than half a year of upheaval, investment in cross-border e-commerce has cooled too.

Less Capital Is Flowing Into Cross-Border E-Commerce

In 2016, both the value and the number of investment deals across the whole internet sector have fallen, and cross-border e-commerce has shrunk faster than most. In 2015, new companies entered the overseas-shopping market at regular intervals; this year, cross-border money has gone more toward exports, further away from individual consumers.

We tallied investment in import-side cross-border e-commerce over the past three years, and the 2016 total fell by nearly half. Beibei.com and Mia.com, the two companies that landed large rounds this year, both pivoted out of a vertical category, mother-and-baby, to become comprehensive cross-border retailers.

With no new round of funding to burn, the small platforms took the hit directly in their download numbers.

QuestMobile's October data showed that the big platforms have not only left vertical e-commerce far behind in transaction volume; they have also captured users' attention, measured in time spent.

When Alibaba Got Into Content, It Sucked the Air Out of Small E-Commerce

Many small shopping-guide apps used to send traffic to third parties, and that was cross-border e-commerce's opening. What changed this year is that Alibaba has put a lot of money into sending traffic to third parties itself, partly through high rebates and partly through cash-coupon rebates: whichever channel's coupon a user shops with gets the rebate.

One highly ranked shopping-guide app told QDaily that during Double 11, every cash coupon it handed out for Tmall that ended up being used in a transaction earned it 4 to 6 yuan, on top of the rebates for sending users straight through to buy products.

The only companies that can still match Taobao and Tmall on high rebates are JD.com and NetEase Kaola.

If even the other large platforms can't get traffic, the small ones have no chance. They have no money to buy downloads and no money to bring shopping-guide apps on board. E-commerce depends heavily on traffic, so it is no surprise the small players have grown quieter.

App Annie's report showed that Mobile Taobao added 5 million downloads during Double 11. For a small company, even a funding round of more than $100 million might not buy that.

NetEase Kaola may be one of the few cross-border companies with both ample funding and its own sources of traffic: NetEase News, NetEase Cloud Music and NetEase Games all run Kaola ads in prominent spots.

Amazon China, busy over the past month or so, is likewise leaning on Amazon's global resources. Its recently launched UK cross-border shopping site added millions of options for Chinese users buying from abroad on Amazon. But Amazon faces the same problem of how to pull users away from Tmall and JD.com. Data from Syntun showed Amazon's share of sales during Double 11 was 1% of the whole market, while Tmall's exceeded 65%.

The Economy Isn't Quite What It Was a Year Ago Either

The economic backdrop is impossible to avoid.

China's GDP growth has held at 6.7% for three straight quarters, unchanged even after the decimal point. Meanwhile a string of money-draining events has piled up since 2015: the A-share market crashed in the middle of last year, then P2P lending companies collapsed in batches at year's end. This year, residential sales revenue rose 40.1% from January to August, so a squeeze on consumer spending is close to certain.

Even Alibaba and JD.com, the biggest players, have felt it. Alibaba's transaction-volume growth rate has fallen for several quarters running, and JD.com, to cut its losses, spun off JD Finance and opened up the logistics network that set it apart.

More directly relevant to Black Friday is the exchange rate. Today the offshore dollar-to-yuan rate has passed 1:6.92. On Black Friday last year it was 1:6.39.

With the exchange rate where it is, buying the same item this year comes with 10% less of a discount than it did last year.

Just like the changes at Double 11, e-commerce companies still can't help talking about transaction volume, but the race over the numbers has essentially stopped.

Cover image from Alexas_Fotos and Visualhunt.com