Alibaba unit ramps up subsidies to export the Chinese Singles Day shopping holiday

BEIJING — Chinese e-commerce giant Alibaba is pressing into overseas markets as competition heats up around the Singles Day shopping festival the company launched 12 years ago in China.

Akin to Black Friday or Cyber Monday in the U.S., the shopping event started as a day of mass discounts on Alibaba’s online shopping platforms on Nov. 11. The promotional period has since expanded to at least Nov. 1 to 11, while other Chinese e-commerce companies such as JD.com have piled in.

This year, JD reported 32.8% growth in transaction volume to 271.5 billion yuan ($40.4 billion) from 2019. That’s faster than the 26% increase Alibaba disclosed, albeit to a far greater figure of 498.2 billion ($74.1 billion) in gross merchandise volume (GMV). GMV is a metric most commonly used in e-commerce that measures the total dollar value of goods sold over a certain period of time.

For Alibaba, it said the GMV figure is the total value of orders and shipping charges settled through digital payments system Alipay for transactions such as ones on the company’s China retail marketplaces, and international-focused e-commerce platforms Lazada and AliExpress.

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

To speed up delivery and reduce costs for customers, AliExpress boosted subsidies by five times for logistics operations this Singles Day, compared with last year, Li Dawei, head of AliExpress Supply Chain, told CNBC in a phone interview this week. The business unit works with Alibaba’s logistics arm Cainiao as well as local delivery companies in other countries.

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

Outside of the shopping festival, investment in logistics has cut delivery time to Spain and France by about 30% to 10 working days for some cross-border products, according to AliExpress. The company is also building out its warehouse system in Europe, through which merchants can pre-stock goods and deliver select products within three days to Spain, France and Poland, and five to seven days in other parts of Europe.

Ken Chen, who runs a Shenzhen-based LED light business called Tranyton, said Europe is his primary market and he’s been pre-stocking warehouses there in anticipation of a doubling in sales this Singles Day from last year. Chen said typical monthly business revenue averages $500,000.

It’s not clear how much AliExpress contributed to Alibaba’s Singles Day sales this year. The business unit said the sales of goods sold in overseas warehouses in the first minute of Nov. 11 equaled that of the first 60 minutes last year.

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

The opportunity and competition in e-commerce is rising as stay-home policies enacted in the wake of the coronavirus pandemic are accelerating 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 Sept. 30. The company has come under significant scrutiny from European regulators over data use that potentially gives Amazon an unfair advantage over other sellers.

AliExpress has been trying to get local sellers to join its platform, beginning with Russia, Spain, Italy and Turkey early last year, according to the company. The platform offers the same livestreaming sales tools that have surged in popularity in China, and launched real-time translation for some languages.

Whether these efforts to replicate success in China’s e-commerce market will work in Europe remain to be seen.

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

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

Alibaba shares are down more than 10% over the last five trading days, while those of JD have fallen more than 7% after the State Administration for Market Regulation (SAMR) released draft guidelines against internet industry practices that create monopolies.

“The draft mentions that the use of subsidies, discounts, and traffic support provided by platforms, despite favouring consumers, may potentially deter fair competition among market participants (i.e., by setting prices below costs),” Morgan Stanley analysts said in a report Wednesday. “This could affect Alibaba’s promotional activities, although to what extent such subsidies will be regarded as a violation of antitrust rules remains uncertain.”

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

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

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

In logistics, while there is significant growth overseas by Chinese players, the businesses often lack staff overseas with sufficient experience, and face many other challenges such as capital and regulation, Charles Guowen Wang, director at think tank China Development Institute, said. He noted the opportunity within China still remains quite large.

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

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

“I think we’ve also seen the rise of direct to consumer program, which also the WeChat mini program,” Poh said. “In terms of scale and relevance, it’s exponentially increased in the last 18 months.”