Podcast | Digging Deeper - Alibaba's Singles' Day: Sales on Steroids (but will they last?)

Moneycontrol Contributor 

Rakesh Sharma 

You’ve heard of Flipkart’s ‘Big Billion Days.’ You sure bought a lot during Amazon’s ‘Great Indian Festival Sale.’ ‘Black Friday,’ the day after Thanksgiving Day in America, is now legendary not because of post-turkey lassitude, but the animal frenzy that is seen across retail outlets in America.

It’s not an uncommon sight to see people camp out over Thanksgiving outside major retail stores to ensure a place in front of the line, and therefore a better shot at getting the items they want. In the past decade, there have been 10 reported deaths and 111 injuries related to Black Friday ‘festivities’ in the US.

As if one day of extraordinary excesses were not enough, the extended release drug they call ‘Deals’ touches Monday after Thanksgiving too – Cyber Monday. According to Adobe Analytics, US retailers earned $7.9 billion on Black Friday last year, with Cyber Monday bringing in another $6.6 billion.

But. As they say in America, you ain’t heard nothin’ yet.

For that, we have to head to China.

Singles’ Day is an Alibaba concoction, and it is Sales on Steroids. Ten years since its inception, it has come to be regarded as the biggest day of shopping in the world. For a few years now, it has come to generate almost three-four times the sales seen during Black Friday and Cyber Monday combined.

That shouldn’t come entirely as a surprise considering Alibaba’s number of mobile monthly active users is 666 million – double the population of the US, and just 80 million short of the population of all of Europe.

Gross Merchandise Value (GMV) at this year’s sale stood at a record $30.8 billion (RMB 213.5 billion), a 27% increase from last year’s edition, when sales hit $24.1 billion in GMV. For comparison, Amazon’s biggest single sales day was Prime Day in July, which brought in an estimated $4 billion. GMV for the event has seen a 4,106-times increase since the first event in 2009.

What is Singles’ Day? Is GMV an accurate metric to understand sales revenues? Is the Singles’ Day trend spreading across the world? What does the spending power of the Chinese middle class tell us about the potential spending power of the Indian middle class?

How do factors like the slowing economic growth of China, a faltering stock market, and escalating trade war tensions affect the spectacle that is Singles’ Day? These and other questions will be answered as we Dig Deeper into the showstopper of shopping festivals (Mariah Carey included) they call Singles’ Day.

Singles' Day — What is it all about?

Singles’ Day (or Double 11 Day) is China’s answer to Valentine’s Day, but it so much more than that. So much more.

If Valentine’s Day is the Hallmark holiday for people already in love, Singles’ Day hopes to be that day which sets up the stage, and well, set people up to be in love, or so it has come to be. Its beginnings, however, were rooted in a story somewhat similar to Facebook – in a dorm in Nanjing University. Four single male students, resigned to the notion of lovelessness in the pre-Tinder era, desired however, to break free from the shackles of monotonous singlehood.

One of them hit upon the idea of dedicating a day to their dreary lives – 11^th of November, 11/11. 1, a digit that symbolises an individual, a single person; 11, for two individuals, finding each other, and being together on the special date; 11/11, two (or more) couples celebrating finding their special ones on the special date. Perhaps less romantically, and more realistically, 11/11 is just a bunch of four singles.

Singles’ Day can be read either as a celebration of singledom or a day for people to feel bad for themselves for not being paired up – either way, an excuse to treat yourself. In 2009, Alibaba’s Jack Ma latched on to this concept and ran with it – massive discounts on everything from milk powder to mobile phones.

What was originally a novelty holiday for the unsuccessful in love has been cleverly turned on its head to be a windfall for e-commerce. If you can’t find someone to love, find something to love. Consumerism as a form of self-expression; if you can’t love yourself (and treat yourself), how in hell are you going to love somebody else? (Can I get an “Amen” up in here?)

Since 2009, ‘Bare Sticks Day’ (Guang Gun Jie) celebrating “bare sticks,” or “bare branches” a nickname for bachelors – insinuating that they are unlikely to bear fruit – has sure taken some long and blockbusting strides. And along the way, it has had everyone from Mariah Carey to Daniel Craig to Kobe Bryant to Scarlett Johansson to Nicole Kidman to come to the party.

Singles' Day — 2018

The tenth edition of Singles’ Day’s sales has shattered records. Pumping $30.8 billion through the cash registers in a span of twenty four hours is no mean feat. An event of this size needs a show to go with – the Mittal daughter wedding may be the event, but the show was Shah Rukh Khan performing in Versailles.

Alibaba understands spectacle, and starting 2016, it puts on a show befitting the moolah it generates. Singles’ Day gala in Shanghai this year featured Miranda Kerr, hawking her skincare brand; Mariah Carey, doing what she does (lipsyncing); Cirque du Soleil, doing what they do, this time with a shoe-shopping theme (go figure!); and robots mixing cocktails and coffees. It was part variety show, part consumer expo, full acid trip.

A massive screen displayed the soaring sales numbers in real time: over a billion dollars in just a minute and 26 seconds; at 2 minutes and 5 seconds after midnight, 10 billion yuan ($1.43 billion) in purchases; by the 1 hour and 47 minute mark, that number was tenfold.

A billion in a minute, two billion in two, and ten in the first hour, is how the ‘show’ began. What Amazon made over a full day’s sales on Prime Day, Alibaba had made in ten minutes. What were those gloomy forecasts about the world’s second largest economy struggling with a tariff war with the US, stock market slumps, and slowing overall growth? (Well yes, there are hints, but more on this later.)

During this year’s sales, Apple was the top-selling mobile phone brand, beating its Chinese rivals. Apple was one of 237 brands that surpassed 100 million yuan ($14.36 million) in sales. Huawei, China’s largest smartphone-maker by marketshare, was the second-highest-selling vendor during Singles Day. Xiaomi, followed.

Amazon reported on Prime Day that its top-selling products this year were the Fire TV Stick with Alexa Voice Remote and Echo Dot. While electronic products were bought in hordes, they were certainly not among the most bought items during Singles’ Day sales – those would be food items, lots of food items. Health supplements, milk powder, Chinese hairy crabs, Ecuadorian white shrimp, and Australian milk were among the top-selling products this year.

Alibaba's "New Retail" Strategy 

Alibaba founder Jack Ma, who will be stepping down as chairman in less than a year, attended the start of the gala in Shanghai and appeared in a video message in which he wrapped up one of those very Chinese hairy crabs. Ma said, Singles Day “is not a day of discounts, but rather a day of gratitude. It’s when retailers use the best products and best prices to show their gratitude to our consumers.”

CNBC reported, “Alibaba introduced new aspects into this year's Singles Day. Lazada, a Singapore-based e-commerce site that has operations across Southeast Asia and is majority-owned by Alibaba, hosted its own sales. And Ele.me, Alibaba's food delivery platform, provided delivery for select Starbucks stores across 11 Chinese cities. Starbucks struck a deal earlier this year with Alibaba to work together in China.”

Alibaba’s focus this year will be on a strategy it calls “new retail,” which aims to bring together the online parts of its business with the offline. Hema, its chain of grocery stores which allows users to go in and shop, and pay with their phone, is a part of this strategy, as is the deal with Starbucks. Bridging the gap between the online and offline worlds, was the main area Alibaba focused on this year.

CEO Daniel Zhang, one of the architects of the Singles’ Day event told CNBC, “"When we talk about new retail, we strongly believe that online commercial world and offline brick mortars are not separate worlds. And if you look at the customer base today, everyone is living in the internet. Everybody is the internet user. You have the same customer base. You must have the same commercial world. It's all about how to innovate online and offline to a whole digitalized commercial world.”

More than 20 Alibaba-owned businesses including online shopping site Taobao (Tmall) participated this year in the 11/11 deals. Alibaba executives emphasised the need to find ways to continue to evolve, whether that means expanding in different regions or exploring new types of business.

Speaking to Business Insider, Alibaba cofounder and executive vice chairman Joe Tsai said, “Philosophically, how we look at whether we got into one business or another ... we never ask ourselves whether this is a lucrative area or whether it's going to be a commercially successful thing.” Tsai said the thinking in Alibaba has always been to respond to necessity or to do things out of fear, citing Alibaba's 2003 launch of Taobao to shut down the threat of eBay expanding in China.

“There is high sense of paranoia within the company,” he added.

30 billion dollar GMV? But what about the trade war?

Titanic sales on Singles’ Day, yes, but the New York Times described this year’s party as one held with icebergs in sight from the deck. This year’s party might have had the spectacle, but it came with the backdrop of decelerating growth, rising debt, and escalating trade war with the US. On paper, the Chinese tiger roars. But on closer inspection, the decibel level comes down.

Last month, China’s government reported that the economy grew by 6.5% over the three months that ended in September. While fast by most standards, this is the slowest pace China has seen since the depths of the global financial crisis in 2008-2009. China’s stock market has been in the red for most of the year now. It has fallen by a quarter since a peak in January, making it one of the worst-performing.

The currency has weakened to 10-year lows. Companies are complaining that they cannot get money from lenders, and a few are even defaulting on their loans. In a report released in October, S&P Global estimated that China’s local governments are carrying as much as $6 trillion in shadowy debt off the books. That is equivalent to roughly three-fifths of China’s entire economic output. Analysts at the ratings firm called it “an alarming level.”

The trade war has not caused much of a dent yet in the $12 trillion economy, but it could prove to be a drag. Paradoxically enough, export figures for September jumped 14.5% but analysts believe that could be due to American companies ramping up orders before tariffs made new purchases more expensive. The trade war could shave as much as 1.6 percent off China’s economic growth figures next year, according to a recent report from the International Monetary Fund.

More relevantly about our discussion on consumer spending habits, “consumption downgrade” is already a talking point. For years, it was the “consumption upgrading” Chinese middle class – 400 million and counting – that drove the economy. They upgraded from local phones to iPhones; from beer to cocktails’ from local brands to Nikes. The NYT said, “Chinese spenders have been a key driver of their country’s economic growth in recent years. China, in turn, has played a major role in global growth. Chinese consumers help global companies like Apple, General Motors, Volkswagen and many others.” Now, those trends might be slightly shifting.

The Times spoke to several youngsters of varying wealth, and it would appear the “consumption downgrade” really is in. Rising education costs, unaffordable rents in big cities are adding to the problem. High living expenses are forcing many to stay single, and even if married, not opt for children. The “one child” policy has been upgraded, if you will, to a “two child” policy by the government in 2015, but younger couples are avoiding the one child, let alone two.

It is true, however, that retail sales have stayed buoyant, growing at 9.2% in September from the previous year, with consumers continuing to buy cars, appliances, smartphones, etc, but economists have warned that this happy picture of consumption might not last.

Car sales have already slowed down in September. “Retail numbers could also fall as Beijing cracks down on nonbank lenders and peer-to-peer lending platforms, which have been a source of credit for many consumers in recent years. Property development has slowed, too, as fewer people buy new homes,” said The New York Times.

Alibaba and the trade war 

That said, Alibaba executives, at least in their conversations with the media, seem unfazed. Joseph Tsai, executive vice chairman, said Alibaba should be understood in the context of the epochal rise of China’s middle class. “That trend is not going to stop, trade war or no trade war,” he said. “Any kind of short-term economic effects, we believe, will be cyclical.”

The growth rate in Singles’ Day sales slowed from the previous year, but the sheer scale of the increase once again reflected the company's clout in China's consumer market. CEO Zhang told reporters that the trade war was hurting both the US and China, but Alibaba was not affected because “it deals with consumers.” The stock market, though, does not quite agree – Alibaba stock has shed nearly 21% this year due to weakening investors’ sentiment towards Chinese technology companies because of the trade war (CNBC)

Speaking at the China International Import Expo, Chinese President Xi Jinping said China's imports of goods and services will exceed $40 trillion in the next 15 years. Alibaba, which has received a big hand from the Chinese government, said that it will purchase $200 billion worth of imports in the coming five years. Alibaba also hopes to play a role in China’s shift from an export-oriented economy to a domestic demand-driven economy. That domestic demand, at least for consumer goods, is now largely driven by people born in the 1990s, says CEO Zheng.

Zheng may have a point. According to a McKinsey report from November 2017, “The post-90s generation comprises about 16 per cent of China’s population and is expected to account for more than 20 per cent of total consumption growth in the country through 2030.”

They are a generation born into the internet, and much of their lives is tethered to it. About 28 per cent of China’s 802 million-strong online population are aged between 20 and 29, accounting for the largest segment, according to the China Internet Network Information Centre. And sure enough, they have been making their presence felt. About one in two (46%) of consumers who took part in the Singles’ Day event were born in the 1990s. Two in five of the 90s borns label themselves “happiness seekers,” and they seek happiness in material comfort, i.e., they are staunch Alibaba customers.

“Alibaba has analyzed the vast data generated by Singles' Day transactions over the past 10 years, and their figures show habits that mirror China's transition to a massive consumer economy. Figures reveal that in 2009, the post-80s generation made up for over 60 percent of consumers on the Single's Day shopping fest, but the post-90s have replaced them since 2015, accounting for more than 80 percent,” reported CGTN.

So yes, there is certainly one section of the population that is spending more and saving less, which is firmly behind the large sales seen this year. But, what we are given is a metric that is thought to be largely useless – GMV. This year’s GMV growth of 27%, in comparison to last year’s 39%, is already an indicator of things to come.

Is GMV a useful metric?

No.

GMV = sale price charged per item X number of items sold

Revenue is the commission the business earns upon the sale of that item. Those numbers are not available to us from Singles’ Day sales. Tim Culpan, writing for Bloomberg, calls GMV the world’s most useless financial metric. Culpan wrote, “Jack Ma seemed to agree, months later admitting that it’s not representative of the company or its business.”

The numbers agree too – there is a clear disconnect between the growth in GMV and the revenue and net income at Alibaba (Bloomberg). Simply put, GMV can be used to window-dress even a loss-making venture. “At some point that figure will drop, which would kill the festive mood. Instead the company will follow in Apple Inc.’s footsteps (they will stop publishing iPhone shipments) by getting ahead of the bad news,” predicts Culpan.

Alibaba is China’s biggest hype master. And these swelling GMV numbers have thus far contributed to the hype. But given the global factors weighing down on China, it would do better than to rely on GMV for hype. Alibaba is seen as a bellwether of Chinese economy, and it would be in Alibaba’s best interests to at least keep the perception game going, and sooner rather than later, dump GMV. A lesson even our own Snapdeal and Flipkart have learnt.

The spread of Singles' Day?

However useful or not the GMV as a metric might be, it certainly does the one thing Alibaba wants it to do – grab eyeballs. Its fame as the world’s biggest shopping festival is slowly but surely making its way west. Lazada, majority-owned by Alibaba, is already heavily popularising Singles’ Day in Southeast Asia. TimeOut reported, “Last year, Japanese e-commerce company Rakuten, opened a Chinese cross-border e-commerce site, specialising in foreign goods, to get a piece of that Single’s Day sales volume. Some Thai businesses also set up their flagship stores on Chinese e-commerce platforms. In Russia, the popularity of Chinese online retailers has been growing for the past few years. In 2013, Russia added China’s Singles’ Day its own sales calendar. In 2016, the number of Russian orders made on Chinese sales platforms was 31 times larger than in 2015.”

Vox reported, “This year, Totokaelo, a high-end retailer with locations in Seattle and New York City, celebrated Singles Day by giving shoppers 11 percent off everything in the store. US Weekly’s roundup of Singles Day sales included deals from the Outnet, L’Occitane, and Urban Outfitters. Need Supply Co. offered 11 percent off all its products; H&M gave shoppers 20 percent off when they spent more than $100. American Apparel gave shoppers 33 percent off their orders.”

There has been another kind of spread too – luxury brands, which earlier pooh-poohed the festival as mid-market, have made concerted efforts to make their presence felt this time around. A $380,000 Rolex and $69,000 Hermes Birkin bag were among the products sold during this year’s sale – unthinkable a few years ago. Burberry, Chanel, Lancome, Saint Laurent, Tiffany, etc have come a-calling as Singles’ Day has evolved to become more sophisticated (read: money money money).

Some European retailers though have some doubts about 11/11 making a successful landfall there, considering it’s Armistice Day (to commemorate the end of World War 1). One British retailer thought the British public might think it in “poor taste.” Something tells me that’s going to change.

Something also tells me it won’t be long before 11/11 arrives on Indian shores. Which brings us to the inevitable question – how do we fare in comparison to China when it comes to these sales, and indeed, e-shopping?

Roaring Tiger, Slow Elephant 

While it is not a bad comparison to make, it is certainly a premature comparison to make. “China’s online e-commerce market was between $900 billion to 1 trillion in 2017 whereas India’s e-commerce market was around $18-20 billion. There is a significant difference in size of the market in both countries,” said Ankur Pahwa, Partner and National leader, E-commerce and Consumer Internet, EY.

Income and consumption power plays an important role for a consumer. “The economies of China played an important role in the spending habits of the Chinese. The GDP per person in China is around $9000 whereas in India, it is around $2000,” said Pahwa.

Are there, however, lessons to be learnt from Alibaba by our local heroes? Certainly.  Sabahat Contractor, writing for Moneycontrol, says, “Trust plays a very important role in an online e-commerce market. Alibaba, with its closed ecosystem, has developed trust with its consumers. Indian e-commerce still lags behind on this factor.”

“Quality and trust played a very important role for Alibaba in China. Also, a large part of the Chinese economy is virtual. Whereas in India, a majority of buying is still from offline,” said Pahwa.

Alibaba said that more than 40 percent of consumers made purchases from international brands.

“Indian e-commerce should give a mix of categories to its consumers. Proper curation of the inventory should be there in order to target Tier 2-3 cities. Another lesson one can learn from Alibaba is the dealings with the brands,” said Pahwa.

Devangshu Dutta, Chief Executive of Third Eye Sight added, "Alibaba has consolidated its hold on both the business and the consumer side in the Chinese ecosystem. India still has a fragmented consumer market, and online retail is only a couple of percentages of the total market, though the supply side is consolidated between the two foreign-owned businesses, Flipkart Group and Amazon. In India, I think both online and offline formats need to evolve together."

Chinese internet users have taken to calling Singles’ Day ‘Hands-Chopping Festival,’ as in, ‘If I buy one more thing, I will chop my hands off.’ The truth is everyone buys one more thing. But will they continue to, is the question.

Even as packages are travelling across China in bullet trains to reach consumers, some more questions beg to be asked – will China keep up the pace of buying? Will the bare sticks continue to bear fruit for e-commerce? Will the macroeconomic factors we have been seeing finally be reflected in consumption numbers? Will Alibaba, with its fingers in everything from developing computer chips to promoting African economic development to ending world hunger, remain the bellwether for the Chinese economy?

11/11/11 was a huge day in China. The Chinese pronunciation of 11/11/11 sounds similar to the pronunciation of the expression “one life, one lifetime” – “yi sheng, yi shi.” So, several thousands of couples lined up to get married on that day.

Alibaba’s relationship with China and its government – as they march into the 21^st century – certainly seems to abide by that expression.