#SinglesDay — Alibaba intent on smashing $9.3bn record
- The November 11 online shopping bonanza dwarfs Black Friday in the US
- It began as an exercise in retail therapy and became a discount sales frenzy
- Alibaba looks set to smash its $9.3bn record for the online spree
- Alibaba shares rose more than 20% from September IPO to November 11 in 2014
- Other Chinese online retailers like JD.com, Jumei also set to ride sales frenzy wave
By Neil Flynn
Singles’ Day is just one month away, and as Chinese consumers get ready to spend in record-breaking amounts over a 24-hour period on November 11, Western investors will once again watch in awe as an event relatively unknown outside of China dwarfs the sales figures of Black Friday.
Singles' Day is the biggest shopping event in world and it all happens online. As soon as the clock strikes midnight, a range of products are available at huge discounts and new promotions are launched throughout the 24-hour period.
Singles’ Day can trace its humble beginnings to Nanjing University as an ironic "anti-Valentine’s Day" event, because 11/11 looks like four single people. Friends would go to bars and karaoke clubs to celebrate being single, and to have one day where the parental pressure of finding a partner could be ignored.
The transformation from student celebration to global phenomenon began in 2009 when Alibaba launched the first Singles’ Day event on its Tmall platform. Instead of promoting a day to celebrate with friends, Alibaba took the marketing approach of encouraging consumers to console themselves with retail therapy by offering large discounts on popular items.
However, Alibaba isn’t the only firm that holds a Singles’ Day sale. All of its rivals actively try to offer the greatest discounts, so while sales grow year on year, intense competition results in greater distribution among the firm’s rivals.
Alibaba’s GMV on Singles’ Day:
From China with love
Singles’ Day has always been a China-only event, as Chinese consumers have bought products from Chinese manufacturers or distributors that import foreign products into the country. However, given the developing tastes of Chinese consumers, the event needed to internationalise to maintain strong growth.
Last year’s Singles’ Day marked a major change in the event because foreign brands were actively setting up their own stores in Alibaba’s two retail platforms Tmall and Taobao. This meant they could sell their products directly to Chinese customers and cut out third-party distributors.
The most active player in this business has been Alibaba’s greatest rival JD.com, which has opened up numerous country-specific stores, including in Japan, South Korea, France, Italy and the US. Cosmetics retailer Jumei has also been actively replacing its third-party merchant business model with cross-border e-commerce, and it will be actively promoting deals on foreign cosmetics products.
Monetising the hassle
The growth of the event has been extraordinary, but as more and more people delay their purchases until Singles' Day, and are ready to buy the goods that they want as soon as the clock strikes midnight, it is likely that only those with the fastest internet connections and the quickest reactions will be able to snap up goods before they sell out.
A common complaint among all consumers is that they have to refresh the page countless times before they are able to buy, and while some are lucky enough to complete the transaction, many are left disappointed.
For example, a smartphone manufacturer will sell 250,000 smartphones on Singles' Day, which usually retail for 2,000 yuan, all at varying levels of discounts. The first 10,000 will be sold at 200 yuan, the next 50,000 will be sold at 400 yuan, the next 50,000 at 800 yuan, and the final 140,000 at 1,200 yuan.
So Alibaba has introduced a new feature that allows you to reserve the smartphone at the specific price prior to Singles’ Day, at a cost of roughly 10% of the purchase price. In the example, once reservations for the first 10,000 smartphones have been sold, customers will only be allowed to reserve one of the 50,000 phones at 400 yuan.
The manufacturer thus has guaranteed sales and customers can guarantee their purchases at a set price. Come Singles’ Day, the user can complete the transaction at any time during the day. From Alibaba’s point of view, this is a very easy monetisation strategy, because as soon as some consumers begin to reserve the lowest prices, every other consumer will start doing so.
Alibaba won’t be the only firm that will employ this strategy, and investors should expect to see rivals doing the same. It also begs the question of how much are consumers willing to pay to guarantee that they get the best prices for goods on Singles’ Day. Paying 20 yuan to reserve the right to buy a 2000 yuan smartphone at just 200 yuan is well worth the cost, but would consumers still pay for the reservation if the fee was 200 yuan?
The possibilities for this strategy are hugely promising, but it will likely take time for it to become an accepted norm. The business model will be fully rolled out at this year's Singles’ Day, and investors should expect it to feature in future sales events, such as the 12.12 event (December 12) and on Christmas Day.
Alibaba typically reports its final Singles’ Day sales figures on November 12, as it always holds a 24-hour long media event on Singles’ Day. The revenues from reservations likely won’t be reported this early, but will be reported during the calendar fourth-quarter earnings release, expected in February.
in Zhejiang province. Source: Alibaba
The importance of Singles’ Day is not just about its status as the major annual shopping event in China. Singles’ Day gives a valuable insight into annual consumption trends in China, which is becoming more important since the government has targeted consumption to be the main driver of economic growth.
The highs and lows of domestic equity markets have raised concerns about the financial health of the Chinese consumer, and their ability to spend will be scrutinised more than ever before on November 11. Consumers delay their purchases to specifically wait for the deals that are available on Singles’ Day, and despite economic concerns, Alibaba is expected to smash its 2014 record.
Neil Flynn is a China watcher based in Shanghai. Follow Neil or post your comment below to engage with Saxo Bank's social trading platform.