Article / 12 October 2015 at 12:30 GMT

#SinglesDay — Alibaba intent on smashing $9.3bn record

China Watcher / Shanghai
China
  • 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. 

Alibaba has been instrumental in developing Singles’ Day from its humble beginnings into a global event. The company's record-breaking IPO last year saw global interest in Singles’ Day spike, as investors around the world tuned in to watch Alibaba announce that it sold $9.3 billion worth of goods in just 24 hours.

That helped propel Alibaba stock to above $110 building momentum on the initial IPO offering of $68 on September 18, itself blown away in a frenzy of investor activity to rise to $99.

Alibaba's share price was $68.71 at 0924 GMT today.

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It's beginning to look a lot like Christmas as China's Singles' Day gets ready 
to snap up some of the world's online retail action. Photo: iStock
 
With the 2015 event just a month away, now is an opportune moment to introduce Singles’ Day, and how Alibaba transformed it from a student party into a global phenomenon.

Humble beginnings

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 event proved to be popular, and was adopted by students at other universities. Local restaurants capitalised on the idea by offering discounts for groups of friends, and Singles' Day became a commercial success.

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. 

In the six Singles’ Day events that Alibaba has held, sales have grown from just 100 million yuan to 57.1bn yuan, and Jack Ma’s prediction of reaching 100bn yuan before the end of the decade is looking more than likely.

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:

Singles' Day GMV















Source: Alibaba

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. 

It’s easy to forget that along with Alibaba’s record-breaking IPO, several other major Chinese online retailers held their US IPOs in 2014, including JD.com and Jumei. This provided the perfect opportunity for Singles’ Day 2014 to focus on globalisation.

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. 

In addition, the event was marketed around the world, and consumers in foreign countries could take advantage of the large discounts, predominantly through the firm’s international platform AliExpress. In 2014, Hong Kong, the US and Russia were the three largest international buyers, and given AliExpress’ expansion into Russia over the past few months, this should continue. 

Shanghai
From China with love. Photo: iStock
 
The major theme among online retailers over the past 12 months has been cross-border e-commerce. This is where online retailers are able to source products directly from the foreign manufacturer in order to sell to Chinese customers. 

This reduces the risk of purchasing counterfeit products, and reduces the cost of using third-party distributors. I expect that this will feature heavily in the 2015 Singles' Day event, where consumers will be driven to cross-border stores in order to take advantage of large discounts on authentic foreign products.

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. 

From Alibaba’s perspective, this could be detrimental to the success of Singles’ Day, but in reality there is very little that it can do to resolve the situation. It can’t require that retailers increase their supply, and it can’t improve the internet connection quality across the whole of China. 

However, it has implemented a new system that allows users to pre-order Singles’ Day products for a nominal fee. Effectively, Alibaba is selling call options on all of the products available during Singles’ Day.

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. 

Typically, in order to buy the smartphone at 200 yuan, you would have to be lucky and fast enough to be able to load the page and complete the transaction within 30 seconds. But when you are competing with millions of other consumers, the likelihood of it happening is miniscule. 

Roulette
Who knew the humble roulette wheel would have been so prescient 
regarding the intricacies of online commerce? Photo: iStock 

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. 

This brings an interesting concept to the event, because the strong likelihood is that all of the most popular items will be completely sold out before Singles’ Day has actually begun.

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. 

In addition, with reservations starting a few weeks before the event, Alibaba will be able to see which products will be popular, and adjust its marketing strategy accordingly.

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? 

Given that no consumer would likely be able to buy the smartphone for 400 yuan without a prior reservation, paying 200 yuan for the reservation and 200 yuan for the smartphone is still likely to be a very attractive deal.

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. 

This will be an interesting new aspect to Singles’ Day because it is an easy and effective monetisation strategy for the event.

Alibaba's HQ On Singles' Day



















Alibaba hosts 24-hour coverage of Singles’ Day at its Hangzhou headquarters
in Zhejiang province. Source: Alibaba


Broader implications

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. 

Consumers are reluctant to re-enter the stock market, and housing is either obscenely expensive for most or simply doesn’t generate the returns of old. Put simply, the Chinese will spend heavily on Singles’ Day because there’s nothing else to do with the money.
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Chinese spending on consumer items helps propel Singles' Day sales into the stratosphere, precisely because the idyll of the dream home for aspiring families is out of reach. Photo: iStock


– Edited by Robert Ryan and Michael McKenna

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.
3y
Martin O'Rourke Martin O'Rourke
With less than a month to go to #SinglesDay, Alibaba poked its head back above $70/share for a day high of $70.47 Monday and a close of $70.30 for a 12.59%. We'd hesitate to say this is the beginning of a run, but Alibaba bulls will note a near $10 rise since September 8. Chart courtesy of SaxoTraderGO.

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