- Since Alibaba's huge IPO, Single’s Day is likely to enjoy global exposure
- Since 2009, the event has seen growth of 83% year-on-year
- The consumption trend has shifted to dearer items sold at bigger discounts
By Neil Flynn
Whilst most western investors are aware of the Black Friday shopping day, and some may have seen the shopping day emigrate from the US to their respective countries, China’s very own shopping day is relatively unknown to those outside of the middle kingdom. But since the record breaking Alibaba IPO, Single’s Day is likely to enjoy global exposure.
As with most festivals, Single’s Day wasn’t originally about consumerism. In the early 1990s at a university in Nanjing, north of Shanghai, students designated November 11 as Single’s Day, because the four ones in 11/11 look like four single people. It was a day when you could meet your friends and go to bars, restaurants or karaoke clubs, where you could forget the social pressures to get married whilst young, or perhaps could even find someone special.
The idea caught on and expanded across China, with bars and restaurants offering ‘Single’s Day’ promotions, hoping to capitalise on the festival’s growing popularity amongst students and graduates.
Think this is a sale? Just wait till next Tuesday. Photo: Thinkstock
In an attempt to get singles to console themselves with some retail therapy, Alibaba launched its first Single’s Day promotion on its B2C Tmall platform in 2009, and the growth has been exponential, with 2013 seeing 83% year-on-year growth to 35bn RMB ($5bn) of gross merchandising volume (GMV) in just 24 hours.
Jack Ma has stated that he wants to achieve 100bn RMB within the coming years, and even as year-on-year growth slows, this will almost certainly be achieved before the end of the decade.
Alibaba's SIngle's Day sales and yearly growth since 2009
A Chinese phenomenon
Single’s Day is the largest ecommerce shopping day in the world, is 2.5 times larger than Cyber Monday in the US, and larger than Cyber Monday and Black Friday combined. Fueled by China’s ecommerce boom, Alibaba has in essence created its own shopping festival, and there is still significant scope to grow within China.
With logistics networks on China’s developed eastern coast much more advanced than in the comparatively undeveloped central and western provinces, ecommerce firms have been developing their own logistics networks in order to capitalize on the strong demand from these areas.
A McKinsey & Co report at the start of 2014 discussed how for every dollar spent on online shopping in China, 61% replaces offline shopping, whilst 39% is brand new consumption. When only considering less developed cities, only 43% replaces offline shopping and 57% is brand new consumption.
Single’s Day tended to see users buying very cheap products in large quantities, but the consumption trend has since shifted to more expensive items available at a big discount.
This has fueled the growth of the event because consumers tend to delay purchasing a new phone or television, because they can get a good deal if they wait until Single’s Day. Last year, Chinese smartphone manufacturer Xiaomi saw 100m RMB in sales by selling all of its stock of 220,000 phones in just three minutes.
The event isn’t just unique to Alibaba, as all major ecommerce firms hold a Single’s Day event. Alibaba’s biggest rival, JD.com, has extended the event this year, with discounts available on certain types of products November 1-10, and then discounts on all items on November 11.
But as the competition becomes more intense, Alibaba has been keen to maintain its market lead, and last week successfully patented the terms ‘Single’s Day’ and ‘11/11 Shopping Festival’. This was likely deliberately timed to be announced after its rivals had already finished their marketing and advertising for the event, forcing them to quickly change their advertising two weeks before the event.
From China to the world
The theme for this year’s event is globalization, with ecommerce firms keen to export the event overseas. Whilst overseas consumers can take part in the event, China’s ecommerce firms are targeting overseas merchants, who are eager to profit from China’s ecommerce boom.
For this year’s event, 26,000 vendors will offer their products on Alibaba’s platforms, with 200 overseas merchants from 20 countries having already signed up to take part in this year’s Single’s Day as part of Alibaba’s global strategy.
The firm has also made two other important moves. The first of which is the announcement of Alipay ePass, which will allow Chinese consumers to use their digital wallets to purchase goods from the US, with Alipay assisting with the shipping and logistics.
Secondly, Alibaba has partnered with Singaporean postal firm SingPost to improve its logistics network in South East Asia. This region will likely be key to Alibaba’s near term growth strategy.
Rival firm Suning will also launch its overseas online store in the US on November 11, which will connect US retailers with Chinese consumers. Suning will offer free international shipping for purchases over 200 RMB ($32) until December, and door-to-door delivery from the US to China within seven to ten days.
As more and more overseas brands take part in the event, their inventories will grow and I expect that overseas consumers will be offered similar promotions to make sure that the inventory can be cleared.
In order to make a further spectacle of the event, Alibaba invites the media to its headquarters in Hangzhou, where a big screen shows live updates of sales figures. Given the huge interest in China’s ecommerce behemoth since its IPO, I expect that western media will update investors on Alibaba’s sales throughout the day.
Therefore the reaction in Alibaba’s share price will be seen during the afternoon November 10 and throughout November 11 in New York. I am expecting to see Alibaba exceed 50bn RMB in sales, and with its rivals expected to post strong results, so if investors didn’t know about Single’s Day before, they certainly will do on November 11.
-- Edited by Adam Courtenay
Neil Flynn is head equity analyst at Chinese Investors. Join the conversation below and get engaged with social trading.