Chinese E-Commerce Urges Discounts to Drive Sales on ‘Singles’ Day’
Updated Nov. 9, 2014 6:01 p.m. ET
In preparation for this Tuesday, which is China’s biggest day of the year for online sales, e-commerce company
Alibaba Group Holding Ltd.
BABA +2.68%
for weeks has been offering rock-bottom prices on everything from coats to couches on its websites.
To
get those discounts, shoppers make a small down payment as many as four
weeks in advance, and then pay the balance on Nov. 11, a day that
generates more online sales in China than the U.S.’s Black Friday and
Cyber Monday combined.
The presales not
only help to drum up attention for Nov. 11, known in English as Singles’
Day, but they shift many transactions to that specific—and closely
watched—date. Tempting shoppers to opt for that date boosts the value on
that day of one of Alibaba’s most important performance metrics: gross
merchandise volume, or GMV, the amount of business transacted on its
shopping sites.
Alibaba’s most impressive GMV is
generated on Singles’ Day, a sales event the company started in 2009.
(The date 11/11 is a loosely defined holiday celebrated by young single
Chinese for its four “1’s,” the number representing their single
status.) On last year’s Singles’ Day, Alibaba erected a screen at its
Hangzhou headquarters that displayed in real time the GMV its sites were
racking up.
The promotion highlights
how important scale and growth are to Alibaba—particularly now, two
months after it launched a record $25 billion initial public offering of
stock. Investors world-wide were attracted by Alibaba’s huge and
fast-growing population of online shoppers; now they are watching
closely to see how well the company can keep its numbers up.
“Alibaba is facing unparalleled pressure this year, and they need to push [transaction volume] as high as possible,” said
Ronald Wan,
who is the chief China adviser at Asian Capital Holdings.
U.S. e-commerce pioneer
eBay Inc.
EBAY +0.48%
says it coined the term GMV during the mid-1990s to provide a
more accurate reflection of its strength online than revenue alone.
EBay, like Alibaba, only hosts shops on its site, so it doesn’t book as
revenue the sales that occur on its marketplace.
Investors
and analysts watch GMV because it is a measure of how fast an Internet
commerce company is growing relative to competitors.
In
the e-commerce world, GMV is “the most important measure, more
important than revenue, because it’s really the indicator of market
position,” said
Henry Guo,
managing director at JG Capital, a Greenwich, Conn., investment
adviser.
Alibaba’s GMV, the total volume
of merchandise handled by its Tmall and Taobao shopping sites, was 1.68
trillion yuan ($274.3 billion) in the year through March, making it the
world’s largest e-commerce platform—bigger than
Amazon.com Inc.
AMZN +1.09%
and eBay combined.
There isn’t a standard definition of GMV, however.
Alibaba,
like most e-commerce companies, counts the value of goods bought on its
shopping sites, as well as services such as travel bookings and movie
tickets.
Alibaba, as well as Chinese rival
JD.com Inc.
JD +0.86%
and eBay, also tally transactions regardless of whether they have
been paid for. That means they could include the value of goods later
canceled or returned—though they sometimes impose a threshold for how
expensive those goods can be. Alibaba’s ceiling is 100,000 yuan, or
about $16,000.
JD.com excludes from GMV goods that aren’t sold or delivered if they cost more than 2,000 yuan.
Both Alibaba and JD.com throw in the value of shipping charges.
A
spokesman for Alibaba said that returns for Singles’ Day are in the
single digits as a percentage of the total. Alibaba doesn’t disclose
what percentage of orders aren’t paid for or returned on an annual
basis.
Ella Ji,
a China Internet and consumer analyst for investment-advisory
firm Oppenheimer & Co., estimates that industrywide, returns for
online sales can range from a single-digit percentage of total sales for
electronics and appliances to nearly 20% for apparel.
EBay
defines GMV as transactions on its marketplaces regardless of whether
they are paid for and completed. A spokesman for eBay said the
“overwhelming majority of transactions on eBay are completed
trouble-free.”
JD.com said the company
used to disclose merchandise volume net of returns and cancellations,
but stopped before going public because there was confusion about the
term.
A spokesman for Alibaba said the
company is “completely transparent and consistent” in disclosing its
online and mobile GMV: “We’re not eBay, Amazon or JD.com. We are not a
retailer. We are an ecosystem that brings buyers and sellers together,
so the way we calculate GMV is different.”
Referring
to Alibaba’s inclusion of goods under 100,000 yuan in GMV, he said the
company’s marketplaces sell a wide range of products and services that
have a high value, unlike most of its competitors.
Last
year, Alibaba reported Singles’ Day GMV of roughly 36 billion yuan—more
than 2% of its annual total and 90% more than a year earlier.
Some market watchers are wary of the stellar figures.
“I’m
really skeptical that e-commerce shows such dramatic growth,” said
Anne Stevenson-Yang,
co-founder of investment-advisory firm J Capital Research. “You
see a lot of pushing of numbers to make them appear bigger than they
are.”
“I would be disappointed as an
investor to learn that [Aliababa’s] goods that are not actually paid
for,” said Mr. Wan, of Asian Capital Holdings. “If the ratio is too
high, then some sort of explanation or elaboration needs to be made.”
This
year, Alibaba says 27,000 merchants on Tmall and an undisclosed number
on Taobao and AliExpress will be participating in the event.
Singles’
Day participants, whose products are included on Tmall’s official sales
page, must offer at least a 50% discount on all products sold on Nov.
11, said
Atsushi Watanabe,
a consultant at Shanghai-based T.U. Business Consulting Co.,
which helps Japanese companies use Chinese e-commerce sites.
Big
sellers can apply to join the presales promotion, which began on Oct.
15; an enticement is that the discount on presold goods can be lower.
A
spokesman for Alibaba said its presales promotion aims to help vendors
make sales, not boost numbers, on Nov. 11. The early deals give
customers more time to make buying decisions, while allowing merchants
to gauge demand and prepare for prompt delivery, he said.
Wei Li,
a spokesman for Chinese retailer Hstyle, which is offering a
plaid wool coat at half price for 299 yuan, said the presales lessen the
stress on computer systems on Nov. 11. “Otherwise, many customers
cannot get what they want and it will put too much pressure on the
servers,” he said.
Other Chinese
e-commerce sites are also diverting sales to the high-profile shopping
period, analysts say. JD.com has a 12-day sales event, also dubbed
Singles’ Day.
A spokesman for JD.com
said spreading the sale over 12 days lets the company’s logistics
network “stay on track and our customers get their products when they
expect them.”
“Everybody tries to
squeeze sales to [Singles’ Day] to make their numbers look brilliant,”
said JG Capital’s Mr. Guo. “It’s OK…as long as it’s not fake.”
—Juro Osawa, Lilian Lin and Wei Gu contributed to this article.
Write to Kathy Chu at kathy.chu@wsj.com
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