A combination of macro headwinds and cutthroat competition could make it difficult to achieve another year of substantial growth

By Chan Ka Po

Now in its 14th year, the Nov. 11 online shopping extravaganza known as “Double 11,” or “Single’s Day,” has always been regarded as a showcase of Chinese consumers’ buying power. This year’s event will undoubtedly be overshadowed by a number of macro challenges as organizers try to post more growth. So, are there early signs that consumer enthusiasm will continue to be high, or will it show signs of waning and possibly even diving?

Against the challenging backdrop, it would be reasonable to expect slower sales growth and more cutthroat competition among both big and small players during this year’s Single’s Day. We have yet to see whether the smaller players will be able to disrupt the landscape and take business from bigger platforms like Alibaba (BABA.US; 9988.HK) and JD.com (JD.US; 9618.HK). No matter what, consumers are the ultimate beneficiaries from the bargains on offer.

Let’s look first at the weak economic environment China is now facing. The country has just reported modest 3.9% GDP growth for the third quarter of 2022 and is expected to fall short of its 5.5% full-year growth target, which was already the lowest in three decades. The global economic downturn has dampened demand for China exports, which grew by a mere 5.7% in September. Adding to the uncertainty are the country’s strict Covid-19 control measures, including lockdowns in key cities which have impacted residents’ daily lives.

All these headwinds will certainly weigh on domestic consumption and weaken consumer demand and confidence. Moreover, an unemployment rate that has risen to 5.5% has triggered fears of job losses and pay cuts, so we can expect consumers will be more cautious and likely scale back their discretionary spending. China’s consumption confidence index issued by the National Bureau of Statistics of China has fallen to record lows in recent months, suggesting the trend will continue through the end of 2022.

It comes as no surprise that according to a survey on this year’s Single’s Day by Bain & Co., almost 34% of the 3,000 consumers surveyed said they will decrease their Double 11 spending, nearly four times the 9% who said they would reduce spending last year.

Originally created as a 24-hour online shopping extravaganza, different players are now kicking off sales much earlier, as much as nearly two and half weeks before the actual day. Alibaba started its pre-sales on Oct. 24, while JD.com and Pinduoduo (PDD.US) began pre-sales on Oct. 20.

Alibaba, which invented the annual shopping event, said this year’s Double 11 will be the most vibrant and diverse since the festival’s inception, boasting 40,000 merchants and products across 7,000 categories along with deep discounts and coupons on 17 million products. JD.com has launched a promotion across all categories that will give customers 50 yuan ($6.95) rebates for every 290 yuan they spend. 

Short video gets in on the action

Short-video apps and social media platforms like Douyin, Kuaishou (1024.HK) and Xiaohongshu are also gearing up for this year’s annual shopping spree with promotions in different formats using live-streaming, social commerce, price guarantees, you name it. These smaller players are becoming increasingly popular among merchants and consumers alike. Lots of brands are placing their bets across different platforms to maximize their customer reach.

According to the same Bain survey, 69% of people surveyed indicated that they will shop across three or more platforms, compared to 56% last year. We can expect Alibaba will continue to dominate festival sales, but other players are competing fiercely to get a share of consumer wallets.

In the lead-up to the actual day, different e-commerce platforms are releasing upbeat data that can be interpreted to show the strong resilience of China’s economy and great buying power of Chinese consumers.

Alibaba said turnover for 102 brands surpassed 100 million yuan in the first hour of its promotional campaign. It added live-streaming viewers rose 600% from last year in the first hour of its promotion. Rumors were also flying that live-streaming superstar Li Jiaqi, known for his taste in lipstick, sold 21.5 billion yuan worth of goods on the first day of the pre-sale on Taobao’s live-streaming platform. JD also announced that sales for 253 homegrown cosmetics and skincare brands grew more than 100% year-on-year.

This early data has been encouraging, and seems to suggest consumers are still enthusiastic about this annual sales event even if they will be relatively cost-conscious and selective in their spending. Consumption is key in China’s economic development, and online shopping will continue to be vital.

Last year, Alibaba reported gross merchandise value (GMV) of 540 billion yuan, an 8% jump from the prior year, and JD.com’s 2021 sales were worth 349 billion yuan. Douyin said it is aiming for 1.7 billion in GMV this year, a significant increase of 1 billion yuan from 2021

Alibaba and JD.com accounted for over 90% of the total GMV generated on Single’s Day in 2021. It will be interesting to see if other smaller players disrupt the game and grab a bigger share this year. Amid all the challenges, we will have to wait and see if festival veterans can beat their growth rates from last year. And in the current subdued climate, could the once-unthinkable even happen where one or more major players may report no growth at all, or even contraction?

Chan Ka Po is a co-founder and reporter at Bamboo Works. You can reach her at info@thebambooworks.com

(In the event of any conflict between the English and Chinese versions of this blog, the English version should be the reference.)

This commentary is the views of the writer and does not necessarily reflect the views of Bamboo Works

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