Alibaba and JD.com Face Decline in Sales During China's 618 Festival
China's annual shopping festivals, 618 and Singles Day, have historically seen soaring sales, yet this year, the 618 event experienced a downturn. The combined gross merchandise volume for major Chinese ecommerce groups dropped by 7% to RMB742.8bn ($102bn), according to Syntun, a digital retail data provider. This unexpected decline occurred despite the participation of global celebrities like Rihanna in promotional activities and significant discounts, including a 50% reduction on Lululemon apparel.
The slump in sales indicates that consumer sentiment, still impacted by the pandemic, has yet to fully rebound. This trend is further deepening the divide between ecommerce companies with a global reach and those mainly focused on local markets. For example, JD.com's shares have plummeted by 25% in the past year, while Alibaba's shares have decreased by 17% and are currently trading at a mere 9 times forward earnings, significantly less than their global counterparts.
Key Takeaways
- The 618 shopping festival in China experienced a 7% drop in sales to RMB742.8bn, marking its first-ever decline.
- Despite substantial discounts, post-pandemic consumer sentiment remains lackluster.
- Alibaba and JD.com are encountering market share losses to rivals like ByteDance and PDD Holdings.
- Alibaba's international platforms present a bright spot, but global expansion comes with exorbitant costs.
- In burgeoning markets like Southeast Asia, competition is fierce with TikTok Shop and Shopee at the forefront.
Analysis
The decline in sales during China's 618 shopping festival, down 7%, mirrors the lingering consumer hesitancy stemming from the pandemic. This downturn is impacting major ecommerce players like Alibaba and JD.com, as evidenced by their significant share declines. Alibaba's strategic shift towards global markets and vigorous cloud marketing aims to recapture market share but is incurring high costs, exemplified by the 52% drop in free cash flow. Competition is escalating in promising regions like Southeast Asia, where TikTok Shop and Shopee hold sway. The sector's resurgence hinges on successful international expansion, amid stagnation in the domestic market.
Did You Know?
- Gross Merchandise Volume (GMV): A metric utilized in online retail to indicate the total sales dollar value of merchandise sold through a particular marketplace over a specific time frame. It encompasses all the items sold by the sellers who utilize the platform during the given period.
- PDD Holdings: Also known as Pinduoduo, it's a Chinese multinational commerce group that operates one of the largest agriculture-focused tech platforms in China, facilitating the direct connection between farmers, distributors, and consumers. It has emerged as a significant competitor to Alibaba and JD.com in the ecommerce space, known for its group buying strategy.
- ByteDance: A multinational internet technology company headquartered in Beijing, China, renowned for its popular short video app TikTok (known as Douyin in China) and its news aggregator platform Toutiao. ByteDance has expanded into ecommerce with TikTok Shop, leveraging its vast user base to compete in the retail market.