Singles’ Day: Alibaba is feeling stiff competition

Dusseldorf The Chinese e-commerce group Alibaba plans on 11.11. break records again. The so-called Singles’ Day is the day of the year with the highest turnover for the company. However, the tech group has been using a trick since last year to keep reaching new sales records: it extended the sales event to almost three weeks.

“We realize that Double 11 is no longer as important as it was two or three years ago,” says Fabian Schneider, North Asia boss at cosmetics manufacturer Dr. Wolff. The Bielefeld family business sells its shampoo brands Alpecin and Plantur extremely successfully on China’s e-commerce platforms.

The reason for this loss of importance is the inflationary increase in the number of shopping festivals and new trends such as live streaming or social selling. These competed more and more with Alibaba’s sales campaign and offer discounts all year round. In other words: the once undisputed market leader is facing increasing competition.

Anyway, the company has had a pitch-black year. The stock market value has plummeted by more than 300 billion dollars within a year. The tough crackdown by Chinese regulators on tech platforms in general – and Alibaba in particular – has unsettled investors.

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In addition, the Amazon competitor is growing more slowly in the important home market, while the competitors are growing. The market share is likely to fall below 50 percent for the first time this year, forecasts the market research company Emarketer.

This headwind is unusual for the success-used company from Hangzhou. In almost 20 years, Alibaba grew almost unregulated to become the largest e-commerce group in China with a turnover of 109 billion dollars and more than one billion active customers. Alibaba founder Jack Ma was seen as a model entrepreneur who had managed to rise from a sedentary lifestyle to one of the richest Chinese.

But a year ago the political rules of the game changed. In November 2020, China’s financial authorities temporarily banned the mega IPO of the financial services subsidiary Ant, which Alibaba still holds a third of which is valued at 34.5 billion US dollars. Ma had previously dared to publicly criticize China’s regulatory authorities and their “pawnshop mentality”. Shortly afterwards, it largely disappeared from the scene for months.

Record fine for competition violations

In May, China’s competition watchdogs sentenced Alibaba to a record fine of 18.2 billion yuan, the equivalent of around 2.8 billion dollars. The reason: The company had exploited its dominant position and prevented traders from selling their goods on other shopping platforms.

This hampers competition in online trading, adversely affects innovations in the Internet economy and harms consumers’ interests. Alibaba vowed to get well soon – and shortly thereafter donated more than $ 15 billion for purposes that should promote “general prosperity,” as the government wants.

Most recently, the responsible IT ministry asked Internet platforms to open up their ecosystems to competitors. Since September it has been possible to pay with other payment options apart from Alipay on the most important Alibaba shopping platform Taobao. That wasn’t possible before.

Tim Thiele, director at the management consultancy Alix Partners, believes the impact of the new regulation will be limited in the short term. Chinese customers are used to the interaction between Alibaba and Alipay, he believes. In the medium term, however, he sees the risk that other providers will take over the payment transactions and “thus tap into part of the added value”. On the other hand, it could also be possible to win new customers who do not use Alipay.

But even before the new competition rules really take effect, Alibaba is already feeling tougher competition in the rapidly changing Chinese e-commerce business.

Not only traditional online retailers such as JD.com and the discount platform Pinduoduo, which is comparable to Groupon, are increasingly competing with Alibaba and its most important shopping platform Taobao. They are all “continuing to grow impressively”, as the analysts at the market research company Emarketer state.

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However, they are in a phase of “structural slowdown in their growth, especially Alibaba”. In addition, the big players are under special observation by the competition watchdog. They are forced to give up their exclusivity agreements with dealers.

More and more sellers are now offering their goods for sale directly via the Wechat super app from the tech group Tencent. This direct sale is also very popular with consumers. So-called social commerce or social selling is growing extremely quickly in China. Emarketer estimates the business volume to be more than $ 360 billion in 2021.

Mobile live shopping formats are also seeing high growth rates. Internet celebrities advertise products on the video platform Douyin, Tiktok’s Chinese sister, for products that users can buy directly with just a few clicks. In this way, the parent company Bytedance is increasingly entering the e-commerce business.

According to a study by management consultancy Alix Partner, 97 percent of Chinese buyers plan to watch live streams during Singles’ Day. A large part of the affluent Generation Z therefore also intends to spend money via online live shopping. Live streaming is an important channel, especially for young consumers, emphasizes Thiele.

Lipstick king with billions in sales

Alibaba has also recently invested heavily in the live streaming business. On its most important platform, Taobao, influencers offer products for sale to millions of fans in their own channels. The best-known example is “lipstick king” Austin Li. In a twelve-hour live advertising campaign in the run-up to Singles’ Day, he sold cosmetic products for 1.7 billion dollars.

Although Alibaba has lost market share in recent years, the company still maintains a “dominant position in the Chinese e-commerce market, which still offers significant growth potential,” said Barclays analyst Jiong Shao.

Alibaba founder Jack Ma

Reports of its recent trip to Europe feed the hope that the group has survived the worst wave of regulations for the time being.

(Photo: Reuters)

Added to this is the cloud business and the stake in Ant, which the financial markets currently “seem to attach almost no value to”. Alibaba is the largest cloud provider in China. The division now accounts for around ten percent of sales, but has not yet been profitable. The profits still come from e-commerce.

Investors are therefore eagerly awaiting the final sales figures for Singles’ Day – and the half-year figures, which will be published on November 18th. The company’s stock has rallied slightly since October. The state newspaper “People’s Daily” had previously praised Alibaba’s server chip business. Founder Jack Ma also reappeared in public. Reports on his most recent trip to Europe raised hopes that the group has survived the worst wave of regulations for the time being.

The trip could also be an indication of how and where Alibaba wants to grow in the future. Ma withdrew from operational business in 2019. But before the regulatory crackdown and the corona pandemic, he worked tirelessly as an ambassador for e-commerce abroad. So far, Alibaba only makes around ten percent of its sales outside of China. The Chinese competition watchdogs shouldn’t have any objection to growth abroad either.

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