China’s e-commerce giants are attacking to shake up wary shoppers

(Bloomberg) — This week, Chinese buyers are in demand like never before.

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The country’s largest online companies are doing everything in their power to shake off the post-Covid industry malaise and return to the difficult pre-2020 years during the annual “618” shopping festival. Alibaba Group Holding Ltd. is offering a 50% discount on Lululemon clothing, while competitors such as ByteDance Ltd. and PDD Holdings Inc. They are advertising bigger discounts than ever before.

Price reductions are just the beginning. Companies are inviting A-list celebrities to flog the products in a live video broadcast and promising returns with no questions asked. Before taking over as the new face of J’Adore, Rihanna found time to fry “jianbing” pancakes on one of the Chinese platforms. JD.com Inc. she even created a digital avatar of founder Richard Liu to sell blueberry steak.

“This year’s 618 is the most unforgiving shopping festival ever,” said Sherri He, managing director of Kearney China. “E-commerce platforms are under enormous performance pressure as consumption declines.”

JD.com shares fell 2.3% in Hong Kong on Thursday, the most in two weeks, while Alibaba fell about 1% and Kuaishou Technology fell as much as 6.5%.

This year’s 618 Gala – a $100 billion event several times larger than a typical Black Friday – is being watched more closely than ever. From current leader Alibaba to newcomers like Bilibili and ByteDance’s Douyin, aggressive discounting and unprecedented marketing underscore the urgent need to reignite growth.

Everyone in the ecosystem feels the pressure. For investors, 618 is the first large-scale test of 2024 to see whether China’s consumer is finally ready to go crazy again – or to what extent the housing crisis, persistent deflation and uncertain job prospects are discouraging spending. When all is said and done, Alibaba and JD’s performance could be the key to a recovery in stock prices, which are trading at about a quarter of 2020 highs.

“The market is hungry for data that proves or disproves the story of China’s consumption recovery,” said Vey-Sern Ling, managing director of Union Bancaire Privee. “The 618 this year is important because investors are trying to spot that inflection more this year than before.”

Major platforms are not expected to release full sales figures, but preliminary and independent estimates paint a mixed picture. According to Bloomberg Intelligence analyst estimates, overall sales of Alibaba, JD.com, Douyin, PDD and Kuaishou products likely rose 10% from a year earlier during the 618 event. However, the festival’s early strength may have faded over the past two weeks, they added.

JD.com said it achieved record gross merchandise value. Alibaba said more than 36,000 brands appeared on its platform, including Burberry and Ralph Lauren, which doubled their GMV from last year’s event, although it did not reveal overall numbers.

Total sales on e-commerce platforms fell 7% from a year earlier to 742.8 billion yuan ($102 billion), according to market monitoring firm Syntun. This contrasts with Analysys data, which showed that short video platforms saw growth in the first two weeks of the festival: Douyin increased sales by 30% and Kuaishou by 18%, outpacing Alibaba’s growth of 15% and JD.com’s growth of 9.5%. %. according to this research.

The increase in uncontested returns may help explain some of the discrepancy. Some luxury brands reported refunds or cancellation rates as high as 75% during November’s Singles’ Day festival, which was well above the industry norm. They have slashed prices by as much as 50% this year amid growing panic over unsold inventory.

While the number 618 is a keynote for all e-commerce companies, this is the first time the gala has been chaired by Alibaba CEO Eddie Wu. Wu, who took over from Daniel Zhang in September, is trying to refocus Alibaba on its core strengths in online commerce and avoid a multi-year cycle of mostly single-digit growth.

With Wu at the helm, Alibaba has spent heavily, particularly on live streaming – the fastest-growing e-commerce segment, but also one in which ByteDance, JD and Kuaishou are increasingly investing. According to iResearch data and national statistics, more than 10% of retail purchases in China last year were made through influencers.

“A renewed acceleration in revenue growth in Alibaba’s core e-commerce should be well received by the market,” said Xiadong Bao, fund manager at Edmond de Rothschild Asset Management. “But we will assess the quality of that growth, down to margin and sustainability, as investors currently view Alibaba as more of a value stock than a growth stock.”

JD.com has committed 1 billion yuan to support live streaming sellers, while Alibaba has pledged billions in cash rewards and experimented with novel approaches such as a streaming section exclusively for company CEOs.

But there are signs that consumers are fed up with buying from influencers and online advertisers. In a research note, HSBC analysts said key influencers during the 618 festival had lost momentum, partly due to tighter content regulations, rising costs and higher rates of return. They say it could help traditional retailers like Alibaba regain market share.

Jiajia, a streamer from Hangzhou who promotes cosmetics and clothing brands for WPIC Marketing + Technologies, also finds it more difficult. Her team analyzes traffic data minute by minute to figure out how to best attract attention and drive sales.

“When e-commerce was still in its early days, it was easier for people to buy,” Jiajia said. “Nowadays, everyone is more rational and clear when it comes to what they want to buy.”

Large platforms have also turned to more traditional methods: faster delivery times, automatic coupon collection, delivery fee insurance and lowest price guarantees. For the first time, JD.com and Alibaba have introduced a post-purchase price match promise – whereby buyers will be refunded the difference if the product becomes cheaper after purchase.

This barrage of incentives may still prove insufficient given the fundamental fact that the economy is unstable. At some point before Covid, the number 618 and Singles’ Day – its counterpart on November 11 – evolved into internet phenomena, an almost communal shopping event where people proudly posted their greatest finds on social media. Even Taylor Swift got involved once.

The upheaval of the Covid-19 era has largely dampened this enthusiasm, with deep discounts also discouraging sellers. More than 50 book publishers in Beijing and Shanghai refused to join JD.com’s 618 promotion, which required as much as 80% discounts. Other sellers have dropped the 618 altogether amid increasing discounts in recent years, Kearney China said.

In recent years, slower growth has resulted in e-commerce incumbents reporting selective numbers rather than overall GMV numbers. In 2022, when JD.com last reported total festival sales – 379 billion yuan – they accounted for more than 10% of total GMV for the year.

“Mood music is still the lower price and the best value,” said David Hampstead, CEO of Samarkand Global, which helps Western brands sell to Chinese consumers. “But you can only put pressure on brands so far before China becomes too expensive or not profitable enough to play on. We’re getting to that point.”

— With help from Charlotte Yang, Zheping Huang, and Peter Elstrom.

(Update with analyst estimates and share price reaction)