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11+11 is a winning formula

By He wei | China Daily Europe | Updated: 2013-11-15 09:57

E-tailers enjoy a spending spree of billions of yuan on the festival they created

A day in celebration of unattached people has essentially become an annual cue for massive online discounting in China.

The Nov 11 shopping bonanza, created four years ago by e-commerce giantAlibaba Group Holding Ltd, ended with its customer-to-customer marketplace Taobao and business-to-customer site Tmall ringing up 35 billion yuan ($5.75 billion; 4.28 billion euros) in sales over the 24-hour period.

That figure soared by 83 percent past last year's total and was equal to half of the country's daily spending in September.

Premier Li Keqiang praised the e-commerce giant for generating the consumption-stimulating shopping spree.

Alibaba attracted 402 million unique visitors on Singles' Day - the equivalent of more than two-thirds of China's entire Internet-using population.

The country's - maybe even the world's - largest shopping festival saw some 171 million orders placed on Nov 11 on Tmall as well as the customer-to-customer marketplace Taobao.

About one-fifth of all orders were made using smart devices, fueled by 120 million mobile enthusiasts who accessed the Taobao app to get a bargain.

Merchants' value bolstered by mobile transactions rocketed to 5.35 billion yuan, five times the volume achieved last year, says Wu Yongming, senior vice-president of Alibaba.

China's western regions and lower-tier cities are quickly taking advantage of the mobile Internet, with the penetration rate of mobile transactions in the Tibet autonomous region taking first place among all provinces and municipalities, according to company data.

Overseas orders, while still relatively small, surged as customers from Hong Kong, Taiwan and the United States participated heavily.

Alibaba's third-party payment system, Alipay, handled 188 million transactions during the online shopping binge, exceeding the daily worldwide transaction of 155 million by payment technology firm Visa Inc, the company says.

It also was equivalent to 23 days of transactions processed by its other foreign counterpart PayPal, according to the latest financial statement by parent eBay Inc.

Enticed by steep discounts on an array of products, people snapped up everything from clothing to makeup to appliances, items on which vendors promised to at least halve prices.

Non-tangible items gained traction this year, with two Chinese financial institutisions, Guohua Life and E Fund Management Co Ltd, coming in second and third in terms of gross merchant value transacted over Alipay.

The victory followed Alibaba's aggressive encroachment into financial territory this year, after it acquired a fund management firm, initiated the country's first online insurer and won regulatory approval to sell insurance policies online.

Guohua's wealth investment products, boasting an annualized return of 7 percent (as opposed to the approximately 4 percent return provided by banks), were gobbled up in a buying frenzy that pushed transactions up to 100 million yuan in the first 10 minutes of trading.

Liao Zhi, general manager of the Internet finance department for E Fund, says the double 11 promotion provided a great opportunity to study the unique demographics of online shoppers so even more innovative products can be created to fit their needs.

Bargain hunters also sought tourism deals, with hit products, such as 10 round-trip flight tickets to the Maldives, sold out in two minutes.

The top three provinces by gross merchandise value during the sale were the southern province of Guangdong and the eastern provinces of Zhejiang and Jiangsu.

Alibaba revamped its logistics systems in the hope of correcting the parcel delays that plagued the extravaganza last year.

Tmall pledged to share data with its logistics partners through an online "dashboard" that identifies potential problems in the supply chain and allows companies to adjust their operations accordingly.

As a result, shoppers nationwide began receiving their parcels starting in the early hours of Nov 11.

Jack Ma, founder and chairman of Alibaba, says the purpose of the promotion was to help businesses build bridges with people and provide a way to give back to the nation's online shoppers through cheaper products.

"We will continue to do 11.11, but not for the sake of big numbers - whether it is 50 billion yuan, 80 billion yuan or even 100 billion yuan. We hope to turn Nov 11 into a day when merchants can thank consumers," Ma told reporters.

"What we hope for is the healthy development of this festival and to not just blindly pursue a numerical goal," he says.

The Nov 11 promotion first kicked off in 2009, when 27 merchants on then-fledgling Taobao pledged discounts to perk up sales during a slow period.

Alibaba successfully leveraged the artificial holiday by sparking shopping enthusiasm during the annual lull between two big Chinese holidays - the National Day holiday in October and the Lunar New Year, says Hong Bo, an independent ICT analyst in Beijing.

Many domestic counterparts joined the fray to cash in on the occasion, with promises of even steeper discounts and faster deliveries. Online electronics vendor Jingdong Inc launched a price war on Nov 1 and slashed up to 70 percent off such items as slimming belts and facial moisturizers.

Suning Commerce Group Co Ltd, which has extended its physical stores to an online presence, broke a one-day sales record on Nov 11 with sales of some products, including electronics and household appliances, jumping threefold to fourfold, it says in a statement on Nov 12.

Even higher-end luxury fashion brands tried to steal Alibaba's thunder by holding an eye-catching animal fashion show prior to the sales campaign.

Glamour Sales, the shopping portal selling the likes of Armani jackets and Valentino bags, attracted the attention of its 2.5 million registered members with various discounts, says Thibault Villet, chief executive officer of Glamour Sales China.

Nevertheless, Alibaba's first-mover strategy had the company sitting firmly in the driver's seat, says Zheng Liang, director of e-commerce for research firm Nielsen in China.

"The Nov 11 event has ballooned into a flagship event under the Alibaba brand, so that consumers and vendors alike tend to prioritize their choices at Taobao and Tmall instead of on other e-commerce platforms," he says, adding that the more diversified portfolio of Tmall and Taobao is also a winning recipe for Alibaba.

While people benefited from the event, the deal of the day belonged to Alibaba, thanks to its unique business model, Zheng says.

Alibaba, as opposed to self-run businesses, operates third-party platforms that bridge retail brands with shoppers, and generates profit largely from commissions and advertising.

While price wars took sales to new heights, they also pushed certain firms into the red. For instance, online clothing vendor Vancl's goal to become profitable was jeopardized by a recent scandal, with some suppliers alleging that the company breached payment contracts.

By contrast, Alibaba, unlike its rivals who hold or deliver stock, is insensitive to profit fluctuations, Hong says.

"It's safe to say that the large-scale promotions only reinforce the dominance of Alibaba's online marketplaces, leaving sellers to do the heavy lifting," Hong says.

Medium-sized and small merchants did express mixed feelings about the promotion, given that the deluge of orders posed heavy burdens on their operational capabilities, even as discounts severely cut into their profits.

The expanded pot failed to translate into exploding customer traffic for skincare brand Naruko's Tmall shop, with sales growing only modestly, from 24 million yuan a year ago to 29.5 million yuan this year.

"A lot more merchants joined the promotion this year, so it inevitably diluted our customer flow," says Chen Chao, public relations manager for Jollywiz Digital Technology Co Ltd, a franchised online reseller of Naruko products.

"We view 11.11 from its ability to attract new customers, and in that sense, it has great value. Every year after 11.11, our customer base increases to a whole different level," she says.

The Lian Trade Co, a designated reseller of Japanese skincare products, did not meet its sales goal during this year's event, says Xu Liang, the company's general manager.

While acknowledging the event as an influential market campaign, Xu expressed concerns that Alibaba may favor more heavyweight players as they settle at Tmall, putting smaller-cap shops at a disadvantage.

"Tmall is indeed the biggest online player, but we may leave our choices open next year," says Chen, inferring there are possibilities they may team up with other online partners.

Zheng from Nielsen identified yet another challenge for Alibaba's monopoly: the mobile Internet.

"While smart device payments jumped significantly compared with last year, it is an open secret that Alibaba has, in effect, missed its earlier-set target of 8.8 billion yuan for mobile transactions, " Zheng says.

Alibaba is struggling to champion the success of its PC terminal for portable devices, with active access points significantly lagging behind that of Tencent Holding Ltd's WeChat, Zheng says.

"As the mobile Internet is set to reshape e-commerce in the short run, it's hard to predict what the landscape may be like in just one year," he says.

Xu Junqian in Shanghai contributed to this story.

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