While the APEC summit was wrapping up this week in Beijing most Chinese were focusing their attention on what has come to be known as the Double 11 festival, an online retail extravaganza of unprecedented proportions.
The holiday was the marketing invention of Jack Ma and his cohorts at Alibaba who began the tradition on 11/11/2009, when it was known as Singles Day. Chinese people who are romantically unattached are called ‘sticks’ – hence the date – so the idea was to create a day, perhaps with a touch of tongue-in-cheek, in which people who otherwise miss out on the gifting associated with Valentine’s Day or Sweetheart’s Day could self-indulge with a few online purchases – at an attractive discount, of course.
It’s the biggest single shopping day of the year in any country and it’s all driven by absurdly low prices. But here’s the catch – and the genius. The lowest prices are only available for a short period of time or a limited number of units. If you aren’t sitting there with your fingers over the keyboard you will likely lose out, forcing customers to make snap decisions and creating the equivalent of a 24-hour entertainment event.
The results are staggering.
Last year it took 6 hours to rack up the first 10 billion RMB ($1.6 billion USD) in sales. This year it took only 120 seconds to rack up the first billion RMB in sales and only 38 minutes to hit the 10 billion mark. (This is at midnight, remember.) And by the end of the day Alibaba, through all of its online platforms, had racked up $9.34 billion – yes, that’s U.S. dollars – in sales.
Despite the enormous benefit to Alibaba, and its rivals, who have now joined in, it is unclear that Double 11, or 11.11, as the other online retailers refer to it, since Alibaba has trademarked the Double 11 moniker, is really good for the Chinese economy. Buying patterns suggest that consumers slow down only during the times when most Chinese are on their way to work, out to lunch, or returning home, suggesting, of course, that whatever they do for a living gets less than their full attention for the day.
And the shopping isn’t just left to office workers sitting at computers. Almost half of the transactions recorded this year originated on mobile devices, including smart phones, which many analysts believe suggests that Alibaba is reaching well beyond the large urban areas into remote areas under-served by traditional brick and mortar retailers.
And, for the first time, this year’s event was truly global. By expanding its campaign to its overseas e-commerce platforms Alibaba brought in customers from 217 countries and regions outside of the Chinese mainland, with Hong Kong, the U.S., and Russia claiming the top three spots for foreign sales.
You can’t make up numbers like this. All told, more than 27,000 brands participated in the event and logistics companies were left with 278 million orders and 500 million packages to deliver. Alipay, Alibaba’s version of PayPal, was processing almost 3 million transactions per minute during peak periods.
E-commerce is powerful in China for a few reasons. By far the most important is price. Real estate is very expensive here, so if you want to build a big box modern trade store you are going to pay dearly for the right. And Alibaba has not integrated the responsibility for logistics in the way that Amazon has in the U.S. That’s all left up to the vendor community, many of which are literally operating out of apartments or makeshift distribution centers, allowing Alibaba to avoid the billions of dollars of investment that Amazon, by comparison, is forced to make in logistics infrastructure.
Shipping is also cheap. You can deliver a package across most major cities for about $.15. In the U.S. that won’t even get you a postage stamp. The delivery man or woman is sure to be driving a three-wheel powered bicycle that would never be registered to drive on the streets of the U.S., but the low cost that results greatly broadens the array of products that can be sold online.
And the three-wheel vehicles, moreover, are much smaller than cars, much less UPS or FedEx trucks, and are thus a lot more nimble in the traffic that constantly congests the major urban areas of China. In a country pursuing economic expansion with a passion that’s hard to hyperbolize, the convenience of online shopping, may, in fact, be its ultimate advantage.
There are risks in the model, of course. Alibaba never sees most of the products sold on its platforms, so has no real control over the quality, reliability, or after-purchase service provided, a potentially big problem given that sizing is always an issue when buying apparel on line and it’s next to impossible to truly appreciate what a product looks like, or even does, until you hold it in your hand.
Which is one of the reasons, along with the fact the Chinese find it difficult to develop a relationship with an institution, that e-commerce in China is driven more by referral than branding. Consumers are greatly influenced by the experience and assessments of fellow consumers, a reality that the successful online platforms like Alibaba and JD.com, which together control something close to 90% of the Chinese e-commerce market, both enable and promote.
All of which tends to give credence to Alibaba’s prediction that it will exceed the global sales of Walmart within two years.
Admittedly two years is a lifetime at the pace at which China measures change. At the moment, however, one has to wonder if the Chinese won’t leapfrog a whole generation of brick and mortar retail development in the same way that mobile phones have leapfrogged landlines.
WOW! What else is there to say?
Copyright © 2014 Glassmaker in China
Notice: The views expressed in this post are strictly those of the writer acting in a personal capacity. They are not in any way endorsed or sanctioned by his employer or any other individual with which he may be personally or professionally affiliated.