Explainer: What is GMV (gross merchandise volume) and why is it such a big deal?
What is GMV (Gross Merchandise Volume?)
Gross merchandise volume is a metric commonly used by e-commerce businesses to measure total sales transacted through their platforms. In China, e-commerce giants Alibaba and JD.com both use GMV to measure transactions conducted during its shopping events, such as Alibaba’s Singles’ Day on November 11 and JD.com’s 618 shopping festival.
Over the 24-hour period on November 11 – or Singles’ Day – Alibaba generated US$25.3 billion in GMV. This dwarfs the online sales in 2016 for Black Friday and Cyber Monday, which garnered less than US$7 billion combined.
In June, JD.com rang up US$17.6 billion worth of transactions over an 18-day shopping period for its ‘618’ shopping festival.
Why did e-commerce companies consider GMV a significant value?
GMV has traditionally been an important metric for online retail companies, which often see it as a measure of growth. Some investors also use GMV as a key factor when determining the valuation of an e-commerce firm.
Why are GMV figures controversial?
Since GMV often takes into account the total value of the transaction without factoring in any returns or cancellations, the figure does not accurately represent actual revenue.
For example, in its annual report Alibaba defines GMV as the total value of confirmed orders closed over its marketplace platforms, regardless of whether the transactions are ultimately completed. However, during Singles’ Day GMV is defined as transactions settled via the AliPay platform.
JD.com on the other hand excludes transactions valued at over 2,000 yuan (US$301) that are not ultimately sold or delivered. However, for its GMV, it does take into account shipping charges paid by buyers.
Additionally, when GMV is seen as a primary growth metric, e-commerce companies are incentivised to push expensive, big-ticket products such as electronics, since these products will help boost the total transaction value. However, the margins on such products are often much lower than cheaper products such as clothing. GMV is therefore not necessarily an accurate representation of an e-commerce company’s performance
What have e-commerce companies done to mitigate this?
In recent years, companies are increasingly distancing themselves from GMV as a target. Last year, Alibaba founder and executive chairman Jack Ma also said that GMV can be “misleading” and stated that it is no longer an important metric that represents Alibaba’s performance.
In India, e-commerce companies like Flipkart and Snapdeal have said publicly that they would shift their focuses from GMV to other metrics such as increasing the number of customers and improving customer experience.