China’s e-commerce market is changing as big players such as Alibaba adjust to thrifty consumers amid leaner times
- Discount retailer Pinduoduo posts biggest industry growth in third quarter, driven by focus on daily essentials
- Chinese e-commerce players are focusing on price amid leaner economic times and delivery disruption due to lockdowns
While Alibaba, which owns the South China Morning Post, remains the largest player in the country’s e-commerce market with its Tmall and Taobao platforms, competition is intensifying as consumers look for the best deals on offer.
Shanghai-based Pinduoduo, which is known for its value-for-money offers, reported a 65 per cent rise in third-quarter revenue to 35.5 billion yuan (US$5 billion). The strong sales growth at the company, which uses a consumer’s social media network to promote deals, contrasted with 3 per cent revenue growth at Alibaba over the same time period – although Alibaba’s sales of 207.2 billion yuan were about six times bigger.
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Tam Tsz Wang, a DBS Bank analyst based in Hong Kong, noted that Pinduoduo is benefiting from its focus on lower tier cities and daily supplies, items which remain essential even though life is tougher.
Shanghai resident Ruby Ye said that she is now using Pinduoduo instead of Taobao to buy items that cost under 10 yuan, such as slippers and screws, and the quality is fine. “I bought a wristband for my Apple Watch and it was only 6 yuan, the quality is OK,” she told the Post.
Competition in China’s online market has become increasingly brutal as the total pie stops growing – one e-commerce platform’s gain means a loss for another platform and low prices are increasingly the key differentiator. Total retail sales fell by 0.5 per cent in October, a deceleration from 2.5 per cent growth in September.
In a leaked speech by Richard Liu Qiangdong, founder of JD.com, Liu told JD.com senior executives that they must go back to basics to offer consumers the best prices. The speech came after JD.com reported an 11.4 per cent increase in its third quarter revenue to 243.5 billion yuan.
JD.com’s chief financial officer Sandy Xu Ran, said in an earnings call that consumers these days are becoming “more conservative or rational under the current macro environment”. Hence “daily necessity products performed stronger than the discretionary products”.
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Alibaba’s CEO Danial Zhang Yong also said that the volume of orders from consumers fell due to weak consumer demand as well as disrupted deliveries. For this year’s Singles' Day shopping festival, Alibaba and JD.com did not release overall sales data.
One strategy shared by all three big e-commerce players has been to slash operational costs in the face of the economic squeeze. There has also been a shift in focus from the stagnant urban market, to opportunities in rural areas.
Both JD.com and Pinduoduo have increased investment in the country’s agricultural e-commerce sector. JD.com’s Xu told analysts that his company is “committed to promoting the virtuous cycle of rural revitalisation … to consumption upgrades”.
China’s rural e-commerce market grew almost 18 per cent year on year in 2021, reaching 3.7 trillion yuan, while the number of rural online shoppers expanded by 21 per cent to 360 million, according to e-commerce data analytics service EDT.
Meanwhile, China’s e-commerce market has seen new players emerge like ByteDance’s Douyin, the Chinese version of TikTok. Short video operators want to turn their large user bases into a growing source of shopping revenue.
According to big data analytics service Syntun, live-streaming e-commerce gross merchandise value, or total sales, during the 2022 Double 11 shopping event grew 146 per cent year-on-year to 181.4 billion yuan, or one-tenth of total sales for the online carnival.
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“The challenges for Pinduoduo come from content e-commerce platforms such as Douyin and Kuaishou. They are investing more in e-commerce, in the meantime, [Tencent’s] video account has also had some impact on Pinduoduo,” said Zhuang Shuai, a researcher at the E-Commerce Research Center of 100ec.com and the founder of Bailian Consulting.
Chen Tao, a senior retail sector consultant at Analysys, said that these new e-commerce business models, such as live streaming and the instant shopping championed by Meituan, pose challenges and potential new growth opportunities. Alibaba, for example, has actively pursued live-streaming e-commerce.
However, Chen said he does not expect “[Live streaming and instant shopping] to replace the traditional e-commerce model in the next one or two years and become mainstream.”
