Thursday November 11, 2021
Shopping madness on Singles Day
How loose do the Chinese still have their money?
By Diana Dittmer
China is the country of records in online trading. Singles Day is not only by far the largest shopping event in the world. It is also a yardstick for Black Friday, Cyber Monday and consumer mood worldwide in general. But this year is a lot different in China.
Every year in November, the pre-Christmas shopping madness breaks out on the Internet: The discount battle begins with Singles Day on November 11th – an event that was invented in China and then more or less spilled over to us in Europe – and they culminates in Black Friday on November 26th and Cyber Monday on November 29th.
Singles Day is a gold mine for retailers. Since Alibaba launched the first Singles Day Shopping Festival on November 11, 2009, the event has grown into a shopping frenzy that traditionally not only makes the tills of Alibaba but of the world’s largest e-commerce companies ring. Year after year, superlative shopping fun brings sales in the double-digit billions. The Chinese top dog Alibaba earned around $ 75 billion last year. The rival JD.com had 41 billion in sales.
Due to its size, Singles Day is considered a pacemaker and Indicator – both for consumer mood in China and worldwide. With more than 600 million online shoppers, Chinese consumers are the most sought-after consumer group on earth. In addition, 30 percent of global economic growth can be traced back to China. If Chinese consumers weaken, the world will weaken. In other words: “Every dent in China has a negative impact on the global economy,” as the economist and China expert Horst Löchel says in an interview with SRF.
That is why retailers and economists are also watching developments in the Middle Kingdom with eagle eyes in the second Corona year. This year’s shopping event is unlikely to break new records. The forecasts of the observers have become cautious. Citi analysts expect Alibaba’s total gross sales volume (GMV) to reach the equivalent of $ 90 billion in the first eleven days of November. This corresponds to an increase of 15 percent compared to the previous year. A year earlier, the Chinese online giant had posted an increase of 26 percent here. The expectations for JD.com are similar: Instead of a 33 percent increase as in the previous year, growth should slow down to 22 to 26.
Pandemic and inflation as a brake on consumption
Covid-19 has permanently changed the shopping habits of Chinese consumers. Even towards the end of the second year of the pandemic, there are always isolated new outbreaks of corona cases that leave the economy behind. Since the government is pursuing a zero Covid strategy, it always counteracts this at the local level with draconian measures such as week-long curfews and travel restrictions.
It is true that sales in the Chinese retail sector, which are regarded as an indicator of consumption, recovered somewhat more strongly than expected in September by 4.4 percent. But the growth rate is still well below the 8 percent in December 2019, i.e. before the pandemic. Expectations that consumption would recover more quickly from the corona restrictions have not been fulfilled.
Emerging Market Portfolio Manager Jennifer James cited the reason that the greatest burden of the economic impact of Corona will be borne by those who are most vulnerable to it. Low-wage earners made up 40 percent of the population, and labor market data indicated that their income has not increased in line with the more profitable jobs in technology or financial services, she says for the e-fundresearch portal. The saving rates of private households have increased at the same time as a result of the lockdowns. But they were not used by savers to bring about a consumption-oriented upswing when the economy picked up again. Chinese consumers have therefore become more cautious.
In the recently published Citi analysis there is still talk of “strong consumer demand”. However, the authors also write that they are “cautious” because sentiment could be influenced by “increasing weakness in the underlying economy”.
The economy and people are not only shaken by the pandemic. Inflation has also risen. The cost of goods leaving the factories rose a record 13.5 percent last month compared to the previous year. The increased prices are already being passed on to consumers: China’s consumer price index climbed 1.5 percent year-on-year, twice as fast as in the previous month. This is the fastest increase since September 2020. Inflation is not only depressing profit margins, it is also reducing the purchasing power of consumers – this is also likely to have an impact on the annual major shopping event.
Beijing and the struggle against the market power of large corporations
The comprehensive state action taken by the leadership in Beijing against the private sector is also likely to be a brake on the block, which is likely to prevent new records. The government is not only focusing on the big technology and real estate companies. Powerful e-commerce companies have also been gradually put on the curb this year. In early 2021, government agency Alibaba hit a record $ 2.8 billion fine – four percent of 2019 sales. JD.com, Tencent, Pinduoduo, Meituan and others also fined for alleged anti-competitive behavior.
And Beijing will not give up. It was only on Saturday that the authority prohibited the e-commerce platforms from unfair practices in the Christmas business, such as “price increases before items are offered for sale”. In addition, the Ministry of Industry and Information Technology, which oversees the Internet industry, called on Alibaba, JD.com, Pinduoduo and Meituan last week, warning not to shower consumers with advertising messages on Singles Day.
In addition, there are the government’s CO₂ requirements for climate protection and the goal of the leadership in Beijing to ensure the balancing act between profit and growth on the one hand and the protection and well-being of its population on the other. This does not leave the company without a trace. “This year’s festival marks a new chapter for 11/11”, CNN quoted Alibaba’s marketing director Chris Tung from a company statement. “We believe we need to harness the power of 11/11 to foster sustainable development and promote inclusion for consumers, retailers and partners across our ecosystem.”
Ever since Prime Minister Xi Jinping made clear his priority of redistributing wealth and “shared prosperity”, many Chinese companies have even rushed to donate billions of dollars of their own profits to state social causes. Despite all the “disruptions” for the major retailers in China, there is still a ray of hope: According to a study by the global consulting firm Alix Partners, 85 percent of the Chinese surveyed intend to spend the same or more than in 2020 on Singles Day this year. It will certainly not have been the last shopping event.