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China has its own versions of Black Friday: 618 and Singles day. These annual shopping festivals, in June and November, are massive events for local shoppers and ecommerce groups. Until now, the sales figures for the June festival have been record breaking, with global celebrities joining the marketing drive to set the tone on spending for the rest of the year.
But this year, despite Rihanna making Chinese breakfast crepes on a livestream, sales are breaking records for the wrong reason: they fell for the first time ever for the mid-year festival.
Combined gross merchandise volume for China’s largest ecommerce groups fell 7 per cent to RMB742.8bn ($102bn) during the 618 shopping event, according to digital retail data provider Syntun. This was despite record discounts across brands, including 50 per cent off Lululemon apparel.
This is concerning. While a slowdown at traditional ecommerce leaders such as Alibaba and JD.com could be explained by the intensifying market share grab by rivals such as ByteDance and PDD Holdings, an overall drop in sales signals that the depressed consumer sentiment of the pandemic era is yet to fully recover. This has been exacerbating the gap between ecommerce rivals that have a global presence and those that find most of their sales locally.
Shares of JD.com are down a quarter in the past year. Alibaba is down 17 per cent and trades at 9 times forward earnings, less than a quarter of global peers. Its first-quarter profits already took a hit as it was forced to boost spending to lure back market share from rivals such as PDD Holdings, which owns Temu. Shares of PDD have doubled.
A shift towards a more global strategy seems to be the answer. Revenue from Alibaba’s international platforms, which include AliExpress, Lazada and Trendyol, have been a bright spot in recent quarters. It has been aggressively marketing its cloud solutions to international companies as it focuses on winning over groups with data centres outside of China.
But finding growth overseas has also been proving costly. Alibaba’s free cash flow fell 52 per cent as it spent heavily on cloud infrastructure. It has cut prices on over 100 public cloud products by up to 55 per cent to accelerate market share growth, with even deeper cuts targeted for international customers.
In promising markets, such as south-east Asia, ByteDance’s TikTok Shop which has teamed up with Indonesia’s top ecommerce platform and local rival Sea Limited’s Shopee will be difficult for competitors to overcome. But China’s spending slump shows that a recovery in lagging ecommerce sector shares rests on gaining meaningful market share elsewhere.