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What¡¯s Next After the Irrational Double-11 Shopping Mania?
   2015-11-16 10:24:46    CRIENGLISH.com      Web Editor: Liu Ranran

By Luo Yu

The 'Singles Day' in China has morphed into an online shopping carnival. Not surprisingly, Alibaba set a sales record again this year, with a whopping one-day sale of $14.3 billion on November 11.

The company has been celebrating the awe-inspiring sales revenue as usual, but many observers, me included, are not too thrilled about the vibrant yet vainglorious competition within the Chinese online shopping industry. Investors more or less hold a similar view, as the share price of nearly all e-commerce companies in China, including the top three players Alibaba, JD.com and Suning, has been declining since Double-11. And despite its astounding 60 percent jump of total Gross Merchandise Volume (GMV) year-on-year and its groundbreaking turnover, Alibaba saw its stock price slump nearly 2 percent on that particular day.

I remember every Double-11 craze distinctly since the spree was created in 2009 by Alibaba¡¯s B2C platform Tmall. Due to its ripple effect, other giants followed in its footsteps and wisely adopted differentiated strategies. For example, Alibaba¡¯s largest rival JD.com, who is Nasdaq-listed and also a strategic partner of the online giant Tencent, has stretched the one-day frenzy to 11 days starting from November 1, promoting one category of goods each day. Suning, Alibaba¡¯s strategic partner, capitalized on its online-to-offline capabilities and its Japanese subsidiary Laox, with sales hitting record highs in both its online and brick-and-mortar stores.

New trends have emerged. For one, things are going mobile. Almost 70 percent of the transactions were made via wireless devices. For another, things are getting entertaining. Both Alibaba and JD.com organized a fancy TV gala on November 10, and Alibaba even managed to get Kevin Spacey and Daniel Craig to show up and help Jack Ma drive purchase on Tmall. With the ever-increasing globalization, more than 230 countries and regions, as well as hundreds of international retailers, have taken part in this year¡¯s orgy of e-commerce. Costco from the US and Sainsbury¡¯s  from the UK have opened stores on Tmall whereas Lotte.com has just copied the Singles Day model and ¡®created¡¯ its own Double-11 Event in Korea, catering to both domestic and international online customers, mostly to Chinese. Alipay, Alibaba¡¯s online payment escrow platform, has enabled Lotte¡¯s easy access to penetrate China¡¯s massive market.
 
Not a single e-commerce company wants to miss out on the opportunity. However, I remain wary of the nasty competition among those seemingly well-dressed gladiators, simply because they sparred over extravaganza and they have trodden on some of the most dangerous areas in commerce, undermining the whole ecosystem of e-commerce in China.

One thorny problem caused by the online carnival is that customers were not happy about the products they bought on this occasion, as reports suggested that nearly 60 percent of the customers, including a huge number of click-famers hired by sellers, chose to either return their fake goods or cancel their orders after the glamorous Singles Day.

In order to sustain the irrational exuberance brought about by the commercial orgy, Alibaba is poised to tap into China¡¯s rural areas by creating a new made-up festival called ¡®Nianhuo Jie¡¯, or a festival for stocking goods for the Chinese New Year.

Touted as the underpinning of Aliababa¡¯s future development, its C2C platform Taobao is unfortunately a hotbed for counterfeit products, and it is highly likely that it will fail to impress investors and disappoint customers from rural areas.

Having said that, it seems irrational shoppers who have been bogged down with the mania will continue shopping anyway, unless they have received fakes or products over-exaggerated by their sellers. Even if one is swindled, a gazillion people will still ransack low-price and poor-quality goods online.

Another concern is the dynamics of the competition and the undergoing integration in the industry. JD.com earlier filed a complaint, saying that Alibaba was ¡®disrupting the market order¡¯. The latter has reportedly put an either-or question to sellers - either choose to participate in Alibaba¡¯s Double-11 promotional activities, or be excluded from Alibaba, who accounts for 60 percent of the Chinese market share in B2C platforms, according to iResearch consulting.

Meanwhile, JD.com has shut down its C2C platform Paipai to eradicate fake goods; Alibaba has partnered with Suning by investing $4.6 billion into the largest brick-and-mortar retailer on the Chinese mainland; the latecomer of the Chinese e-commerce market Walmart has taken full control of Yihaodian, an online retailer whose sagging business faces a shrinking market share in recent years; and finally, top 3 giants have all launched their online credit line programs, namely Ali Huabei (¡°just spend money¡±), JD Baitiao (¡°blank note¡±) and Suning Renxingfu (¡°reckless payment¡±), through which consumer spending increased 800 and 576 percent for JD.com and Suning respectively, compared with last year¡¯s one-day total.

Looking from a broader spectrum, I doubt if this business model is really benefiting the Chinese economy. Overdrafting will likely raise demand and buoy consumption, thus helping with the flagging economy. But this is only a temporary remedy, since it may have delayed customers¡¯ purchases until the particular day. On the flipside, many sellers have been expelled from Taobao due to the ever-intense price war, whose margins appear to have already made a dent. Sellers have been accused of using fake promotion strategies whereby they show an alluring discount after the original prices were raised. Fraudulent practices such as click farming have become rampant - even among such well-known smartphone makers as Xiaomi and Huawei. All in all, the competition within the industry, be it among e-commerce players or retailers on those e-commerce platforms, will ultimately narrow down to significantly fewer companies, where most of the SMEs will eventually die. This, however, is ludicrous, as it is in contrast to Jack Ma¡¯s often-stated goal - to empower the little guys and budding entrepreneurs. In the end, you may find that most of the little guys would either be buried or keep producing counterfeits in a flurry.

The entire industry is in the grip of a hidden crisis. Will those giants still shy away from handling fake goods sold on their platforms? Can Alibaba be less self-indulgent and more inclusive without bullying other guys? And are we about to see more innovative tactics in the battlefield aside from repeated price wars and click farms to achieve spurious popularity? Do we expect to see more consolidation between strategic partners or more synergy between online behemoths and their newly acquired physical stores? And last but not least, can a better user experience be achieved on special occasions where online traffic is bound to see a gigantic surge?

We have to wait and see. But the industry has to be aware that manias never end well and it¡¯s time to start doing something right now.

Disclaimer: At the time of writing, the author did not own any shares in the companies mentioned in this article.

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