Alibaba's straining to continue its era of record-breaking Singles' Day sales — here’s how executives plan to keep growing (BABA)

Kate Taylor
mariah

Alibaba


  • Alibaba broke e-commerce records yet again on Singles Day 2018, with customers spending $30.8 billion over the course of the company's 24-hour shopping bonanza. 
  • However, growth slowed compared to years past, revealing the pressure Alibaba is under to continue to post skyrocketing Singles Day sales. 
  • Alibaba executives are relying on three factors to continue to grow Singles Day: the potential of offline retail, international sales, and the growing Chinese middle class.

SHANGHAI, China — Alibaba wrapped up another record-breaking Singles Day as Sunday ended. 

But, at this point, the Chinese e-commerce giant doesn’t have much of a choice but to smash records.

As Alibaba's Singles Day celebration on 11/11 — November 11 — came to a close, the company reported at midnight that customers had spent $30.8 billion online over the last 24 hours.

That is a significant increase from the $25.3 billion in gross merchandise volume (GMV) Alibaba shoppers spent in 2017. However, the growth rate of 27% was the lowest in the event's 10-year history. 

Over the last decade, Singles Day has become a symbol of Alibaba's success and the company's massive customer base. Alibaba turned the day of deals into a festival, with a gala that included a performance by Mariah Carey and an e-commerce themed acrobatics act from Cirque du Soleil. Hundreds of journalists from around the world attend the event, watching the GMV figure skyrocket and hoping to get a glimpse of Alibaba founder Jack Ma. 

However, while Singles Day helps drum up excitement for Alibaba, the emphasis on growing the GMV can also create problems.  

Concerns about declining margins and the Chinese economy have contributed to Alibaba's stock declining 22% so far this year. As the company's showiest display of power, a subpar Singles Day would mean major issues for Alibaba. 

"The whole world is looking at it — which puts a lot of pressure" on Alibaba, said David Zipser, a McKinsey & Company senior partner who leads its consumer and retail practice in Greater China.

Business Insider asked Alibaba executives over the weekend if Singles' Day growth was sustainable. Here are three reasons they insist the growth is far from over. 

Taking Singles Day offline

robot he alibaba

Alibaba

Alibaba's continuing growth is closely tied to the company entering new sectors. The company has entered markets including food delivery, entertainment, and grocery, with its chain Hema which is slated to hit 100 locations by the end of this year. 

Many of these new businesses are tied to Alibaba's plan to digitize traditionally offline markets, which the company calls "New Retail." Currently, roughly 20% of Chinese retail sales take place online. That means there's another 80% of sales that Alibaba isn't really benefitting from — yet. 

"It's really about digitizing the entire offline store environment," cofounder and executive vice chairman Joe Tsai told Business Insider. "One of the biggest challenges with the traditional store environment is when someone walks into the store, they have no idea who the customer is — whether they picked up something or looked at another item."

With the rise of mobile, however, Alibaba can track shoppers basically at all times. Customers' reliance on their cell phones, as well as other technology, allows Alibaba to enter old-school shopping spaces and partner with more traditional retailers. 

Tapping into the 80% of offline retail could be a significant Singles Day boost, depending on how Alibaba decides to measure New Retail sales. This year, offline sales — such as purchases at Hema — didn't count towards Singles' Day figures, despite the grocery chain offering 11/11 sales. Next year, president Michael Evans says Alibaba plans to make offline Singles Day figures more "tangible."

"Consumers don't just stay home, browsing their mobile. They want to go out with their families, go to shopping malls, go to cinemas," CFO Chris Tung said. 

Going global

alibaba singles day

Alibaba

Alibaba has also continued to expand its business internationally, both with importing new brands into China and launching e-commerce operations in new regions. In 2018, Singapore-based shopping site Lazada — which Alibaba owns the majority of — hosted its own 11/11 sales for the first time, resulting in a tripling of shopper traffic. 

"Everywhere I go, which is pretty much everywhere in the world, there are not very many people who do not know about 11/11," Evans told Business Insider.

"Many people ask the question — how can we participate next year? People are very interested, I think partly because they've heard of Black Friday and Cyber Monday and they think that's quite big."

He continued: "They've heard of Amazon Prime Day. But, we sold as much in five minutes as Amazon sold in an entire Prime Day."

Tung says that next year is likely to be a "more global" experience. That could perhaps mean a different home base for 11/11 — maybe even one that isn't in China. 

The old reliable: China's growing middle class 

daniel zhang alibaba

Alibaba

When all else fails, executives return to one group over and over again — China's growing middle class. Even if New Retail stumbles or international markets face speed bumps, executives say the growth of China' middle class will remain a constant driver. 

"The exciting thing about the Chinese economy is that there is a core group of middle-class consumers, about 300 million," Tsai said. "In 10 or 15 years, that is going to 600 million consumers. That is twice the size of the US population." 

This middle class is curious and also hungry for new brands, Tsai says, especially imported Western brands. That hunger is key to making Singles Day work. 

If the Chinese middle class maintains its growth, it would take a significant blunder for Singles Day sales to actually plummet. But when it comes to Singles Day figures skyrocketing, however, Alibaba seems to be looking somewhere new.

International expansion can help keep things fresh. And, if Alibaba rejiggers how it counts New Retail numbers — as businesses that bridge on- and offline retail become increasingly important — the company has a chance to rewrite its Singles Day rules entirely. 

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