18/2019 – The tremendous China retail market

Singles Day 11.11 is just nine days away. Alibaba’s warehouses and e-fulfillment centres all over China have been stocking up huge inventories for the biggest 24-hour sales event in the world.

Sales on Singles Day in China is now six times bigger than Black Friday in the US.

Over in South-East Asia, Lazada now owned by Alibaba has been preparing for this main sales event with their local offerings and also special deals from Taobao. Other local e-commerce platforms and retailers have also jumped on the bandwagon and planned similar 11.11 promotions.

Almost a year ago, Alibaba achieved Singles Day sales of US$30.8bil on 11.11.2018 which were shipped via one billion delivery orders. The average ticket size was US$30 (RM120) per order. There were 180,000 participating brands of which 238 brands achieved individual brand sales of 100 million yuan (RM60mil) in gross merchandise value (GMV) in a 24-hour sales window.

On 11.11.2017, when sales on a single day were US$25.3bil, at its peak, 325,000 orders were processed per second and 256,000 payment transactions processed per second. No, I did not see wrongly. It is stated as per second, in the blink of an eye.

Alibaba was founded in 1999 and Taobao was launched in 2003 and sales in the first year were just a meagre US$5.7mil. In 13 years, GMV sales in 2016 were US$500bil and in FY May 2019, Alibaba achieved a GMV of US$853bil. Alibaba is projecting a GMV of US$1 trillion next FY 2020. This annual GMV is achieved through 10 million active merchants, monthly active users of 755 million and 89% purchases via mobile devices.

In comparison, in 2018, Amazon’s online sales amounted to US$282bil in the US, a 48% share of total US online sales and 5% of th total retail market. This would translate into a scenario where online GMV in the US is approximately 10% of total retail market size of US$5.5 trillion. E-commerce sales in USA are expected to reach 12.4% of the total retail market in 2020.

In comparison, online sales in China are expected to have a GMV of US$1.94 trillion, approximately 35% of the total retail market size of US$5.6 trillion.

In comparison, the Singapore online sales are about 5% of the total retail market while Malaysia is estimated at 2-3%.

Based on these market statistics, the total retail market size in China has caught up and will surpass the US in the near future as China’s population is almost four times bigger than the US. The potential for growth of the retail market in China is tremendous and frightening at the same time.

As the trade war looms and deepens between the US and China, Chinese manufacturers will utilise excess capacities (meant for US markets) to fulfill domestic demands which will intensify competition in China dramatically. It will be more difficult and more costly for manufacturers from other countries to penetrate the Chinese market. The latest report from the South China Morning Post indicated that the patriotic Chinese consumers will boycott American brands in the forthcoming 11.11 campaign.

When Cainiao (51% owned by Alibaba) commences logistic operations from their warehouse located in the bonded digital free trade zone (DFTZ), Asean countries, especially Malaysia, will face an onslaught of excess Chinese manufactured goods being offered to consumers, ranging from electronics to apparels to other general merchandise via the electronic World Trading Platform (eWTP) of Alibaba/Lazada.

To refresh your mind, it was reported last year that any orders below RM500 will be duty free if shipped out of DFTZ. Jack Ma’s request for a RM1200 limit was eventually turned down by our Trade Ministry. I am just wondering if cosmetics sold out of DFTZ via online platforms are registered with the Health Ministry as is the practice of all local manufacturers and importers of cosmetics?

Local importers of general merchandise from China should take defensive actions now before your lunch is eaten by your Chinese suppliers. Exporters should take advantage of the eWTP to export to other Asean countries and China, the near impossible market.

Manufacturers can trade via alibaba.com which is a b2b platform. TMall, which is a controlled and regulated b2c platform (quality guaranteed), and Taobao, which is the “everything that can be sold by anybody” platform. Margins of 5-8% transaction fee demanded is not prohibitive but like all distribution channels, other costs come into play like listing and set up costs and advertising cost.

Alibaba via eWTP should hold regular seminars for interested exporters and conduct training on “how to trade on the various Alibaba platforms” and advise on the relevant costs and budgets required.

This will help exporters evaluate the cost vs potential sales ratio and the kind of investment required. It is a distribution channel decision, digital or traditional.

My Singapore friend attended a two-day training at Taobao headquarters in China last year via his Chamber of Commerce and his trip was fully sponsored by the Singapore government. He advised me that domestic competition on this platform is ferocious and the costs can be extremely high if not managed properly.

As part of the eWTP deal with Malaysia, Alibaba has kept to its side of the bargain. I believe it have organised three cohorts of young entrepreneurs for a 10-day Alibaba Netpreneur training programme at Alibaba Business School in Hangzhou, China.

Considering their domestic entrepreneurs trading on their platform have an average age of 26 years and are 49% female, digital training for our Malaysian youth should be encouraged.

Five of our local universities are also participating in Aibaba’s Global e-Commerce Talents (GET) Network which has the objective of educating and empowering young Malaysian entrepreneurs to excel in the digital economy.

Inspired by their domestic success of Taobao Village – rural e-commerce hubs, Alibaba Malaysia did a pilot project called The Desa project where they adopted Bentong as the first rural e-commerce export hub. They identified six product SKU’s – Orang Asli organic rice, ginger products, Sempalit peanuts, Sempalit soya sauce, kelulut honey and of course durian products for export to the China market.

They then advised on custom packaging design and pre-orders from the villagers based on agreed MOQ (minimum order quantity). Taobao China then takes over the operational aspects from accounting, digital marketing, online store management, orders fulfillment to customer support. This is to ensure they can understand how it works before they empower the villagers to take over in the second phase.

During my visit to Alibaba HQ, Hangzhou last week, I asked Yao Yao, Alibaba group’s director of international government relations on how do we target halal consumers in China via Taobao and TMall?

She replied that their platform currently does not have specific sites on halal products but we can focus on marketing through their various programmes being implemented in the south-west region where most of the Chinese Muslims reside.

With a population of over 20 million Muslims, it is equal in size with the Malaysian halal market if not bigger.

Just two months ago, eWTP China organised a Malaysian week of promotions on Taobao with live streaming of their key influencers helping Malaysian brands that are selling online. It was reported that 80,000 bottles of birds nest were sold in five minutes. It just shows the potential of the market if Alibaba throws its weight behind the marketing programme. According to Yao Yao, Malaysia was given special privileges due to the eWTP collaboration with the Malaysian government as other countries were given only one-day promotions, if any. The key opinion leaders or influencers would normally not be available for unknown brands if not for the leveraged strength of Alibaba China.

I would encourage Malaysian merchants to go onboard the eWTP if they want to penetrate the China market and I believe Alibaba can do more to help our Malaysian exporters to be successful.

Yao Yao further advised that for the Malaysian exporter to be successful in China, you must understand the local consumer market and you must have Mandarin speaking staff.

I am, however, pessimistic as to the online trade imbalance between the two countries when the manufacturers in China start their online onslaught into the Malaysian market via the DFTZ.

I stand to be corrected. But then, other than durians and white coffee, what competitive advantage do our manufacturers have over China, the manufacturing capital of the world?

Local importers and manufacturers of general merchandise in retail should brace for impact from the irreversible digital economy because in the blink of an eye, your lunch and possibly dinner are going to be eaten by some rural villagers in China.

Published: https://www.thestar.com.my/business/business-news/2019/11/02/the-tremendous-china-retail-market


One thought on “18/2019 – The tremendous China retail market

  1. A decade or more ago, we read Tom Friedman’s The World is Flat or the flattening of the world. Guess this is the extension of that and is moving at tremendously high speed? If U can’t beat them, U better join them?


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