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China's economic instability has affected the world's biggest annual shopping event, with companies launching fierce price wars to attract customers.
The Singles' Day festival, also known as “Double 11,” was created by Alibaba in 2009 and has become a weeks-long shopping frenzy in China. It regularly records more sales than Black Friday and Cyber Monday combined and is considered a bellwether for consumer spending appetite.
Companies have come up with catchy slogans to promote sales, such as Alibaba's “Double 11, Everyday Low Prices,” JD.com's “Really Cheap,” and Pinduoduo's “Every Day Really Cheap.”
“Typically, [a] Price competition has become the biggest competitive moat in all fields. [Chinese e-commerce] ” a group of Citi analysts led by Alicia Yap wrote in a research note last week, using the term to describe a company's competitive advantage over its rivals.
They expect the sale period to be “subdued” due to lackluster economic conditions and cautious consumer sentiment.
Alibaba, which owns Taobao and Tmall.com, announced that it will offer more than 80 million items at “the lowest prices of the year” during a sale that began on October 24.
JD.com is offering 50% off on selected electronics and the opportunity for shoppers to purchase best-selling items for just 1 yuan (14 US cents).
The event officially begins on November 11, with businesses starting pre-sales weeks in advance, but it will be the biggest shopping festival since the country lifted coronavirus restrictions last December.
The Chinese government had hoped that reopening the economy would boost domestic consumption and support growth, especially as exports fell and returns on infrastructure investment declined.
But Chinese consumers are cutting back on spending as they grapple with mounting challenges, from high unemployment to declining income levels. To lure them, e-commerce platforms are offering the lowest prices this Singles' Day.
Hu Xiaofei/VCG/Getty Images
Employees pack products at an e-commerce company's warehouse ahead of the Shuang 11 Shopping Festival in Jinhua, Zhejiang province on November 1, 2023.
It has not been an easy year for the middle class of the world's second-largest economy.
In June, before the government stopped releasing data, the youth unemployment rate reached a historic high of 21.3%. Wage growth has also stagnated and average disposable income has declined.
Retail sales in the first nine months of 2023 rose only 6.8% year-on-year, lower than the pre-pandemic growth rate of 2019.
“Governments are aiming for solid consumption growth, but consumer spending is being held back by weaker household income growth and weaker consumer confidence,” said Louis Cuis, chief Asia economist at S&P Global Ratings. said.
The housing market crisis, which has tied up around 70% of China's household assets, is further constraining their willingness to spend.
“Given the subdued outlook for the housing market, it will take some time for consumer confidence to recover,” Mr. Kuis said.
The deep discounts reflect the intensity of competition in China's e-commerce sector.
“The war over price is as much about the state of the consumer as it is about the increasing competition between e-commerce markets,” said Co-Founder and CEO of e-commerce consultancy WPIC Marketing + Technologies. CEO Jacob Cook said.
but Analysts aren't sure if the low prices will be enough to attract consumers.
More than three-quarters of Singles' Day shoppers surveyed plan to cut back on spending or maintain spending at 2022 levels, according to a Bain & Company study released Tuesday. .
“Only 53% of shoppers said they were looking forward to Singles' Day, compared to 76% in 2021,” the research firm said.
According to WPIC Marketing + Technologies, spending on “fast-moving consumer goods” such as food and beverages and “large durable goods” closely tied to the real estate sector has declined.
Hashtags such as “Downgrade your spending'' and “You can save 100% by not buying'' are currently trending on social media.
“Last year I spent 250,000 yuan ($34,300) on Pinduoduo, but this year so far I have only spent 80,000 yuan ($14,890). This is a real drop in consumption,” said the user, who is currently added that he has not yet spent any money on Singles' Day.
“Some promotions are fake,” said another user named “Nyanko.” “Retailers raised prices before lowering them on Singles' Day. How can we spend?”
cook He said the “relative attractiveness” of shopping events for consumers has decreased over the years, as there are now more promotions throughout the year.
However, not all consumers are cutting back on spending.
Cook said he observed a “huge appetite” among middle- and upper-class consumers for experiences and products that enhance health, lifestyle and self-expression.
For example, sectors such as vitamins, pet care, sports apparel, and even luxury goods are growing rapidly.
“Consumers are actually looking to 'upgrade' their consumption in these areas,” he said.
Nike, positioned as a premium brand in China, reported a strong quarter from June to August. Company executives allayed investor concerns about China during a September earnings conference.
“Sports is back in China, and you can feel it,” Nike CEO John Donahoe said.
Lululemon also reported a 61% increase in revenue in China in the second quarter of this year, significantly outpacing its total revenue growth of 18%. Starbucks posted its best third quarter ever in August due to a surge in sales in China.
“The fact that a brand like Nike is able to record outstanding growth in full-price sales amidst other macro pressures shows that consumer demand in China is resilient,” Cook said. .
