- The headline sales growth figure for Singles’ Day may have continued to slide, but that says more about the one-day shopping bonanza than it does about the health of the Chinese consumer.
- FT Confidential Research data has found improvement in consumer sentiment since last summer’s stock market slump. Household spending has been lifted by rising house prices – another reason the clampdown on the property market is key to the economic outlook.
- This year’s Singles’ Day provides further evidence of the importance of mobile sales for China’s big online platforms. Growth of mobile sales of intangible goods and services is far outpacing that of physical goods, a trend we expect to continue.
Katy Perry may have been a no-show, but that did not stop Alibaba reporting another bumper Singles’ Day, though sales growth did slow. The Hangzhou-based company said sales by Gross Merchandise Volume (GMV) rose 32.3 per cent this year to Rmb120.7bn (see chart).
We have previously argued that this one-day online shopping extravaganza tells us more about the marketing prowess of Alibaba and its rivals than it does about the health of the Chinese consumer. As such, we take headlines conflating slowing growth on Singles’ Day with weakening consumer spending with a pinch of salt: growth rates are coming down off very high levels while aggressive one-day discounting is now happening throughout the year. JD.com, for example, held a one-day sale on June 18, while Suning’s was held on August 18. Online retailers are also slashing prices on national holidays.
House prices boost consumer sentiment
The Chinese consumer is, in reality, in pretty good shape. Our monthly household survey has found a gradual improvement in sentiment this year, after hitting record lows in the wake of last summer’s stock market crash. Other indicators point to robust consumer activity, including surging auto sales (see chart), supported by a rush to buy ahead of expiring government tax breaks.
Our Discretionary Spending Index dipped last month to 75.2, down from September’s near-three year high but comfortably above the average over the previous 12 months (see chart). Consumer sentiment has clearly been buoyed by a wealth effect from record increases in house prices: 53.4 per cent of households with annual household income of Rmb300,000 or more own two or more properties, compared with just 22.7 per cent among those with lower incomes. Last month, the discretionary spending index for the wealthiest cohort rose to its highest reading since October 2014, even as those for other income groups fell.
As we have previously argued, China’s economic outlook – including consumer spending – is dependent on the government’s policy approach to speculative excess in the housing market.
The big are getting bigger
Singles’ Day has again highlighted the dominance of Alibaba’s Taobao and Tmall, and JD.com, and the struggles of smaller operators such as Yihaodian. This shift has also been captured in our quarterly consumer brands survey data, which highlights how economies of scale are helping squeeze out smaller players (see chart).
Of 22 online shopping platforms, the brand preference share of the top three rose an average 2.3 percentage points vs Q415, while that of the next three was unchanged. The share of the next three, Jumei, Yihaodian and Dangdang, fell an average 0.6 percentage points. Events such as Singles’ Day have helped online shopping leaders cement and build on their market share, a trend we expect to continue in the years ahead.
An increasing share of Singles’ Day sales are made via mobile channels, reflecting a trend recorded across e-commerce. Alibaba said on Friday that 82 per cent of sales in the first 20 hours of Singles’ Day were via mobile devices, up from 68 per cent last year. Internet research firm iResearch expects annual mobile retail sales to account for 61.1 per cent of total online sales this year, up from 50.1 per cent in 2015 (see chart).
Singles’ Day spreads offline
The Singles’ Day phenomenon is also spreading offline, where 80 per cent of retail sales still occur. Marketing now includes gala shows on television, global celebrity endorsements – David and Victoria Beckham stepped in this year after Ms Perry pulled out at the last moment – and physical advertising campaigns. Offline retailers can not resist the pull.
Uniqlo’s offline stores sat out last year’s Singles’ Day, also refusing to allow goods purchased online to be brought in for exchange or return. This year, the Japanese apparel giant promoted online and offline discounts and allowed consumers to pick up online purchases in-store.
The government is trying to cushion the blow to traditional retail. The State Council is encouraging greater cooperation between online and offline retailers – such as via mergers and acquisitions. In 2015, JD.com invested in Yonghui Supermarket, while Alibaba became the controlling shareholder of Intime Retail and partnered with home appliance chain Suning. We expect this sort of M&A activity to increase.
iPhone 7 boosts Apple, but services increasingly popular
As with last year, home appliances and smartphones were the top selling categories, accounting for 16.7 per cent and 11.4 per cent of total sales value, according to Syntun, a Beijing-based data provider.
Tmall data showed Haier was the most popular home appliance brand, while Midea was number one for small home appliances. In smartphones, Apple was out in front, after Huawei led last year. We believe that Huawei is a real challenger for Apple’s leading position in China, but discounts on the new iPhone 7 handsets clearly helped the American company this Singles’ Day.
Demand for services have been another standout, as more Chinese consumers look to buy experiences, rather than possessions. Deals this year included big discounts on package holidays, plane tickets and hotels. This fits with National Bureau of Statistics data showing a rapid increase in sales of intangible goods and services, up 52.2 per cent year-on-year in the January to September period to Rmb670bn, outpacing the 33.7 per cent overall online sales growth of goods and services.
Get alerts on FT Confidential Research when a new story is published