Ali-blah-blah – Myths about Singles Day

Original images by Image by OpenClipart-Vectors and Mashiro Momo

It’s that time of the year again. In a couple of days press releases and news articles will be flooding the internet, telling you about the latest record-breaking results of Alibaba’s annual Singles Day shopping festival. But beware. Don’t believe all of the hype. When you dig deeper, Singles Day is still highly impressive, but maybe not quite as impressive as Alibaba want to make it out to be.

The original Dutch version of this article was written in response to a 2019 article in a local newspaper that headlined “Alibaba makes over $30 billion* from singles.”As we’ll see, this short headline contains several misunderstandings. And those are some of the many misconceptions about Singles Day. Time to debunk the biggest myths.

“Singles Day was invented by Jack Ma”

This isn’t something Alibaba claims but an incorrect fact that is occasionally mentioned in the media. Singles Day was no idea of the company’s founder and former CEO Jack Ma and not even invented by Alibaba. It is an unofficial holiday that is known to have been instigated by male students in a dormitory of Nanjing University in 1993. The students wanted to celebrate their single status and the date 11-11, which only contains “ones”, seemed the best time to do so. Thanks to social media, it became more popular in the rest of China in the years that followed.

In 2009, Alibaba was looking for a way to boost online sales in the period between the existing sales peaks of China’s ‘Golden Week’ national holiday in October and Christmas in December. Daniel Zhang, the company’s current CEO, who took over from Jack Ma in September 2019, came up with the idea to use Singles Day as a theme for this shopping festival.

“Alibaba makes over $30 billion* from singles

The aforementioned Dutch newspaper might think that only singles shop on Singles Day, but nothing could be further from the truth. Although Alibaba has used the reference to Singles Day in the early years, it has never been the case that only singles were allowed to buy the bargains. Nor did the name deter those in a relationship from shopping. As a matter of fact, in recent years Alibaba has even been distancing itself from the association with singles.

When the online shopping festival became more popular and the relevance of the date of November 11th, or ‘Double 11’, became common knowledge, the company dropped the term Singles Day. For several years now, Alibaba has only referred to Double 11 (双十一, shuang shi yi). Alibaba even registered双十一as a brand name in 2012. To drive this rebranding home, Alibaba hired Chinese rapper Kris Wu (since then fallen from grace) and Pharrell Williams to sing a cringeworthy duet on ‘Double 11’ at the Double 11 gala, a TV show promoting the shopping festival on the eve of November 11th.

“Alibaba makes over $30 billion* from singles”

This is a very persistent misunderstanding and shows that many people do not understand Alibaba’s business model well. In principle, Alibaba does not sell products, but is a marketplace where merchants, ranging from consumers and small businesses (C2C – consumer-to-consumer) to large companies and brands (B2C – business-to-consumer), sell their goods to consumers. In that respect, Alibaba is best compared to eBay or the functionality on Amazon that allows third parties to sell items on its platform.

Unlike its major competitor, whose services are more comparable to Amazon’s original role as a reseller or e-tailer, Alibaba does not buy goods and resell them; it only facilitates sales between buyer and seller. In some cases, Alibaba gets paid a commission on those sales. But more importantly, Alibaba earns its money by offering marketing and advertising services that allow merchants and brands to promote their products and improve their visibility on its platforms. Think, for example, of SEA (search engine advertising), but used within Alibaba platforms like Taobao (C2C) and Tmall (B2C). And then there’s banners and participation in sales promotions. From this perspective, Alibaba is quite similar to Google; its revenue comes from making products of its customers (the merchants) visible and discoverable and selling them ‘reach’ within their target audiences.

The sales figures that are quoted during Singles Day are therefore neither Alibaba’s turnover nor its profit. They are the sum of all sales by all merchants on Alibaba’s platforms. The common term for this measure is GMV, gross merchandise value, and it says little about what Alibaba earns. Again, Alibaba’s income is largely made up of the marketing and advertising budgets that the merchants who collectively generate this GMV pay to promote their deals.

The exact reported GMV in 2019 was 268 billion RMB or $38.4 billion. Alibaba knows that GMV does not say much about its operating result. For some time now, the company has not even reported GMV in its financial results. But they gladly make an exception for Double 11…

So, the merchants collectively make $38.4 billion*?

Not really. As mentioned, GMV is the sum of the gross sales including shipping costs. If all of this would be actual sales it is strongly related to revenue but says little about the margin and net profit that the merchants make (if that’s how you want to define ‘earnings’). The actual profit that merchants make will of course be only a fraction of that $38.4 billion*. One of Alibaba’s rules has been that merchants must give at least a 10% discount to be allowed to participate in Double 11. As such, many merchants will be selling at a lower profit margin than normal and some might even be selling at a loss, for instance as part of a strategy to launch a new product into the Chinese market.

But there’s more. As mentioned, the $38.4 billion* is gross merchandise value. It still includes the value of returned products. Customers have the right to return products within a certain period and considering Single Day’s often impulsive purchases returns can be significant. For instance, some live-streaming influencers have been known to get return rates as high as 40-50%.

In some cases gross merchandise might even include the value of orders cancelled before shipment and even abandoned shopping carts: products that have been placed in the shopping basket but never actually ordered or paid for. As we’ll see, this doesn’t stop Alibaba from telling the world about the amazing GMV generated on its platforms shortly after midnight of the 11th of November. But no figures are ever released about returns and net sales…

Okay, but a gross sale of $38.40 billion* worth of products was done in one day, right?

It might look that way. But a more factual description would be that $38.4 billion* was settled in one day. Those who closely watch the progress of sales throughout the day on November 11th 2019 will have seen the pattern below. 

The data in the chart shows the GMV reported by Alibaba at different times during the day, plotted against the number of minutes that have elapsed. In the first 90 minutes of Double 11 2019, Alibaba published the sales results several times and then again around 6:30 AM.

The graph shows us how a storm surged in the first hour and a half, after which sales develop a more linear course. Alibaba did not release any figures between 1:30 AM and 6:30 AM, probably because sales had largely come to a standstill.

This pattern can be explained by the fact that in 2019 Double 11 started on October 21st. From that day onward, merchants could already offer deals and consumers could pre-order by means of a ‘deposit payment’.

There are several ways merchants can boost their sales before November 11th. A few examples:

  • Selling samples of makeup products including a discount coupon valid on November 11th. 
  • Issuing coupons with a discount when a minimum amount of a product is purchased. 
  • Have an advance payment for popular products. If the product is purchased on November 11th, the buyer only pays the difference between the discounted price and the advance payment. 
  • Pre-ordering products with limited stock (or so the merchant would have you believe). 

In all cases, coupons and products can already be placed in the shopping cart long before November 11th. In 2019, Alibaba reported how 64 brands, including Apple, Dyson, Lancome and L’Oreal, had each raised more than RMB 100 million in pre-orders by October 31.

You will probably understand by now that at midnight of November 11th everyone logs into Taobao or Tmall to actually pay for the products that have already been placed in the shopping cart and/or partially paid for in the previous 3 weeks. Then everyone goes to sleep, resulting in little sales between 1:30 AM and 6:30 AM, only to maybe score some (extra) bargains later during the day.

With such a setup, how can you still consider this to be sales of one day?

In 2020 the mechanics of Double 11 were once again changed. Besides a pre-sales period that started on October 21st, the shopping festival also includes a sales window from November 1st to 3rd, followed by another pre-sales period from November 4th to 10th. According to Alibaba, this was done to relieve the pressure on the logistical system, but at the same time it created a 3-week shopping festival with 4 days to actually buy, all of which was included in Double 11’s sales figures.

Interestingly, Alibaba’s competitor had already been reporting 11-day figures for their Double 11 since 2017. At the time Alibaba’s PR head had scorned JD by saying: “JD could calculate their annual orders for Singles Day for as long a period as it wants.” JD’s Chief Marketing Officer had reacted by pointing out: “If you start the pre-sale 20 days early (which practically halts sales because customers know they can buy the same product at a better price on Singles Day) and account all the GMV for one day, why can’t we let the merchants to do their business normally and count the 11-day sales?”

The effect of Alibaba’s new approach could clearly be seen in the enormous figures of 2020, when GMV increased from 268 billion RMB ($38.4 billion) to almost 500 billion RMB ($74.1 billion). And as always, Alibaba proudly announced how $56.3 billion of goods was sold on its platforms within the first 30 minutes. But we know better now, don’t we?

Of the total GMV of 498.2 billion RMB only 25% was actually bought after November 11th 0:30 AM. In other words, 75% of sales were done during pre-orders and the sales window earlier in the month.

Alibaba later reported that when just counting the sales in the first 11 days of November, the growth in GMV was 26% higher compared to Double 11 GMV in 2019 and thereby comparable to the previous years. But this still includes two sales windows instead of one…

This year, in 2021 the trick is repeated. Alibaba actually encouraged merchants to ‘plant grass’, meaning promoting their offers, starting October 1st. For a period of 40 days Alibaba’s Taobao will see a content-heavy campaign including live-streams. Pre-sales events started on October 20th, one day earlier than in 2020, and led to a crash of Alibaba’s servers and the marketplace being offline for 17 minutes. Top live-streamers Austin Li and Viya already pre-sold almost $3 billion worth of goods during their streams that one day.

“Singles Day is an indicator of the Chinese economy”

The rising GMV of Double 11 has been used by some journalists to prove that the Chinese economy is doing very well. But Singles Day isn’t a good indicator of the Chinese economy.

First, as we’ve seen Alibaba is increasingly using tricks like pre-sale to increase the GMV figures of Double 11 every year. All eyes are on Alibaba and the reputation of the company partly depends on whether they can show growth on November 11th every year. But it is increasingly like comparing apples to oranges as the pre-sale periods become longer and more (new) divisions such as travel (Fliggy), local services/O2O (Eleme, Koubei), New Retail (Hema/Freshippo) and international platforms AliExpress and Lazada are also included in the sales figures. Alibaba has even started facilitating the sale of high-value products such as cars and houses on its platform during Double 11. To figure out actual growth, you would need to compare the same parameters every year, which is clearly not the case here.

Second, we do not know what the impact of Double 11 is on consumers’ purchases before and after November 11th. Are consumers delaying their planned purchases until Singles Day to get a better price? Some experts argue that the higher Double 11 GMV is partly due to people postponing purchases; in a slowing economy they prefer to wait for the bargains. Also, do they buy less after November 11th than they would normally have done? 

The 11-11 GMV is likely to contain a lot of ‘incremental sales’; purchases that people have made because of the offer you can’t refuse but otherwise might not have made. It is unknown what part of the GMV is incremental and what influence this expenditure has on spending after November 11th, but they are crucial factors in determining the actual effect on consumer spending.   

Besides, let’s not forget that $38.4 billion*, or RMB 268.4 billion, is a lot of money, but also spent by a huge number of consumers. In Q3 2019, Alibaba had 693 million annual buying customers on its e-commerce platforms. Let’s, for the sake of simplicity, assume that they all bought something during Double 11, then the average amount spent is about 387 RMB or €50. Not a hugely shocking amount, even by Chinese standards.

If we really want to look at e-commerce as an indicator of the Chinese economy, we should look at the annual figures for e-commerce. The growth of e-commerce GMV has seen double-digit figures and will remain impressive in the coming years, but will decreases as the market matures and penetration of e-commerce among Chinese consumers reaches saturation. Eventually, even Double 11 won’t be able to change that by juggling the numbers.  

*Double 11 GMV as reported in 2019