22 October 2016
Alibaba rang the New York Stock Exchange opening bell to celebrate Nov. 11 Singles Day from the Water Cube in Beijing. Photo: Internet
Alibaba rang the New York Stock Exchange opening bell to celebrate Nov. 11 Singles Day from the Water Cube in Beijing. Photo: Internet

Double 11 frenzy: Alibaba’s gain is traditional retailers’ pain

Alibaba rang the New York Stock Exchange opening bell from Beijing to celebrate record sales during the Nov. 11 Singles’ Day online shopping festival.

Meanwhile, mainland brick and mortar retailers were racking their brains to find a way out of the woods.

Five years ago, department giants like Golden Eagle (03308.HK) and Parkson Retail Group (03368.HK) probably never thought things could change so rapidly and drastically.

With gross sales from Alibaba’s annual event soaring 60 percent to US$14.3 billion from last year, Standard & Poor’s said in a report that the shift from offline to online consumption is a growing threat to retailers that don’t have much online presence.

China’s online spending surged 42 percent in the first nine months of this year, compared with a 14 percent growth for overall retail consumption.

E-shopping is now controlling 12 percent of the retail sales pie, compared with only around 1 percent in 2008.

Alibaba and other online platforms should thank mobile technology for making it so convenient for customers to buy things with a few touches on their devices.

Nearly 70 percent of Alibaba’s Nov. 11 businesses were done through smartphones.

The rating agency expects online competition will continue to squeeze the margins of traditional retailers.

Last year, Golden Eagle suffered its first profit dip in years.

Parkson is in a much bigger hole: its earnings began a descending trend in 2011. It has just warned investors it will report another loss for the last quarter, after sinking into the red in the first half.

Golden Eagle’s market value is now only about half of its peak, while Parkson is trading at about 10 percent of its highest level.

E-commerce certainly creates lots of value for China, but it is also destroying value along the way.

Traditional retailers employ a lot of people, and their demise could have far more negative implications than just lost profit and sliding market share.

For offline players, their choices appear to be limited.

If you can’t beat them, join them. Intime Retail sold a stake to Alibaba last year. Some retailers have already established or may soon build their own online presence, while others may team up with an online partner.

But Alibaba is controlling the bulk of the market with a dominating position that is hard to shake.

The outlook for big traditional retailers is bleak, while small and medium-sized vendors selling on Alibaba’s platforms are not necessarily raking in good money.

Some are complaining about rising costs and tougher terms for selling through Taobao and Tmall.

When the whole world wants to join Alibaba’s super online bazaar, Jack Ma won’t be shy to ask for more.

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EJ Insight writer

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