Analysis: Alibaba’s e-commerce empire threatened by Douyin and Pinduoduo

BEIJING, Dec.9 (Reuters) – For more than a decade, the Alibaba Group (9988.HK) has been the undisputed king of e-commerce in China, but lately its crown has shown signs of falling, disrupted by an influx of aggressive competitors in the sector.

This week, Alibaba announced that it is reorganizing its e-commerce business into two units, one for China and one for overseas.

In China, its two main markets – Tmall for established brands and Taobao which hosts all kinds of traders – process more than $ 1,000 billion in orders per year.

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But Alibaba is experiencing significantly slower growth in customer management (CMR) revenue, with the money from billing merchant services typically making up one-third to one-half of its overall revenue. It only rose 3% in the July-September quarter, compared to 20% growth a year earlier.

Alibaba also lowered its annual revenue forecast last month, while sales or gross value of goods (GMV) for Singles Day, its banner shopping event, increased by just 8 this year, 5% – the smallest increase to date.

These disappointing numbers are due in part to regulatory changes and the pandemic-induced slowdown in economic growth that have made buyers reluctant to splurge.

But they also highlight the onslaught of competition and the fact that some rivals have stolen a walk on Alibaba in the fastest growing areas of Chinese e-commerce.

Traders and analysts cite ByteDance’s Douyin – TikTok’s Chinese sister app and a relative newcomer – as the force to beat in live e-commerce, while Nasdaq-listed Pinduoduo Inc (PDD.O) has took the head of the rural and budgetary sector. e-commerce.

“Other platforms are growing faster than Alibaba, which means they’re eating Alibaba’s lunch,” said Lu Zhenwang, CEO of Shanghai-based Wanqing Consultancy.

Alibaba said in a statement to Reuters that it has always faced intense competition. He added that he offers merchants a powerful live streaming tool in Taobao Live, and his Taobao Deals platform for discount shopping and Taocaicai platform for community group buying are gaining shares in lower level markets.

A DOUYIN OF THE FUTURE

Douyin is targeting an increase in GMV to more than 1,000 billion yuan ($ 155 billion) this year, according to a company source with direct knowledge of the matter. The source was not allowed to speak to the media and declined to be identified.

That’s more than 6 times the 150 billion yuan he was on track to earn last year – a figure given by sources in November 2020.

Douyin declined to comment on his e-commerce activity.

The app, which has over 600 million daily active users, began enabling merchants to open stores on its platform in 2018. This year, the company made it easier to open flagship stores for marks.

Yatsen (YSG.N), the parent company of Chinese cosmetics giant Perfect Diary, plans to invest more in its presence in Douyin. By way of comparison, its sales on Tmall, which represents around 40% of its turnover, are contracting.

“Douyin, right now, is becoming a very important factor for the growth of the brand,” CEO Huang Jinfeng said on an analyst call last month.

Traders are drawn to the time users spend on Douyin – an average of 1,871 minutes in October compared to 350 minutes on Taobao, according to consulting firm Questmobile.

Plus, while Alibaba’s viewer traffic tends to converge on China’s biggest live streaming celebrities – Li Jiaqi, known as Lipstick Brother, and Viya, a former singer – these are just two. people. On the other hand, Douyin can rely on a large pool of live streamers.

Zen Yan, a 42-year-old listener living in Beijing, is an avid buyer of Douyin.

“It’s easy to spend an hour or more surfing Douyin every day after work and there are a lot of influencers selling all kinds of stuff,” she said.

CHEAP AND POWERFUL

At the other end of the e-commerce spectrum is Pinduoduo. It is popular among rural Chinese residents thanks to rock-bottom prices and a group buying model that encourages users to share their purchases on messaging platforms for cheaper prices.

Its GMV jumped 66% to 1.67 trillion yuan in 2020. While a more modest 20% GMV growth is expected in the fourth quarter, according to Goldman Sachs, it would still be much stronger than the recent performance of ‘Ali Baba.

Pinduoduo declined to comment.

Rural e-commerce is more about people than regular e-commerce, and Alibaba is years behind Pinduoduo in building relationships with major local traders and manufacturers, analysts say.

“For those consumers who are already used to Pinduoduo to buy great bargains, it is difficult for them to switch to a new platform. The same goes for factories or local grocery stores who are used to Pinduoduo,” said Daphne Tuijn of the Shanghai-based analysis company Chaoly. .

Alibaba also cannot engage in viral marketing as effectively as Pinduoduo, hampered by its lack of direct access to a messaging platform like Tencent Holdings’ WeChat (0700.HK), she added. .

RIVALS AND REGULATIONS

Alibaba is revamping its e-commerce business – the recently unveiled reorganization follows the launch of Taobao Deals last year and the rebranding of two community markets to Taocaicai in September.

Even so, its challenges are many, and analysts doubt that Alibaba can go back to when it was the fastest growing Chinese e-commerce market.

Douyin and Pinduoduo are just two of at least 10 established competitors. JD.com remains its closest rival while Meituan (3690.HK) and Baidu Inc (9988.HK), respectively food search and delivery giants, expand their e-commerce offerings. At the same time, small startups are targeting niche segments like footwear and makeup.

And while its impact has been difficult to quantify, Alibaba has also been hit by a regulatory crackdown that has forced it to abandon a policy requiring interested traders to settle exclusively on its platforms.

“I don’t think Alibaba can turn the situation around … it can only adopt a defensive strategy,” said Lu of Wanqing Consultancy.

($ 1 = 6.3749 Chinese yuan)

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Reporting by Josh Horwitz, Sophie Yu and Yingzhi Yang; Editing by Brenda Goh and Edwina Gibbs

Our Standards: Thomson Reuters Trust Principles.

Lance B. Holton