The big picture from Alibaba’s full-year 2019 results is not around earnings per share (EPS) or revenue or even declining profits, but a clear indication that China’s ecommerce giant sees its future very much as an international operator. While it remains focused on cementing leadership at home, where it faces immediate challenges from rivals, activating overseas expansion is still very much on the long-term agenda.
This is not the first time Kantar has flagged Alibaba’s ambitions in this direction. Previously, we have detailed its aims to become a leading player in global B2B and the most recent results indicate the continued drift towards internationalization. Note, for example, the subtle shift in how Alibaba now expresses user metrics.
For the first time, it totalled user numbers for the ‘Alibaba Digital Economy’ in global terms as opposed to exclusively Chinese. For the record, those numbers are 960 million annual active consumers, with 180 million of those outside China. International commerce businesses represented 7% of total revenue in fiscal 2020.
The past quarter has seen contrasting styles from China’s digital players. JD.com emerged from the COVID crisis with its reputation enhanced and has been in bullish mood as the situation begins to normalize. Alibaba, however, has maintained a low profile of late, very much focused on charitable deeds across multiple geographies.
The view beyond China
In doing so, it has been able to simultaneously extend and stress-test its worldwide logistics operations led by its Cainiao division. The crisis has enabled Alibaba to leverage its data-powered shipping algorithms to move vast amounts of goods across vast distances, either by rail or air. While no one should impugn the altruism of the many aid missions to Europe, Africa and elsewhere in recent months, no one should deny such ventures were also invaluable experience for a company intent on building at global scale. Cainiao revenue was up 28% to CNY5.0 billion (USD699 million) for Q4, driven by an increase in fulfilled order volumes from fast growing cross-border and international commerce retail businesses.
International growth saw a healthy contribution from the Alibaba.com B2B business as companies worldwide turned to the platform for supply and sourcing needs. US business transactions were up over 100% on the year with a 76% increase in active buyers. Much of this demand was for medical goods, especially PPE, but other categories from toys to activewear to outdoor furniture also saw impressive growth across multiple geographies, according to Alibaba.com North America & Europe president John Caplan, cited by Marketwatch.
The pandemic hit B2C platform AliExpress hard in the final two months of FY2020, having delivered robust user and GMV growth in the first 10 months (although detailed breakdowns were not disclosed). Lazada, the Southeast Asia platform, continued to develop at a good rate, with order volume up 100% YoY, largely due to enthusiastic uptake of new engagement methods like retailtainment and LazLive livestreaming in particular. Of note during the coronavirus quarter is how Lazada has significantly advanced its online grocery in several key markets.
Elsewhere, the Russia operation is ideally placed to capitalize on consumers transitioning online during the crisis while in below-the-radar markets like Pakistan, its Daraz platform is leading in the digitization of commerce with initiatives like fast fulfilment and even telehealth.
Rebuilding demand at home
Domestically, Alibaba’s focus has been on kickstarting consumption and helping partner brands recoup some of the shortfalls incurred during the peak of the pandemic. As might be expected, this will mean intensive and sustained promotional activity. This has already been in evidence with localized festivals in Shanghai and a series of events to coincide with May holidays, but will really hit its stride with the mid-year 618 event, to which 100,000 brands have already signed up, double last year’s numbers. 618 discounts are expected to equal those offered during last year’s Singles Day.
Many of these brands will be entering the Chinese market via cross-border ecommerce (CBEC) platform Tmall Global, which remains one of the company’s big bets going forward. A further 1,000 international brands are scheduled to enter China this year and Alibaba will be well aware that JD.com is aggressively ramping up its own CBEC strategy to exploit the dramatic rise in user numbers revealed in its own recent quarterly numbers. Despite its dominance in the CBEC space, Alibaba knows it must defend its space, especially in key high-margin sectors like luxury fashion.
Kantar’s Point of View:
Alibaba will do some of the heavy lifting for its brands while it looks to drive consumption, but brands themselves will be expected to carry their share. Promotional activity will likely be intense throughout the remainder of 2020, beginning with 618 and continuing through Singles Day in November. There will be some short-term pain, but the long-term gains will be worth it, especially if Chinese consumers emerge from lockdown with renewed curiosity to try something new after subsisting on staples for an extended period.
FMCG brands should consider the emerging opportunities for healthy and good-for-you categories. These already saw an uplift during the outbreak and the effect will last as Chinese consumers become more proactive about health. Look to giving snacking categories wellness appeal or look to how once-niche products like probiotics are now ranking high in shopper interest for guidance on how to position versus competitor brands.
Global growth initiatives will intensify, with B2B as important as B2C, but Alibaba may suffer should the blame game over the COVID-19 pandemic and even state actions in Hong Kong lead to rising anti-China sentiment worldwide. Rhetoric in this regard will escalate in the US in the lead-up to November’s presidential elections. Some hawks in the US administration are even agitating for a ban on American investment in Chinese businesses. Given what may become a toxic climate, expect Alibaba to make Europe, Russia, Africa and regional Asian markets its focus for the near-term.
Expect the global reach for Singles Day 2020 to be wider and more heavily promoted than before. Volumes will likely be impacted by recessionary post-pandemic economic repercussions, meaning value will be foremost in broad swathes of consumers worldwide. Discounting will likely be significant in bring international shoppers to the party, but expect strong logistics support from Alibaba to ensure products reach consumers faster than in previous years.