Brian Viard Authors

Who Benefits from Alibaba’s Singles Day?

November 18, 2016

Singles day shopping means a celebration for shoppers and Alibaba, but it may not apply to the sellers

Alibaba just ended its annual Singles Day extravaganza with record-breaking sales of RMB 120.7 billion ($ 17.8 billion). The annual event, held since 2009, occurs on November 11 originally celebrated as “Singles’ Day” – an alternative to Valentine’s Day for single people. This observance is now far overshadowed by shopping with the gross value of merchandise (GMV) far exceeding that on “Black Friday,” the US’ biggest shopping day, on which $ 4.5 billion was sold last year.

Now that it is over this is a good time to reflect on who wins and loses on Singles Day. It is first important to understand what Alibaba does. Alibaba provides two primary platforms for selling merchandise. The first, Taobao, links individual sellers and small merchants with individual buyers. The second, Tmall, hosts large merchants like Apple, Nike, and Gap selling to individual buyers. Use of Taobao is free but Alibaba makes money from vendors advertising their products. On Tmall, Alibaba charges merchants an annual fee and a commission on the value of each transaction.

Given this background let’s think about who wins and loses. Sales are much higher on Singles Day because vendors lower their prices significantly. This lowers the vendors’ per-unit margins but you might argue that they “make it up on volume” —that their sales increase more than enough to make up for this. This is unlikely. Most of the items purchased on Singles Day are durable goods like clothing, shoes, and electronics. For durables, buying now is a good substitute for buying in the near future or for having bought in the near past. Therefore, most of the increased sales on Singles’ Day are probably shifting sales from earlier or later periods. This can be seen in the data from last year. For the quarter ended December 31, 2015, GMV on Alibaba’s marketplaces was RMB 964 billion. On Singles Day last year GMV was RMB 91.2 billion or about 9.5% of that for the entire quarter instead of the 1.1% we would expect if sales were uniform across days.

The cost of Singles Day to vendors is therefore likely to be quite high. Shipping so much merchandise in such a short period of time also places tremendous strains on the distribution infrastructure. These costs are either borne by the distribution companies or passed on to the vendors further eroding their margins.

The flip side of this is that customers benefit from Singles Day. They can buy items at lower prices. Some items they buy only because prices are lower but others they would have purchased in advance of Singles Day or would have waited to buy after (I know many people who maintained a shopping list on their phone in the weeks leading up to Singles Day and then quickly purchased them that day).

What about Alibaba? It is a big beneficiary from Singles Day. Although some of the merchandise sold on Singles Day would have been purchased on other days, the lower prices charged by vendors increases Alibaba’s overall GMV. Alibaba likes low prices on its platform as long as they generate more revenues because this results in more commissions. How is Alibaba able to get away with vendors pricing lower while it makes more money? While there are literally thousands of merchants on Tmall (about 70,000 in 2014) there is only one platform as big as Alibaba. This gives Alibaba tremendous power over the vendors.

In summary, while buyers and Alibaba might consider Singles Day a holiday the vendors are probably not celebrating.

Enjoying what you’re reading?

Sign up to our monthly newsletter to get more China insights delivered to your inbox.

Our Programs

Frontiers in Digital Innovation: AI, Future of Tech & Data Science

Global Unicorn Program Series

This program offers you the opportunity to master AI algorithms and data analytics, navigate future technology landscapes, and embrace cross-cultural perspectives.

LocationColumbia University, USA

DateMay 20-24, 2024

LanguageEnglish

Learn more

Global Unicorn Program: Future Tech

Global Unicorn Program Series

Jointly delivered by ESCP Business School and CKGSB, this program dives into the key pillars of digital transformation.

LocationESCP Campus, Paris

DateMay 22-25, 2024

LanguageEnglish

Learn more

The Biotech Accelerator Unicorn Program

Global Unicorn Program Series

This program equips CEOs and founders in the life sciences and biotechnology industry with the essential knowledge and connections needed to thrive in this rapidly evolving sector.

LocationUniversity of California, San Diego, USA

DateSeptember 9-13, 2024

LanguageEnglish

Learn more

Global Unicorn Program: Scaling for Success in the Age of AI

Global Unicorn Program Series

In collaboration with the Stanford Center for Professional Development (SCPD), this CKGSB program equips entrepreneurs, intrapreneurs and key stakeholders with the tools, insights, and skills necessary to lead a new generation of unicorn companies.

LocationStanford University Campus, California, United States

DateDec 09 - 13, 2024

LanguageEnglish

Learn more

Emerging Tech Management Week: Silicon Valley

This program offers insights into emerging technology developments and the skills required to innovate, grow, and transform your business strategy.

LocationUniversity of California, Berkeley, USA

DateNovember 3-8, 2024

LanguageEnglish

Learn more