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Chinese E-commerce Giants Struggle With A Delicate Balance Between Discounts And Profit

This week’s quarterly earnings reports from Chinese e-commerce giants and Alibaba will be used to evaluate consumer sentiment in the second-largest economy in the world.

TakeAway Points:

  • The opinions of consumers in the second-biggest economy in the world will be determined this week by the quarterly results of Chinese e-commerce giants and Alibaba.
  • According to the report, Chinese consumers are looking for deals and more affordable shopping due to their cautious spending habits following the COVID-19 outbreak. and Alibaba to release Quarterly Earnings Reports

Both companies, which together generate over 69% of China’s e-commerce market sales, have seen a rise in competition from low-cost platforms like PDD Holding’s Pinduoduo and ByteDance-owned Douyin in recent years, according to DBS estimates.

Amidst slower economic development and a slowdown in the real estate industry, Chinese consumers are looking for deals and more affordable shopping due to their cautious spending habits following the COVID-19 outbreak. Although they are taking a risk with reduced margins, Alibaba and have responded to this trend.

Alibaba’s Tmall and face competition in this low-cost arena. Both have historically aimed to advance up the consumer value chain by offering a greater range of low-cost goods in order to stop market share leakage. Examples of such products include Tiffany & Co. jewellery, Apple iPhones, and Estee Lauder skincare.

“As long as consumers remain highly cost-conscious such policies are likely to further slow revenue growth and erode profit margins,” said Cathy Lai, S&P Global analyst, adding that both Alibaba and are moving more into the unbranded goods territory that has been Pinduoduo’s stronghold.

“Alibaba cannot ignore PDD, nor can it quell the competitive threat by wholly adopting PDD’s strategy. is in a similar position,” she said.

Strategic Investment

“Under its user first strategy, Taobao and Tmall Group proactively and aggressively invested in product supply, competitive pricing and quality service to meet all tiers of consumer demands,” Alibaba’s Taobao and Tmall Group said.

Alibaba’s platforms and promised to subsidise discounts and vouchers during regular sales events with billions of yuan last year.

That endeavour yielded inconsistent results. During the quarter spanning from September to December of last year, which coincided with the largest sales event of the year, Singles Day, revenue at Alibaba’s Taobao and Tmall Group grew by just 2% year over year, while saw a 3.6% gain.

Analysts Predict March Quarter Report

According to LSEG data, analysts predict that for the March quarter of this year,’s sales will increase by roughly 6%, while Alibaba’s revenue, which is primarily generated by its domestic e-commerce subsidiary, is expected to climb by 5.3% year over year. That largely corresponds to recent quarter growth trends.

PDD Holdings, on the other hand, saw a 123% increase in revenue in the December quarter. However, it should be noted that PDD’s revenue is mostly generated by its local platform,  Pinduoduo, as well as its rapidly expanding foreign platform,Temu. Research firm eMarketer projected that Douyin, which does not often release sales figures, will expand by 60% by 2023.

The end of May will see the start of weeks-long deals for the huge mid-year event 618, which is named after the date of’s founding on June 18. China’s e-commerce companies are once again going through a significant discounting period.

Increase Engagement on Live-streaming Platform 

According to Jacques Roizen, general director of China consulting at Digital Luxury Group, businesses are spending more on live-streaming on platforms like Douyin and less on platforms like Tmall, which intensifies the competition Alibaba and are currently experiencing.

According to Roizen, the effects of the ongoing reductions will “kill” the earnings of companies like Estee Lauder and L’Oreal, which produce cosmetics and get between 30% and 40% of their revenues in China from online sales.

“At some point, the brands are going to realise that they’re not making any money (on low-priced platforms),” he said.

“But instead of taking the opportunity to counteract as a more premium, elevated, trustworthy platform, (Alibaba) decided to double down on discounts and promotions, guaranteeing the best price and all that stuff. To me, it’s a race to the bottom.”


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