Author: Andy McDonald, Vice President Merchant Payments - Europe, ACI Worldwide
Alibaba reported USD $14.3bn in online sales on 11.11 (China Singles Day) in 2015, a 60% increase on the same day in 2014. In fact, 2014’s total of USD $9.3bn was eclipsed within the first 14 hours of trading, so Alibaba beat its previous personal best without so much as breaking a sweat.
The figures for 11.11 are mind-boggling, especially when you consider that the biggest ever day for online sales outside of China Singles Day was last year’s Cyber Monday in the US, which netted retailers slightly north of USD $2bn in sales.
Nearly 10% of the total sales on 11.11 were in the first eight minutes, equivalent to approximately 1% of the time. Although it is estimated that around 120,000 orders were placed every minute throughout the day, the significant spike in sales in the first minutes, and to a lesser extent the first hour, highlights how important it can be for merchants to have scalable and reliable payment processing infrastructure. Merchants rely on their payment providers to support them with infrastructure that can handle such peaks in traffic, and have the highest possible availability.
With platform availability measured in thousandths of a percentage point, resilience is a clear priority for infrastructure providers. These fractions are all important when you consider that if a system goes down – or even has reduced availability – during the opening salvo of a major eCommerce event, it could mean hundreds or thousands of lost transactions.
Now if China Singles Day went truly global – and it’s not unthinkable – it would certainly force many payment providers to look at their infrastructure, and carefully consider whether they have the scalability, redundancy and disaster recovery systems in place to meet the demands of their merchants.
This is up from 43% in 2014. Alibaba’s earnings in 2015 provided an indication of just how much mobile was growing, but the figure of 71% is nonetheless impressive. In Q2 2015 Alibaba reached a significant milestone, reporting that 51% of their revenue came from mobile devices, and this grew to 61% in Q3 2015. It will be interesting to see what share mobile accounts for in 2016, with less headroom for growth.
Alibaba’s Tmall and competitors such as JD.com have led the way in developing mobile platforms that deliver a superior shopper experience, but a “mobile first” strategy is becoming a must for all online retailers. Of course, China (along with other important Asian markets such as South Korea and Japan) are the pacesetters in this shift towards mobile, but the trend is clear globally too, with the 50% “tipping point” now surpassed or fast approaching in many markets.
Merchants – especially those operating cross-border – need to tailor their customer experience (including checkout design) accordingly, as well as having a mobile optimised strategy for things like fraud prevention. They also need to support an ever-growing range of mobile wallet solutions (and alternative payment methods), which have emerged alongside rising smartphone penetration.
It is no wonder that merchants are increasingly looking at cross-border eCommerce (in particular high growth markets such as China) as a prime opportunity to grow their business faster and secure new revenue streams. After all, all that growth represents new business for someone. However, the regulatory and compliance issues associated with selling in China make it virtually impossible to go it alone. The complexities of cross-border trade demand flexible partnerships, and the acknowledgment that local experts know their market best.
While the figures associated with 11.11 are likely to make many UK and US merchants envious of their Chinese counterparts, China Singles Day also has its critics. In fact, despite the 60% year-on-year growth, Alibaba’s shares took a 7% hit in the days following 11 November. Why the scepticism? Well, for starters the USD $14.3bn in sales was achieved through deep discounts, so merchants may have moved a lot of stock at the expense of healthy margins. Take into account that the rate of returns tends to be significantly higher (China Industry Research Network claimed up to 25% back in 2013) and merchants also have increased shipping and logistics costs to absorb. Plus, many have speculated that price-conscious consumers delay their purchases, so 11 November is partially a release of this pent-up demand.
With this in mind, perhaps merchants have a reason not to try and emulate and embrace the China Singles Day model. A trend in recent years on both sides of the Atlantic has been a ‘soft start’ to the holiday shopping season to spread out spending, so retailers avoid the peaks, but also the troughs.
The sheer scale of China Singles Day is impressive, and as mentioned it highlights some interesting trends in payments and online commerce, but maybe the future of sustainable retail is not these date-specific events. The consumer ability to shop for anything, any time, from any device will win out.