Chinese e-commerce giants face delicate balance between discounts, profit

1 month ago 255

QUARTYLY earnings reports from Chinese e-commerce giants Alibaba and JD.com this week will be closely watched as barometers for the mood of consumers in the world’s second-largest economy.

Both firms, which combined account for about 69 per cent of China’s e-commerce market revenue, according to DBS estimates, have faced increasing competition in recent years from low-cost platforms, such as PDD Holding’s Pinduoduo and ByteDance-owned Douyin.

Chinese consumers are seeking discounts and lower-cost shopping because of their cautious attitude toward spending after the Covid-19 pandemic amid lower economic growth and the slowdown in the property sector. Alibaba and JD.com have responded to this trend but they risk lower margins by doing so.

This low-cost battleground presents a challenge for Alibaba’s Tmall and JD.com.

Both have traditionally sought to move up the consumer value chain by selling increasingly premium products, such as Apple iPhones, Estee Lauder skincare and Tiffany & Co jewellery, but are now forced to defend that space while also offering a wider array of cheap products to stem market share leakage.

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

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

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

Read Entire Article