The mad, mad world of China e-commerce

China e-commerce

(CNN) — One hot mess. That’s what you’ll see on the front page of any leading e-commerce site in China.

There’s a maddening array of banner ads, rows upon rows of links, icons touting promotions and discounts. It’s a jarring user interface that seems to bring out the worst in Web design.

And it was designed that way.

“They want this shopping atmosphere,” says Yu Gang, chairman and founder of Yihaodian, one of China’s leading online retailers.

“Our consumers like a page that is very crowded, busy with a lot of links so they can open lots of windows at the same time.”

David Wei, China tech investor and former CEO of e-commerce giant Alibaba, couldn’t agree more: “When I worked for Alibaba, I cleaned the homepage to an international standard. It doesn’t work.”

Ahead of the upcoming Alibaba IPO, I got the full download from China’s e-commerce insiders for CNN’s “On China.”

They tell me that in the mad, mad world of mainland e-commerce, the rules of the road from the West simply don’t apply.

The superlative stats are well known: China has the world’s largest online population with over 591 million Internet users. China is the world’s second-largest online retailing market, clocking in up to $210 billion in sales in 2012. Taobao, Alibaba’s consumer e-commerce engine, boasts sales bigger than eBay and Amazon combined.

The scale of China’s e-commerce market is tantalizing. But it’s also a tough one to crack due in part to inadequate delivery services throughout the country.

“The logistics industry is very fragmented in China, with the likes of UPS and FedEx in China still unable to provide nationwide coverage and quality service,” Yu points out.

As such, many Chinese e-commerce companies including Yihaodian provide their own last mile delivery to reach customers with a network of mopeds and motorcycles.

Another point of distinction is the extremely social nature of their customer base.

“Social media is a big one in China,” says Oliver Rust, senior vice president at Nielsen. “Fifty percent of consumers in China are leveraging social media to learn about new products.”

“Retailers need to engage in this social conversation and interact with China’s tech-savvy consumers who are increasingly open to boosting e-commerce spending.”

And that doesn’t just mean opening a branded Weibo account. Online chatting between customers and merchants is the norm with instant messaging embedded in almost every e-commerce platform.

But don’t let all the friendly shop talk fool you. The business is brutal.

When David Wei was at the helm of Alibaba, he led the offensive to undermine and defeat eBay in China.

“When Taobao fought against eBay, we listed the top ten things eBay was doing in China — and we did it 100% differently,” he tells me.

So while eBay charged for its listing fees, Taobao offered no listing fee at all.

While eBay used an auction model to rank its listings, Taobao used a retail model to rank fresher listings at the top.

And while eBay limited communication between merchants and customers, Taobao created an instant messaging tool to encourage buyer-seller communication.

Ebay eventually shut its main website in China.

“The top ten things, the most important things eBay was doing, their winning elements, their winning recipe in the United States, actually became the poison killing their business in China,” says Wei.

So if you’re a brand manager, investor, or entrepreneur eyeballing the market, observe with an open mind and proceed with caution.

In China, e-commerce is a bloodsport.

November 11 is the craziest day on the Chinese internet

November 11 is the craziest day on the Chinese internet. And that’s saying something.

The date has been known as Single’s Day for some time (due to the 11/11 symbolism), but the recent e-commerce explosion in China has seen the day morph into something new – a blow-out shopfest of bargains and big spending.

How big is it exactly? Last year, Alibaba’s two e-commerce marketplaces, Taobao and Tmall, collectively processed $3 billion in sales in the 24-hours of last November 11. That meant that two Chinese e-commerce stores saw sales worth more than double America’s entire Cyber Monday shopping spree.

$4.9 billion in the bag?

Alibaba executives suggest that this year’s shopapolooza could see $4.9 billion spent on 11/11, which is this coming Monday.

Rival e-commerce sites are not so keen on revealing their data. Contacted by Tech in Asia, Alibaba’s biggest online shopping rival, Jingdong (formerly called 360Buy), declined to reveal numbers. Gloria Li, Jingdong’s senior VP of public relations, did however explain that tens of millions of products will be included in the campaign, with some discounts available from November 1 to 12. She stresses that the sales are a chance to win over customers for life:

What we really want to do – and what is sustainable over the long term – is winning customer trust in areas like guaranteed authentic goods and leveraging the strength of our self-operated delivery service that ensures same day or next day service even when sales volumes shoot up.

Big sales events […] are a chance to get in front of new customers – including some consumers who have not traditionally used e-commerce.

Jingdong is banking on its own warehouse-to-doorstep delivery network to get items to people in good time, avoiding the delays that might hit China’s over-worked and badly stretched third-party delivery companies. Since Alibaba’s e-stores use outsourced logistics, it’s a chance for Jingdong to gain some brownie points with consumers by delivering faster than its arch-rival. Jingdong revealed this month that it now has 100 million registered users.

Keeping up with demand

Whereas Jingdong is an Amazon-like service that buys and ships its own stock from its warehouses, Alibaba’s Taobao and Tmall are virtual storefronts for merchants big and small. Those merchants are gearing up for 11/11 already, expecting hundreds of thousands of hits on their own store page.

Brian Lee, a licensed distributor of Elle branded handbags, has a store on Tmall. He explains:

Normally customers have a lot of questions so they use instant messenger [usually Alibaba’s own Aliwang IM] to ask questions about the quality, size and material of the bags. Usually that’s fine, our call center representatives can handle the normal volume of queries. But on November 11 it’s impossible. We expect 200,000 to 400,000 customers viewing the website at the same time and we only usually have only eight to 10 representatives. For 11/11, we hired temporary staff to boost our call center numbers to 20 to 25 and trained them over the past 30 days to answer queries. We also put up a question and answer section about 11/11 to avoid the situation where there are 400,000 people asking 20 representatives questions.

That single Tmall store expects to have 40,000 orders within 24 hours on Monday. That’s 200 times its normal capacity.

11/11 going beyond China?

The November 11 sales have always been restricted to mainland China, but that looks set to change this year. Alibaba’s Taobao has been slowly and carefully expanding out to the Chinese diaspora in Hong Kong, Taiwan, and Singapore (the site is still only available in Chinese). Taobao executive Daphne Lee says that all the discounts from Taobao or Tmall merchants are of course available to all its users outside of mainland China. Daphne adds:

This is the first year we are launching 11/11 in Southeast Asia. For each of these markets we have a specific 11/11 landing page. We specially looked for [China] merchants who would take orders from Hong Kong, Taiwan and Southeast Asia and advertised them on these landing pages. Out of the 20,000 Tmall.com merchants participating in the event, about 1,000 of them are selling internationally. These are merchants who want to learn to sell into other markets and believe that their items have a competitive advantage. We are pretty confident that the overseas business will do well during this year’s 11/11 because we have spent a lot of effort to educate the different markets and let consumers know how to efficiently shop on Taobao.

We’ll be following the numbers and discounts carefully on November 11 throughout the day, and we’ll even be covering any sales figures released by e-stores in the first few minutes after midnight on that day. Because people really hate missing a bargain. Stay tuned.

E-Commerce China Dangdang (DANG) Is Today’s Dead Cat Bounce Stock

Trade-Ideas LLC identified E-Commerce China Dangdang (DANG) as a “dead cat bounce” (down big yesterday but up big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified E-Commerce China Dangdang as such a stock due to the following factors:

  • DANG has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $17.6 million.
  • DANG has traded 2.7 million shares today.
  • DANG is up 3.1% today.
  • DANG was down 6.6% yesterday.

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More details on DANG:

E-Commerce China Dangdang Inc. operates as a business-to-consumer e-commerce company in the People’s Republic of China. It primarily engages in the sale of books, audio-visual products, periodicals, and electronic publications through its Website, dangdang.com. Currently there are 3 analysts that rate E-Commerce China Dangdang a buy, 2 analysts rate it a sell, and 5 rate it a hold.

The average volume for E-Commerce China Dangdang has been 3.2 million shares per day over the past 30 days. Shares are up 100.7% year to date as of the close of trading on Wednesday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates E-Commerce China Dangdang as a sell. The company’s weaknesses can be seen in multiple areas, such as its disappointing return on equity and poor profit margins.

Highlights from the ratings report include:

  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Internet & Catalog Retail industry and the overall market, E-COMMERCE CH DANGDANG -ADR’s return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for E-COMMERCE CH DANGDANG -ADR is rather low; currently it is at 17.96%. Regardless of DANG’s low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of -4.28% trails the industry average.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Internet & Catalog Retail industry average, but is greater than that of the S&P 500. The net income increased by 45.8% when compared to the same quarter one year prior, rising from -$19.23 million to -$10.42 million.
  • E-COMMERCE CH DANGDANG -ADR has improved earnings per share by 45.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, E-COMMERCE CH DANGDANG -ADR reported poor results of -$0.89 versus -$0.46 in the prior year. This year, the market expects an improvement in earnings (-$0.49 versus -$0.89).
  • DANG has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Despite the fact that DANG’s debt-to-equity ratio is low, the quick ratio, which is currently 0.50, displays a potential problem in covering short-term cash needs.
  • You can view the full E-Commerce China Dangdang Ratings Report.

Online shopping bonanza breaks records

HANGZHOU – More than two billion yuan was spent in the first 70 minutes of a 24-hour shopping bonanza at China’s largest business-to-customer online purchase website on Saturday.

More than 10 million people swarmed to Taobao.com, for its 24-hour 50-percent-off carnival because of “Single’s Day.” November 11 (11/11)represents four single people.

The sale has been initiated by the e-commerce company Alibaba Group with Taobao.com and Tmall.com, based in Hangzhou, capital of eastern Zhejiang province.

As of 11:18 am Sunday, trade volume reached 7.9 billion yuan ($1.265 billion), exceeding the 5.2 billion yuan in the 24 hours on November 11 last year.

Volume reached 10 billion yuan as of 1:38 pm, which was the target for the 24 hours. It was realized 10 hours in advance, according to the company’s statistics.

The sales carnival is also testing the banking system and express delivery systems.

Wu Liying, a bank employee in Hangzhou worked overnight to avoid any collapse of the banking system.

“It’s been too hustle and bustle,” Wu said. “The scale has exceeded the daily volume, which has brought great challenges to our system.”

Payment channels at some banks appeared to falter, just as they did last year on the same day.

Although the Alipay.com, payment platform of Alibaba Group connecting the website to banks, has had a project team in place since August, the online system of China Construction Bank broke down for a while due.

Systems of the Bank of China and Industrial Bank were alerted as being too busy.

According to the China Construction Bank, transaction flow exceeded six times than usual during night hours. The system failed from 1:15 am to 2:00 am in branches in Sichuan province and Beijing.

The event has also triggered a busy day for logistics industries.

“I can only slept two hours at night. Some online shops needed to start deliveries at 3 am,” said Wang Yunda, a courier of Shentong Express in Hangzhou.

Last year, 20 million packages were delivered with some customers having to wait three months for their goods.

Other e-commerce companies, including 360buy.com, suning.com and dangdang.com have joined in marketing on the same day to form a real tide sweeping the whole Internet purchase, said Lu Zhenwang, observer of e-commerce.

Consumer habits have been changing in the country and new online space emerged in the world’s largest market with the largest population, Lu said.

The number of netizens reached 538 million in June while the popularity rate is only 39.3 percent in China, according to the latest statistics of China Internet Network Information Center (CNNIC).

“The rate is 70 percent in western countries, which indicates China’s large potential for online purchasing,” said Jing Linbo, researcher of Chinese Academy of Social Sciences.

Although exports continued to improve in October it was only described as a “slight improvement” by Chen Deming, minister of commerce.

“China’s economy cannot only count on exports, which is still hard to predict, while investment is influenced by policies and macroeconomic environment. Thus, domestic demand carries more expectation to stimulate China’s economy,” Jing said.

“Online purchases shows the potential of China,” he said.

The report of 18th National Congress of the Communist Party of China (CPC) raised a new goal to double people’s income by 2020 from 2010. This requires the Party to not only stimulate domestic demand but also balance supply and demand, said Huang Hao, associate professor of Chinese Academy of Social Sciences.

“The online purchase platform shows great consuming capacity, which offers a channel to balance supply and demand as some commodities were transferred from traditional sellers,” Huang said.

Some companies transferred their storage from downtown department stores to e-commerce depots right before Single’s Day, which created a new way to decrease the storage of traditional retailers, he said.

“The large social collaboration triggered by e-commerce marketing pushes the limits of each one in the chain. More peaks will come to be both tests and chances,” said Zhang Yong, president of Tmall.com.

Ma Yun, board chairman of Alibaba Group, which runs Taobao.com, said that e-commerce is complementary to advanced traditional retailer in the US.

“However, China’s infrastructures and traditional retail industry is not perfect enough, which gives e-commerce a chance to become mainstream to stimulate domestic demand, while logistics and other supporting facilities can improve and match up,” Ma said.

‘Golden Week’ justifies title with rise in tourism revenue

Tourists visit the Tian'anmen Square in Beijing, capital of China, October 1, 2012. China's
Tourists visit the Tian’anmen Square in Beijing, capital of China, October 1, 2012. China’s “Golden Week” holiday justified its title with a rise in tourism revenue, National Tourism Administration (NTA) statistics showed Sunday. The country’s 119 major scenic spots received a total of 34.25 million visitors during the eight-day holiday, up 20.96 percent from the corresponding period last year. Tourism income surged by nearly a quarter from 2011 to 1.77 billion yuan ($278.39 million), the NTA said. Photo: Xinhua

Tourists visit the Jingshan Park in Beijing, capital of China, October 3, 2012. China's
Tourists visit the Jingshan Park in Beijing, capital of China, October 3, 2012. China’s “Golden Week” holiday justified its title with a rise in tourism revenue, National Tourism Administration (NTA) statistics showed Sunday. The country’s 119 major scenic spots received a total of 34.25 million visitors during the eight-day holiday, up 20.96 percent from the corresponding period last year. Tourism income surged by nearly a quarter from 2011 to 1.77 billion yuan ($278.39 million), the NTA said. Photo: Xinhua

Tourists visit the Confucius Temple in Nanjing, capital of East China's Jiangsu Province, October 1, 2012. China's
Tourists visit the Confucius Temple in Nanjing, capital of East China’s Jiangsu Province, October 1, 2012. China’s “Golden Week” holiday justified its title with a rise in tourism revenue, National Tourism Administration (NTA) statistics showed Sunday. The country’s 119 major scenic spots received a total of 34.25 million visitors during the eight-day holiday, up 20.96 percent from the corresponding period last year. Tourism income surged by nearly a quarter from 2011 to 1.77 billion yuan ($278.39 million), the NTA said. Photo: Xinhua

Tourists visit the Bund area in Shanghai, East China, Sept. 30, 2012. China's
Tourists visit the Bund area in Shanghai, East China, Sept. 30, 2012. China’s “Golden Week” holiday justified its title with a rise in tourism revenue, National Tourism Administration (NTA) statistics showed Sunday. The country’s 119 major scenic spots received a total of 34.25 million visitors during the eight-day holiday, up 20.96 percent from the corresponding period last year. Tourism income surged by nearly a quarter from 2011 to 1.77 billion yuan ($278.39 million), the NTA said. Photo: Xinhua

Tourists visit Nanjing Road in Shanghai, East China, October 4, 2012. China's
Tourists visit Nanjing Road in Shanghai, East China, October 4, 2012. China’s “Golden Week” holiday justified its title with a rise in tourism revenue, National Tourism Administration (NTA) statistics showed Sunday. The country’s 119 major scenic spots received a total of 34.25 million visitors during the eight-day holiday, up 20.96 percent from the corresponding period last year. Tourism income surged by nearly a quarter from 2011 to 1.77 billion yuan ($278.39 million), the NTA said. Photo: Xinhua

Tourists visit the Yueyaquan scenic zone in Dunhuang, Northwest China's Gansu Province, October 4, 2012. China's
Tourists visit the Yueyaquan scenic zone in Dunhuang, Northwest China’s Gansu Province, October 4, 2012. China’s “Golden Week” holiday justified its title with a rise in tourism revenue, National Tourism Administration (NTA) statistics showed Sunday. The country’s 119 major scenic spots received a total of 34.25 million visitors during the eight-day holiday, up 20.96 percent from the corresponding period last year. Tourism income surged by nearly a quarter from 2011 to 1.77 billion yuan ($278.39 million), the NTA said. Photo: Xinhua

Tourists visit an ecological scenic spot in Dongying, East China's Shandong Province, October 6, 2012. China's
Tourists visit an ecological scenic spot in Dongying, East China’s Shandong Province, October 6, 2012. China’s “Golden Week” holiday justified its title with a rise in tourism revenue, National Tourism Administration (NTA) statistics showed Sunday. The country’s 119 major scenic spots received a total of 34.25 million visitors during the eight-day holiday, up 20.96 percent from the corresponding period last year. Tourism income surged by nearly a quarter from 2011 to 1.77 billion yuan ($278.39 million), the NTA said. Photo: Xinhua

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