China’s domestic e-commerce industry is beginning to slow down. The Double-11 festival—the country’s biggest annual e-commerce extravaganza, which takes place on November 11—came and went quietly in 2022.
Subsequently, neither Alibaba nor JD.com, nor any other e-commerce platforms, announced their gross merchandise value (GMV) performance figures for the event, something they’ve done in past years.
Notably, Alibaba swapped in GMV data that belonged to its subsidiary AliExpress, which showed more promising growth in cross-border exports. According to the company’s financial report for the last quarter, AliExpress’s global business revenue increased by 4% year-over-year, with its international retail business growing by 3% and its international wholesale segment up by 6%.
By contrast, the GMV (excluding unpaid orders) of its other subsidiaries Taobao and Tmall showed a year-on-year decline in domestic market demand.
A renewed focus on consumer retention in the domestic market
The absence of clear figures for the Double-11 GMV signals a lack of large-scale growth in the domestic industry.
This is in part due to pandemic control measures and other complex circumstances that have arisen in recent years. Senior executives at Alibaba said at the company’s performance meeting that they were optimistic about consumer lifestyles and habits changing for the better once measures are lifted. In the meantime, Alibaba is working on improving its consumer operations and customer retention rates.
The customer retention aspect is particularly important, especially as competition is heating up in the form of social media channels. Platforms like TikTok and Kwai are providing more channels for sellers, while Xiaohongshu has strengthened its advertising in recent years. Some Taobao store owners have even closed their stores and switched to WeChat, making use of its micro-website function to sell their goods through omnichannel retail.
Trudy Dai, president of Alibaba’s Core Domestic E-commerce, said in a previous interview that “the e-commerce industry has moved from the ‘traffic era’ to the ‘retention era,’ which has forced us to adjust our business focus from acquiring new user traffic to retaining current users.”
While Alibaba focuses on retention in the domestic sector, the overseas sector is the only way forward when it comes to expansion and gaining new traffic.
In December 2022, Alibaba launched a new outbound platform in Spain, named Miravia. Operated by Arise Operations E-Commerce Private Co., Ltd, the platform targets consumers with strong purchasing power seeking high-quality products. It provides free delivery for orders over 10 euros and free returns within 30 days, making it an attractive option for new consumers.
At the same time, Alibaba is also looking into expanding its shipping capacity overseas, another top priority for the company.
The growth of AliExpress over the years
The overseas market demand is promising, according to data from AliExpress. The figures showed that within the first four hours of 2022’s Double-11 festival, 30,000 pieces of women’s thermal clothing made in China were sold on AliExpress worldwide. More than 10 times as many car smart boxes, which integrate an infotainment system into the car, were sold on AliExpress compared to last year as well. For some merchants, popular products were sold in the thousands to buyers in Spain, Saudi Arabia, South Korea, Israel, and other countries within the span of just a few days.
But is AliExpress able to support Alibaba’s future? First established in 2010 as a cross-border e-commerce platform for overseas customers, its initial business model was B2B but later shifted to B2C after the AliExpress team found that more than 70% of its customers were individual consumers.
Since its domestic counterpart Taobao was already established by then, it was easy for the technical team to copy products over to AliExpress for the overseas market with a single click.
Without much in the way of regional strategy or operating thresholds, however, AliExpress matured at a slower rate than Taobao. The latter is much more developed, despite having been established later.
However, there is still hope for AliExpress. For one, AliExpress was among the earliest players to enter the overseas sector, giving it the advantage of early access. And second, AliExpress has a large network of Chinese factories and manufacturers.
Challenges faced by AliExpress
Several challenges have slowed the growth of AliExpress. One is the sale of counterfeit goods, which AliExpress fought by cracking down on merchants who did not comply with regulations. These merchants then went over to Singapore-based cross-border e-commerce platform Shopee, which was gaining traction at the time. The loss of these merchants meant relinquishing the early-player advantage for AliExpress.
Another challenge came in the form of new players such as SHEIN, which gained its market share through the single category of fast fashion and began expanding its product range.
The final issue was that Alibaba initially paid more attention to the domestic market, only focusing on its overseas strategy towards the end of 2021 due to the slowing down of domestic consumption and the intensifying competition.
To combat these challenges, Alibaba made the strategic move of putting Jiang Fan, the former president of Taobao and Tmall, in charge of developing the company’s overseas e-commerce segment.
Key moves in Alibaba’s overseas strategy
After being put in charge, Jiang reorganized Alibaba’s overseas businesses.
Alibaba’s international businesses at the time included retail companies such as Southeast Asia-based Lazada, AliExpress, Turkey-based Trendyol, South Asia-based Daraz, and international wholesale businesses such as Alibaba International Station.
As one of his first actions, Jiang unified all the teams related to cross-border business at AliExpress and put them under the management of Zhang Kaifu, the former head of Taobao Operations.
Under Jiang’s guidance, AliExpress also issued new policies for merchants, namely:
- Annual sales assessments for established merchants
- Raising the threshold for new merchants
- Closing entry to individual merchants
- Limits on the number of goods released
These stricter policies are reminiscent of those put in place for Tmall, raising standards for sellers and ensuring higher quality goods. AliExpress then followed up by launching AE Mall, a program to encourage and support businesses that plan to sell overseas.
Finally, Alibaba refocused its efforts on the development of its logistics subsidiary, Cainiao. This move would enable the company to accelerate its overseas sales.
As part of this move, Cainiao announced a three-year development plan for Brazil and opened its Latin American headquarters in São Paulo, Brazil, which has also become the distribution center with the highest degree of automation since Cainiao entered the Latin American market. Over the next three years, Cainiao plans to deploy nine distribution centers in Brazil, covering seven key southeastern states.
The company will also deepen its local network operations around local logistics distribution, customs clearance, distribution centers, and smart express lockers. It plans to set up another 1,000 lockers in ten cities in Brazil for parcel and food deliveries.
Aside from Brazil, AliExpress has also recently turned to South Korea. Since 2021, the company has invested KRW 10 billion won (USD 7 million) in the Korean market. The company also sought to improve its delivery service. The Yantai Export Preferred Warehouse was opened on November 9, 2022, as a partnership between Cainiao and AliExpress, enabling orders to arrive with a two-day or sometimes next-day delivery time.
This yielded promising results, as AliExpress ranked first in the list of shopping app downloads in the Korean market during the Double 11 period, surpassing even local platform Coupang.
According to data from Cainiao and AliExpress, the volume of packages sent to South Korea from the Yantai Export Preferred Warehouse has also increased by more than 300% compared to the same period last year. In addition, the volume of shipments during last year’s Double 11 festival was five times that of the average.
The new battle for the overseas market
Even with these moves, AliExpress may need to fight harder than ever to gain traction in the overseas market.
Now that the domestic market is becoming increasingly over-saturated, other players are also looking to gain a foothold overseas. Pinduoduo, Alibaba, JD.com, and ByteDance have all made overseas e-commerce their key business in the next stage. A few months ago, Pinduoduo launched Temu, its cross-border business and first station aimed at the North American market, with a target customer base similar to SHEIN. ByteDance is also comprehensively exploring overseas e-commerce, with a focus on TikTok livestream e-commerce.
The world is gradually reopening its borders—and the gates to a stronger overseas market. As the competition grows fiercer, Alibaba will need to do more to ensure it stays ahead of the pack.
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This article was adapted based on a feature originally written by Node Finance and published on Node Finance (WeChat ID: jiedian2018). 36Kr Global is authorized to translate, adapt, and publish its contents.