November 9, S up po rte d by Ter es a La m Fu n g bus i n es s i n tel li g en c e c en te r H ea d A si a D is tr i buti o n a n d R eta il

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1 November 9, 2014 D EBO RA H W EI N S WI G Ex e c uti ve D ir ec to r- H ea d G l oba l Re tai l R es ear c h a n d I n te lli g en c e Fu n g Bus i n es s I n tel li g en c e C en tr e d ebo ra h we in s w f un g c om N e w y or k : S up po rte d by Ter es a La m Fu n g bus i n es s i n tel li g en c e c en te r H ea d A si a D is tr i buti o n a n d R eta il un g FBIC publication: singles global? ter esglobal a la m@f c om day H ongoing g k on g : November 9,

2 SINGLES DAY GOING GLOBAL? This November 11, Alibaba is introducing the world to Singles Day; China s version of Cyber Monday a mega online shopping festival. It is the world s biggest retail day in terms of sales volume. Estimates call for $8.2 billion transaction value on Alibaba s e- commerce platforms within the 24 hours of November 11, 2014; 43% YoY growth. This year, Alibaba is transforming Singles Day into a worldwide event. We expect a better reception in Brazil and Russia, where we have seen headlines anticipating Singles Day! In the US, we expect awareness to continue to build this year. Moreover, as American retailers grasp the opportunity to sell into China on this shopping holiday through cross- border e- commerce or even as the holiday builds in the US (always fun to celebrate one more holiday!), the sales volume could start to build over time. Our analysis reveals a number of US apparel brands and retailers are preparing for the demand of Singles Day. Figure 1: Alibaba s Singles Day sales vs. U.S. Cyber Monday sales (USD billions) 8.2 Alibaba's Singles' Day Sales U.S. Cyber Monday Sales e Source: Bloomberg Industries, comscore, Adobe WHAT IS SINGLES DAY? Singles Day started in China as a university sub- cultural event with young singles celebrating their singleness informally and playfully on November 11, choosing the day because it is the eleventh day of the eleventh month, Singles Day soon spread among the youth population. Although November 11 is not an official holiday, young singles would organize gatherings in the evening to have fun and meet new friends. 1

3 In 2009, China s e- commerce giant Alibaba rebranded Singles Day as an online shopping festival (also known as the Double 11 Festival ). Alibaba encouraged retailers on its online e- commerce platform Taobao and Tmall to join the event and promote online shopping by offering consumers discounts of at least 50%, thereby making a historically slow retail season exciting. Singles are encouraged to celebrate their singleness with retail therapy. But of course, Singles Day isn t just about self- gifting or selving. This shopping extravaganza has evolved far beyond its origins to become, in less than five years, the largest online shopping festival in the world. In the transformation, other Chinese e- commerce players, such as JD.com, Suning.com and Dangdang.com, have joined the discount frenzy to benefit from the heightened demand of Singles Day. American companies are also beginning to eye the lucrative Singles Day market in China. This year, Amazon is offering free global shipping on Singles Day through Amazon China. Chinese consumers can shop on Amazon s US, German, Spanish, French and Italian stores and have their order shipped directly to China without an extra charge. CHINA S ONLINE MARKET IS THE WORLD S LARGEST In 2013, China s ecommerce grew 39.4% YoY to reach 1.84 trillion yuan ($301 billion), and accounted for 7.9% of China s total retail sales. By 2017, total online sales are expected to more than double to 4.45 trillion yuan ($727 billion), or 12.4% of total retail sales. Alibaba touches an estimated 80% of ecommerce transactions in China. 2

4 Figure 2. Transaction Value of Online Shopping in China, (estimates) 75.3% 70.2% 68.3% % % 28.9% 21.5% 17.4% e 2015e 2016e 2017e Source: IResearch, March 2014 Transacfon value (RMB) YoY growth ALIBABA S SINGLES DAY SALES IN PERSPECTIVE Alibaba s Singles Day online shopping festival has become a phenomenal success. When it first started in 2009, e- commerce sales on Singles Day paled in comparison to US Cyber Monday sales (Figure 1). By 2013, Singles Day sales reached $5.75 billion, more than double total Cyber Monday sales in the US that year. During the 24 hours of Singles Day 2013, Alibaba s e- commerce platforms received 402 million unique visitors, almost a third of China s total population, and the transactions generated 152 million deliveries. While Alibaba isn t the only e- commerce company offering Singles Day promotions, its Singles Day volume significantly exceeds the competition. In 2013, China s second largest B2C e- commerce platform, JD.com, was a distant second to Alibaba, generating $1.6 billion over its 12- day Singles Day promotion period. No surprise that Singles Day has been dubbed Alibaba s most Exciting Day. WHY IS SINGLES DAY SO BIG AND WHY IS ALIBABA SO GOOD AT IT? Singles Day arrives just when consumers begin to buy their fall and winter wardrobes and Alibaba s Tmall and Taobao merchandising strength is in various apparel categories. Perhaps just as important is the lack of any major Chinese holidays between National Day (October 1) and the Chinese New Year (lunar calendar) in January/February (in 2015 Chinese New Year falls on February 19. People need an excuse to shop, and the great merchandising, unique merchandise, discounts, and promotions of Singles Day provide just that excuse. With increased price transparency due to the internet, consumers are willing to postpone purchases for months in anticipation of Singles Day discounts. And, with consumers utilizing social media to discuss all of their shopping, we believe that the conversation around price takes center stage in many purchasing decisions these days. Additionally, products sold on e- commerce platforms generally are significantly cheaper than their counterparts sold in physical stores, even before Singles Day discounts up to 50% off ecommerce prices are simply irresistible. 3

5 The convenience of online shopping is another key factor supporting Singles Day success, especially as brick- and- mortar retailing is less developed in China. In general, Chinese consumers enjoy shopping online more than many of their international peers. Idiosyncrasies of Chinese shopping behavior According to research firm Millward Brown s survey results, 68% of Chinese respondents said they were happy or overjoyed with their shopping experiences, compared with only 48% of American respondents and 41% of British respondents who said they felt the same way. A survey of more than 15,000 global online shoppers recently released by PricewaterhouseCoopers found that 75% of Chinese shop online weekly, compared with a global average of 21%. In a recent report released by Oracle, 82% of Chinese consumers surveyed said product availability is more of a priority than price, and nearly 100% said it was important that retailers adopt new technologies to improve their shopping experiences. Alibaba promotes Singles Day aggressively both online and offline, and frequently employs unconventional marketing strategies. For instance, when x- footballer David Beckham visited Alibaba headquarters in Hangzhou (November 6), Alibaba s chairman Jack Ma shared photos of the two of them on social media. The press soon picked up the viral posts with headlines referring to Singles Day, even though Beckham was merely there for a launch of one Tmall store. Alibaba s maturing ecosystem, with its expanding logistics partnerships, can support the mammoth transaction volume of Singles Day, while smaller e- commerce operators would find the resources involved prohibitive. In fact, Singles Day can be viewed as an annual stress test of Alibaba s ecosystem and infrastructure. SINGLES DAY 2014: BUY GLOBAL, SELL GLOBAL Alibaba s Singles Day 2014 can be seen as its attempt to become truly global, as witnessed by the buy global, sell global strategy taking shape. Buy global : Tmall Global was recently launched as a dedicated site for non- Chinese businesses to sell products directly to Chinese online shoppers. Sellers from seven countries, including the US, U.K. and Germany, will offer discounts to the Chinese consumers on Singles Day. Sellers on Tmall Global can ship products into China via bonded warehouses in free- trade zones in three Chinese cities Hangzhou, Ningbo and Guangzhou. This allows Tmall Global shoppers to benefit from lower tax rates and lower custom tariff rates. Among the brands using this channel are Blue Nile (US), King Power (Thailand) and Nissen (Japan). Sell global : Shoppers outside China can enjoy the benefits of the 24- hour festival, and to date 200 overseas vendors from more than 20 countries have joined. 4

6 Merchants on AliExpress (Alibaba s B2C e- commerce platform that connects Chinese sellers with shoppers from all over the world) will offer 50% discounts on some one million product listings. Free international shipping will be available on selected items to AliExpress shoppers in Brazil, Russia, Spain and other strategic markets. Tabao Marketplace is offering discounted shipping rates for 400 items to consumers in Hong Kong, Malaysia and Taiwan, and is running marketing campaigns in these regions. REGULATORY RISKS Worried that customers may have been taken advantage of and misled on offers of sales that weren t in fact actual deals, China s State Administration for Industry and Commerce (SAIC) has a warning in place this Singles Day. Specifically, the following complaints have been noted: Artificially raising prices and then lowering them to convey a very good deal. Claiming to be out of stock to avoid selling too many cost low- priced items. Changing orders or canceling sales, to avoid selling too many items at the discounted price. Advertising with statements such as the lowest price on the web or lowest price ever, which are illegal. The possibility of more regulations concerning advertising claims poses a regulatory risk to the growth of Singles Day sales. WILL THIS BE THE NEXT BIG US HOLIDAY? To date, we haven t seen significant Singles Day marketing in the US, but the much- publicized Alibaba IPO definitely raised public awareness of the company. According to James Tompkins of Tompkins International, the IPO more than tripled Alibaba brand awareness in the US from 12% to 37%, and the tidal waves will come, in the form of US consumer purchases on Alibaba platforms in a 1-3 year time span. We do not expect AliExpress in the US to be as successful as Tmall in China because US e- commerce generally is brand and retailer- driven, whereas e- commerce in China is platform- driven. The lower margin Alibaba is willing to transact at will win customers (we believe Alibaba is willing to work on a 5% margin). IN CONCLUSION The bulk of Singles Day sales will occur in China, but Alibaba and others are attempting to bring the event global. Although sales outside China will start small, these efforts will increase brand awareness and potentially provide future growth opportunities. Alibaba enjoys brand recognition and growing demand in Brazil and Russia, and we believe Alibaba s international e- commerce sales are larger in these regions than in the US. We expect Singles Day will resonate with Brazilians and Russians before it captures the American mind. While Alibaba s Singles Day may not be successful with US consumers this year, we think Singles Day presents a huge opportunity for US retailers to sell into China through cross- border e- commerce channels. For the top 10 key trends in China s e- commerce sector that the Fung Business Intelligence Centre has identified, as well as their implications for retailers hoping to gain a foothold in this vast and growing market, please refer to our Asia Distribution and Retail team s report China s E- commerce Sector - Online Retailing in Transition. 5