The strong competition among China's e-commerce platforms during the nation's first significant shopping festival following the pandemic, which is providing hefty discounts to entice thrifty people, the economy is still struggling to get momentum.
The 618 festival, which runs from late May through June 18 and is called after the day JD.com was founded but is supported by all platforms, is a significant indicator for household consumption desire and is necessary to put China's growth on a more secure basis.
In what analysts see as muted confidence between the platforms and customers, JD.com, Pinduoduo, Tmall and others are pouring billions of yuan this year in incentives and subsidies to maintain gross sales growing.
This is bad news for China's epidemic recovery, that is already faltering. May saw a slower rate of retail sales increase than April, falling short of forecasts.
Data from the Ministry of Commerce show that in 2022, China's sales from online retailers reached 13.8 trillion yuan, about $1.93 trillion. A third of the nation's yearly economic production, 44 trillion in total sales in the previous year, were generated by the larger retail sector, which was also highlighted by official data.
According to CEO of Kungfu Data, who runs online marketplaces for labels including G-Star Raw as well as Moschino, there are numerous significant incentives across platforms to compete for share of the market throughout the event.
March saw the debut of JD.com's 10 billion incentives promotion. However, the business withheld other information, such as the precise amount of subsidies provided during the 618 event, and only claimed that they will take a variety of forms, which includes advertising discounts for retailers.
In order to attract shoppers during 618, a historically big investment will be made, according to group CEO of Taobao Tmall Commerce, Trudy Dai, the Chinese e-commerce division of Alibaba's recently reorganized company. For every two hundred yuan bought on Tmall, customers automatically receive a 30 yuan discount or a 50 yuan refund.
For Pinduoduo, state media said that during the pre-sales period of May 30 to June 3, it distributed coupons worth 5 billion yuan, about $697 million, but it refused the request to make comments.
According to Jason Yu, managing director from Kantar Worldpanel's greater China division, the fact that all major e-commerce players are emphasizing discounts in their messaging really indicates that the customer is more conscious with their spending.
As people hold tight their wallets due to concerns about employment prospects, their future salaries, and the value of their houses, Yu along with other analysts anticipate that skincare and daily needs will outperform other categories of goods in this 618.
Iris Zhang, a 38-year-old employee of an electronics company in Beijing said that in this 618, she bought some Oolong tea for her husband and some cat food and litter, but those are the things she usually buy. She predicted that she would spend the least amount of money compared with other years.
Luxury on sale
According to industry researchers, luxury firms, which often shy away from participating in sales events, are this year joining the price reduction competition to get rid of inventory.
Analytics company Re-Hub said brands such as Burberry and Balenciaga have started their sales with unusually steep discounts rather than escalating them gradually over the course of the festival.
In an effort to maintain its share of the market in China, Apple held its first-ever live shopping event via Tmall for 618 and provided exceptional and transient discounts on a number of products.
JD.com reported its slowest-ever annual increase of 10% in total 618 sales last year. Such statistics are not frequently published on other platforms.
Following Alibaba Group's decision to withhold the sales statistics for the Singles Day festival in November 2022, several market observers claim JD.com may likewise stop disclosing its sales total.
JD.com and other platforms are expected to increase by "single digits" this year, according to Jefferies analysts, while Citi analysts predict sales growth of 2-5% for JD.com, noting hesitant customers and also intensified competition through all the platforms and various brands.
However, the final outcome of a competition for discounts may be negative.
The platforms were only creating problems for themselves. It just drains the vitality of sales over the next couple of months.