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Despite a weaker economy, Chinese consumers do not cut online costs. It could indicate a strong second half of the year for e-commerce companies in the world's second largest economy, an analyst says.
The background. The annual 618 Shopping Festival of
JD.com
(ticker: JD) did not finish long ago. The event, which runs from June 1 to June 18, is one of China's largest online shopping sprees, similar to Alibaba's Singles Day sales in November. Transactions at JD.com during the 18-day festival showed a record of DKK 29.2 billion. Dollars, an increase of 27% from the previous year.
Reamers
Alibaba
(BABA) and
Pinduoduo
(PDD) had their own campaigns and sales events around the same time. According to JPMorgan the gross product volume of Alibaba's Tmall estimates 38.5% year-round, while Pinduoduo experienced a growth of 300%.
What's new. KeyBanc Capital Markets analyst Hans Chung gave Chinese e-commerce another affirmative vote in a Tuesday note. Although online sales have been softer than expected since the June events, Chung believes it can be attributed to the season rather than the weakening of the foundation. He expects solid growth in the second half of the year for most e-commerce companies in China.
Moves forward. There are two main drivers for e-commerce to see. One is consumers' increasing purchasing power in low-lying Chinese cities, which are not fully integrated, because e-commerce companies have focused on larger markets such as Beijing and Shanghai. Half of Alibaba's latest Tmall customers were in smaller cities. And its flash sales channel, Juhuasuan, targeting lower levels and budget-pervasive customers, added more than 300 million customers.
Ad campaign channels, such as live streaming and short videos of popular online characters, have been another important trend in e-commerce. "We believe that content-based e-commerce has been a growth driver for the sector … driving more impulsive buying and presenting higher conversion rates," Chung wrote.
At Taobao, for example, of every 5 customers who click to view a product's landing page through live streaming, 1 ends a conversion rate of 20%. For users coming to a product page via short video platforms, the rate is mid-to-high single digits. Taobao's more traditional traffic channels such as online search, see a typical conversion rate in the middle of a single digit.
Write to Evie Liu at evie.liu@barrons.com
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