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When it comes to e-commerce, China is a global leader. According to a recent study by the Korea Economic Research Institute (KERI), three of the top five e-commerce companies by revenue are Chinese: JD.com, Alibaba, and PDD Holdings, the parent company of discount shopping apps Pinduoduo and Temu. Amazon from the US stands at the top of the list, while South Korea’s Coupang completes the top five. KERI reports that the three Chinese e-commerce giants on the list have achieved an astonishing average annual sales growth of 41.0%.
The current earnings season mostly underlines the global position of the Chinese giants. However, the industry faces some challenges and growth proved moderate.
JD.com’s April-to-June (Q2) quarter earnings saw its retail revenue grow by 1.5% year over year, while Alibaba’s revenue grew 4% year over year.
PDD Holdings just released what analysts call “disappointing” revenue growth for Q2 2024. While revenue jumped 86%, it was short of analyst’s expectations. Q1 revenue came in with an impressive 131% year-over-year growth. In comparison, JD and Alibaba recorded a 7% year-over-year revenue growth that quarter.
However, PDD’s co-CEO Lei Cehn issued a cautious note for the future, implying intense competition: “While encouraged by the solid progress we made in the past few quarters, we see many challenges ahead. […] We are prepared to accept short-term sacrifices and potential decline in profitability.”
Pinduoduo, with its focus on “value-for-money,” emerged as a stark competitor for Alibaba, JD.com, and Co., and a price war has been waging over the past years.
Pinduoduo entered China’s e-commerce market in 2015 and has grown rapidly, snatching away shares from the competition. Last year, its market share surpassed JD.com’s for the first time, and Alibaba’s share has been declining since 2019. According to Goldman Sachs, it hit 37% in 2023, compared to JD’s 18% and Pinduoduo’s 19%.
Since the price war with Pinduoduo became more intense, some companies have started to prioritise growth in gross merchandise volume (GMV) instead.
“[Alibaba’s] mixed June quarter results, at first glance, suggest that the corporate overhaul strategy is working, with clear evidence Taobao/Tmall is stabilising in terms of market share and profitability,” opined analyst Eric Chen, who publishes on Smartkarma.
Next month, Alibaba will start charging a software fee on its platforms, Tmall and Taobao, for confirmed vendor transactions. This move, which follows the footsteps of its competitors, is expected to boost the company’s core revenue.
JD.com, however, is sticking to its low-price strategy. “We continuously enhance our price competitiveness without compromising the quality of our products and services, and we’d rather achieve it through our strengths rather than relying on short-term subsidies that lead to unsustainable price reduction,” JD CEO Sandy Xu said during a recent conference call.
Moving overseas for growth
In recent years, China’s e-commerce giants have also been moving overseas for fast growth. According to HSBC, China’s cross-border B2C (business to consumer) e-commerce could reach $500bn in GMV by the end of 2025.
“Our analysis suggests that the US and Western Europe are the most attractive locations, not just because they are large consumer markets, but also because there is still plenty of scope for e-commerce to grow. Online shopping accounts for 22% of retail spending in the US today, and 16% in Western Europe; compare this with 37% in China. South Korea, ASEAN, and Latin America are also likely to be attractive locations,” the report by HSBC found.
Alibaba has been operating successfully in Europe for over a decade. Temu, PDD’s international app, and Shein, a fast-fashion retailer, have been growing rapidly since they entered the European market. Temu managed to reach Europe’s top five largest online marketplaces in less than two years. And according to a report by Politico, Shein is already outselling big European brands like Zara and H&M.
However, with their aggressive pricing policies, China’s e-commerce companies draw scrutiny in the West. The allegations range from inadequate protection of customer information to products not complying with local legislation.
„While Temu’s and Shein’s rapid rise in Europe has undoubtedly shaken up the e-commerce landscape, the long-term success of their EU market expansion will only become apparent in the years to come,” opines Germany-based insurer HDI Global.
“With their heavy reliance on gamification and inexpensive products, it could be challenging to foster long-term customer loyalty. National authorities will also likely clamp down on some of the more concerning app features, and in the long run, users could be put off by an overuse of blinking pop-ups and countdowns,” HDI adds.
In the US, the picture is similar. Both online retailers have experienced a rapid rise, and authorities are considering whether to raise tariffs on low-cost goods, which could hurt the continued growth of these platforms.
Meanwhile, Temu and Shein have been accusing each other of unlawful practices since last year. Temu sued Shein for copyright infringements, Shein filed several lawsuits against Temu and accused his rival of counterfeiting goods or confusing customers with an ‘illegal’ business model, among other things.
This article was published first on August 21, 2024, and updated on August 27.
