December 3, 2012, 12:51 PM

China’s e-commerce giant reaches a milestone ahead of schedule

Alibaba says marketplace sales this year already total 1 trillion yuan, or $161 billion.

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Highlighting the explosive growth of online shopping in China, e-commerce leader Alibaba Group says its online marketplaces in China exceeded 1 trillion yuan in sales in the first 11 months of the year, nearly $161 billion. To put that number into perspective, U.S. consumers bought $194 billion online in 2011, according to the U.S. Department of Commerce.

Alibaba Group chairman and CEO Jack Ma announced the sales mark Saturday while speaking at a panel discussion in Hangzhou, Alibaba’s headquarters city, according to Alibaba’s official Alizila blog. He says surpassing the 1 trillion yuan mark makes Alibaba the largest e-commerce company in the world, overtaking such U.S. heavyweights as Amazon.com Inc., No 1 in the Internet Retailer Top 500 Guide and eBay Inc., which is not ranked in the Top 500 because it’s a marketplace and does not sell on its own behalf.

"It's very likely that next year, our transaction volume will be bigger than all the American e-commerce companies combined," Ma added.

Ma had projected in September that Alibaba’s two big online retail marketplaces—Taobao and Tmall—would sell more than 1 trillion yuan worth of goods in 2012. He said this weekend the company hit that mark in just eleven months because of unexpectedly high sales in China’s smaller cities and the success of the big “singles day” sales on Nov. 11, a day that’s become China’s equivalent of Cyber Monday in the U.S., with many online retailers promoting big sales.

Ma noted that sales to consumers in China’s third- and fourth-tier cities have increased 60% this year, while sales in larger cities are up 40%. The Alizila blog also noted that Taobao and Tmall generated shipments of 12 million packages a day on average during the first half of 2012, up 50% from 8 million per day in 2011.

Alibaba executives have predicted that its gross merchandise sales will exceed 3 trillion yuan ($482 billion) within five years, putting Alibaba in a position to challenge Wal-Mart Stores Inc. as the world’s largest retailer of any kind. Wal-Mart’s net sales in fiscal 2011 were $419 billion.

However, some Western competitors challenge Alibaba’s figures, particularly for Taobao, an online marketplace where 6.6 million merchants sell. They say that since many Chinese consumers pay for online orders on delivery, and because Taobao does not charge merchants transaction fees (it earns revenue through marketing, payment and other services), Alibaba would not know if shoppers decline to pay for orders they place on Taobao.

However, Alibaba says it only counts sales transacted through Alipay—its online payment system that's similar to PayPal—and thus can say for certain that these sales have been completed. 700 million Chinese consumers have accounts with Alipay, which accounts for most transaction volume on Taobao, Alibaba says. With Alibaba likely to go public in the next few years, sources close to the company say it would be unlikely to release inflated figures now that it would have to retract when it files documents with regulators like the U.S. Securities and Exchange Commission.

Alibaba has not disclosed the breakdown of sales between Taobao and Tmall, but investment firm Macquarie Equities Research estimates that Taobao accounts for 80% of Alibaba’s retail sales and Tmall 20%. Alibaba launched Tmall in 2008 as an online marketplace for major brands, which pay to sell on Tmall.com and avoid the wide-open bazaar of Taobao, which is similar to eBay in its early days. Many Western brands sell on Tmall, including Levi’s, Reebok, Guess, Samsonite, Dior and Calvin Klein.

Alibaba’s marketplaces dominate online shopping in China, accounting for as much as 80% of online retail sales, by some estimates. But many Chinese and Western e-retailers are entering the fray, seeking to grab a share of the rapidly growing market; China’s Ministry of Commerce estimates online retail sales grew 53.7% last year to $124.2 billion.

The youth of online shoppers in China suggests that rapid growth may continue. “For many young Chinese online shopping has become one of their main ways to shop in their daily lives,” Macquarie Research noted in a report last month. The Alizila blog says 75% of Taobao shoppers are 35 or under, with 16% under 24, 36% 25-30 and 23% 31-35.

Alibaba Group is best known to U.S. online retailers as the operator of Alibaba.com, a site that lets e-retailers from around the world source products from Chinese factories.

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