The Great 618

China’s June shopping bonanza proved an important trend

As we wrote in Recovery Lessons from China, consumer confidence in China remains low after the end of the lockdown. Retail sales fell 7.5% year-on-year in April 2020, and 2.8% in May, which was an improvement but still far from the growth seen for decades until the end of 2019.

This doesn’t come as a surprise. The Chinese economy received a shock from the lockdown in the first quarter of the year, and this is coupled with a significantly reduced economic activity in most of the world in April to June. Chinese exports contracted 3.3% in May. However, China’s economy is strong, and the June forecasts from the World Bank and the International Monetary Fund still project much faster recovery in China than in any other major economy. In fact, both organizations expect the country’s GDP to grow 1% in 2020.

Within this overall gloomy picture there’s a clear trend of shopping shifting online. During the lockdown, Alibaba and JD.com recorded a surge in new customers and significant interest in buying certain groups of products online, particularly groceries and other essential goods. There were questions about whether this would be a short-lived influx of online demand during the stay-at-home period or a sustainable trend. Chinese online retailers claimed it was the latter. The 618 Shopping Festival, known simply as 618, seems to have proven them right.

During the event, China’s two biggest e-commerce giants, Alibaba and JD.com, raked in more than $130 billion through their platforms — eight times more than the combined sales of $16.2 billion realized in the US on Black Friday and Cyber Monday in 2019.

There are two major annual online shopping events held in China: the better-known 11.11 Global Shopping Festival started by Alibaba, and the 618 event created by JD.com and inspired by Alibaba’s move. The latter has grown from a one-day event to a three-week festival, starting in late March and nudging customers with promotions until around 18 June (hence the event’s name). Big rivals benefit from both retail events, which have now become an annual ritual for most Chinese e-commerce companies and their offline partners.

This year, 618 was a bit different. The Chinese government and local authorities created numerous initiatives to kick-start consumer spending in the wake of the Covid-19 pandemic. People were given vouchers, brands were offered help, and shopping events were heavily promoted by towns and cities. Livestreaming was the main tool for platforms to sell their products, as the coupling of livestreaming and e-commerce has become synonymous with online sales in China. In 2019, Alibaba’s Taobao Live platform championed the use of influencers, and this year players including JD.com and Pinduoduo followed suit.

During the 18-day event, transactions across JD.com’s online platforms hauled in $38 billion, up 34% from 2019. Imported goods remained popular among the company’s customers, with some of the favourite brands being Apple, Panasonic, Philips and Sony. Not to be left behind, Alibaba reportedly saw transaction volumes of $99 billion — that’s almost three times the size of Alibaba’s 2019 Global Shopping Festival, and equivalent to the annual GDP of Cuba, the 62nd biggest country by GDP in the world, according to the World Bank. In the first 10 hours of the event, Alibaba’s transaction volume was 50% higher than in the same period of 2019.

In the first quarter of 2020, China’s economy contracted for the first time in nearly three decades. Although things are improving now, consumer appetite for buying goods has changed as the pandemic has kept people away from stores and shifted a big proportion of retail activity online, propping up online purchases. Consumer technology brands must pay much more attention to the online channel in the future.