Thread by @JoshuaTai0427

$BABA - China Commerce
This is the first part of my multipart breakdown series on the entire $BABA business. In this thread, the focus is on $BABA's China commerce, Taobao, Tmall, Taobao Deals, 1688, Lingshoutong, Freshippo, and Tmall Supermarket.

Let's get started!👇👇

$BABA China Commerce - Overview
$BABA have platforms for almost every type of shopping in China. Taobao and Tmall are the two main consumer facing ones. Taobao focuses on C2C business whereas Tmall was focuses on B2B business.

$BABA also has Taobao Deals as a discount product platform, 1688 and Lingshoutong as wholesale options as well as Freshippo and Tmall supermarket as $BABA's attempt to transform existing offline retail into 'new retail'.

Taobao Overview
Taobao is the 8th most visited website in 2021. Taobao focuses on C2C retail by providing a platform for individuals, small and medium enterprises (SMEs) to open their own online stores. There are both fixed price sales (majority) and auctions (minority).

History - Taobao beats $EBAY
When Taobao started off in 2003, $EBAY was the biggest player with 79% of market share. However, Taobao was more aligned with Chinese cultured, and therefore experienced exponential growth in market share from 7% to 59%.

On the other hand, $EBAY's China market share dropped from 72% to 36% during the same period. $EBAY later lost more grounds and decided to shut down its Chinese operations in 2006.

Taobao Interface
Taobao has one of the most comprehensive (and messy 😂) interface. Such interface is what most Chinese likes as it is easy to navigate. Many items, such as different marketplaces and services, are all accessible with one click.

Taobao with more than one billion products, has the most comprehensive variety of products out of all Chinese e-commerce players. Taobao has the most products because it is the easiest platform to join with the most amount of SMEs creating their own products and selling on Taobao

Shopping experience
Many Chinese have commented that Taobao is the only e-commerce app that allows you to have a real 'shopping experience'. Taobao's algorithm is the best at giving personalised recommendations out of all Chinese e-commerce apps.

Although other apps such as $JD and $PDD also have personalise recommendations, it is harder to shop on those apps if you do not have a shopping list in mind, whereas for Taobao, people, especially females, regularly browse the app without having a specific shopping list.

Interesting fact: If you regularly uses Taobao and purchase expensive products, when you search for a new product, taobao will automatically recommend more expensive products to you. Whereas if you make smaller purchases, Taobao will recommend cheaper products to you.

Connectivity
Taobao has the most stable connection out of all Chinese e-commerce players, thanks to the support of AliCloud. This is especially important during high volume shopping festivals, when all Chinese E-commerce apps are flooded with millions of people.

Fake products & no quality assurance
The downside of Taobao being a sole platform with a huge selection of product is that there are many fake products on Taobao, despite $BABA's continuous effort to counter fake products.

Furthermore, since there are many SMEs on Taobao, some of these SMEs do not provide products of great quality. Therefore, on top of fake products, quality assurance is also a problem present on Taobao.

In a way, if you shop on Taobao, it is very similar to Taobao's Chinese meaning, digging treasure, and you need to be a 'Smart digger'. You need to be able to identify the good products from the bad ones. Otherwise, shopping on Taobao may result in a bad experience.

Taobao's delivery is also not the greatest, as the sellers (mostly SMEs) can decide the courier that they use. To save costs, most SMEs will choice the courier that is the cheapest, meaning that delivery speed may not be the fastest.

Nonetheless, you would usually still receive your product within a week or sometimes 2~3 days on Taobao. Still relatively fast if you compare with the Western delivery standard!

Taobao Live
Taobao been pushing to hire and partner with big influencers in China to conduct 24/7 interactive live streams where tons of products are sold at a discount. Some of the big influencers, such as Li Jiaqi, has more than 100 thousand people watching daily live stream.

Taobao live seeks to create a new influencer economy, where influencers help sell products and services, thereby adding another interesting dimension to the stereotypical online shopping experience.

Taobao live has experienced high growth in 2020 with 300B GMV, 160% customer growth, 220% merchants growth and 8x live streaming hosts growth.

Taobao - Summary
Taobao has the most variety of products, the best in class shopping experience, great connectivity, great live stream initiatives. On the other hand Taobao suffers from fake products, poor quality assurance and delivery issues.

Tmall
Tmall was first founded in 2008 with the name of Taobao Mall. Tmall faced struggles early, but $BABA's CEO, Daniel Zhang, saw great potential in B2C e-commerce, and created the double 11 shopping festival specifically for Tmall and thereafter set Tmall on steady growth.

Similar to Taobao, Tmall is a platform, but it mainly serves brands' flagship store. A flagship store is a store that is run by the brand itself. For example, a Nike flagship store on Tmall would be run by Uniqlo itself, whereas a Uniqlo store on Taobao is run by others.

Tmall has a stricter requirement for store opening and higher service fees. Therefore, Tmall has less SMEs on the platform and less variety of products. However, at the same time, Tmall provides better quality assurance and less fake products.

Tmall's interface in comparison to Taobao's is cleaner, more high end, and more simplistic. This is because $BABA wants to create a 'premium' reputation for Tmall.

Delivery
Tmall's delivery is generally better than Taobao as it uses $BABA's Cainiao logistics and delivery can be made within 24 hours for specific cities. However, delivery on Tmall is still behind the industry gold standard of $JD.

Tmall flagship store 2.0
Tmall also works with the brands' flagship stores to create flagship store 2.0, which aims to use 3D AR and VR to provide a better shopping experience by combining the benefits of online and offline shopping experiences together.

Tmall flagship store 2.0 also helps brands to develop a stronger member community, increase engagement and conversion, and increase personalised operation efficiency. As of March 2020, 120k of Tmall stores have used Tmall 2.0, and value generated by each visitor is up 15%.

Double 11 Festival
This festival for Tmall is held at 11/11, and it is the biggest shopping festival in China. Double 11 festival gains Tmall great publicity and recognition. In 2020, Tmall has achieved a GMV of 498.2 billion rmb in the double 11 festival (11/1 - 11/11)

$BABA even holds a Double 11 Tmall Concert with many stars and influencers to celebrate the biggest shopping festival with everyone in China together.

Here is the 2020 Tmall Concert if you are interested:

Tmall Summary
Tmall is an upgraded Taobao, with better products, quality but a more expensive price tag. However, since Tmall is a 'platform' just like Taobao, service and customer experience will depend on the flagship stores, albeit generally being better than Taobao.

Taobao Deals
Because of $PDD's great success, $BABA has created Taobao deals in 2020 as an attempt to compete with $PDD. Taobao deals focus on C2M (consumer to manufacturer businesses), by bringing factory products straight to consumers.

Taobao deals targets shoppers from less developed areas, who earns a lower income. Taobao deals similar to $PDD, cuts out the middle man to achieve incredibly low prices.

Below are some screenshots that i have taken in Taobao deals, and some products are really cheap. This is the same with $PDD and $JD's new initiative JingXi.

Taobao deals have experienced significant growth through offering value for money products and gamified shopping experience with C2M orders growing >90% as of Aug 2020. Taobao deals is still relatively small with only 55 million MAU, indicating a huge runway in front of it.

The main complain of Taobao deals usually surrounds with the quality of the products, similar to $PDD. This is understandable because of the ultra cheap price, and it is often hard to get a quality product without paying a reasonable amount.

App store review
Taobao deals have received a 4.9/5 in App store (which is quite surprising in my opinion) with 4.89 million reviews, vs $PDD a 3.4/5 with 1.8 million reviews. This is a great positive sign as it suggest that Taobao deals has a great chance to compete with $PDD.

Taobao Deals - Summary
Taobao deals is almost a complete replica of $PDD, with the main focus on low income earners with cheap goods compensated by a certain degree of quality.

As $BABA did not focus on the lower end of the market,$PDD grabbed the opportunity and grew into an e-commerce giant. Now with $BABA (and $JD), both fully focused on this market, launching their version of $PDD, it will be interesting to see who will ultimately wins out.

My best guess is whoever offers the cheapest goods in a profitable way will win, because the targeted customers of these apps focus on 'price' beyond most other factors. I believe this field is going to remain highly competitive for some years to come.

$BABA - China Wholesale Commerce
Beside the retail side of business, $BABA also have wholesales initiatives such as 1688.com and Lingshoutong.

1688
1688.com is China's leading integrated domestic wholesale marketplace in 2019 by revenue, which focuses on B2B commerce. 1688 acts as a platform that connects manufacturers and wholesale sellers to wholesale buyers in China.

1688 seeks to make wholesale easy via mobile devices. 1688 also seeks to provide integrated services, such as supply chain management, industry specialised services, and personalised services to all large, mid and small retailers.

1688 sells annual subscriptions for sellers to list items on 1688.com. Data analytics and storefront management tools can also be purchased. As of March 2020, 1688.com has approximately 900k pay customers and 41 million active buyers.

Lingshoutong
Lingshoutong is a platform that seeks to provide ordering, logistics, marketing, value added services to mom and pop stores. It aims to help these small retailers to digitalise and upgrade from traditional offline retail.

Lingshoutong helps fast moving consumer goods brands and their distributors to connect directly with smaller retailers in China. It also empower small retailers to reach more offline consumers in a complete omni channel solution.

Lingshoutong is also a retail inventory management platform that helps digitalise the traditional supply chain of small local businesses with a cloud based solution to increase operating efficiency.

Summary - 1688 and Lingshoutong
Although these two $BABA divisions may not be as well known as Taobao and Tmall, it is clear that $BABA does not only want to be a 2C business, but a business that covers every transaction scenario.

$JD is also doing similar things with their B2B efforts. Since i am not an expert in the B2B world, I cannot comment on who's likely to win. Nonetheless, i believe both $BABA and $JD should remain the two most competitive players in this field.

New Retail
In recent years, $BABA has been pounding on the concept of 'new retail', which is a convergence of online and offline retail to provide a more integrated omni shopping experience. Freshippo and Tmall supermarket are $BABA's new retail initiatives.

Freshippo
Freshippo is $BABA's grocery retail chain founded in 2018 that seeks to converge online and offline activities to provide a rich and fun in store shopping experience. Furthermore, every Freshippo store is used as a warehouse to fulfil online orders.

Freshippo has been short listed in the Forbes most innovative companies in China in 2019. Here is a great rundown of Freshippo if you are interested:

30 minute delivery
One of the biggest selling point of Freshippo is that if you are within 3 km of a Freshippo store, they can deliver your groceries to you within 30 minutes. These provides great convenience for workers who are busy without time to do grocery shopping.

There are many live seafood at Freshippo, and there are restaurants within Freshippo that can cook for you in store. Everything in Freshippo has a bar code and you can scan the code to know more detail information about the product.

Freshippo's goal is to earn more online than offline, and currently it has already done so, with 65% of online GMV contribution.

However, Freshippo is not without issues. In 2019, just one year after Freshippo started, Freshippo has closed one of its store, indicating that the some hype around new retail is fading away, and it is not a no brainer success.

Fierce Competition
There are also many competitors in the grocery field, the notable ones being Meituan, Yonghui Superstores. Freshippo is no doubt one of the leading players in new retail, but whether Freshippo can win the market remains to be seen.

Tmall Chaoshi (Mart)
Tmall Mart ('supermarket' in Chinese) is $BABA's attempt to create a new online retail supermarket. Products on Tmall Mart can be delivered within a day in specified cities.

Tmall Mart offers all kinds of groceries, snacks, daily foods, daily consumption, personal care products and cleaning products in its app.

Personally, I do not see anything very special about Tmall Mart, but i believe it is a part of $BABA's strategy to make the new retail experience more comprehensive and build up its arsenal with another app to compete in the grocery space. CONTINUE

Enough with introducing $BABA's China retail businesses, let's now turn to the financials of $BABA China commerce and some risks on these $BABA businesses.

Revenue - China retail
$BABA's China commerce retail has grew at a CAGR of 37.28% from March 2018 to March 2020, from 177 billion to 333 billion RMB. For the six months ended Sep 30 of 2020, revenue has also grown by 30%.

However, if we look into $BABA's retail revenue more closely, Taobao and Tmall only grew its customer management revenue by 21%, and new retail, such as Tmall supermarket and Freshippo grew at 61%, carrying the 30% growth.

Therefore, although such revenue growth is impressive on its face given the size of $BABA, Taobao and Tmall's growth is slowing. As the China e-commerce market slowly matures, 'new retail' will be the main driver of growth for $BABA China retail.

Given that the 21% YoY growth was done in March to Sep 2020, I am a bit surprised that the growth is not higher because that period was when Covid was the most severe in China.

Therefore, I would keep a close eye on this category during $BABA's 2021 annual report to see whether ~20% growth is one off or rather a continuing trend.

On the other hand, the 61% growth with Tmall supermarket and Freshippo is encouraging, as 'new retail' is one of $BABA's focus. Nevertheless, both of these divisions are still relatively small, so high growth would be necessary for them to contribute materially to $BABA's growth.

Revenue - China Wholesale
$BABA's China commerce wholesale has grew by a CAGR of 31.71% from 2018 to 2020 March, from 7.1 to 12.4 billion. For the six months ended Sep 30 of 2020, it has only grew by 13% YoY. Such growth is much smaller and lower than $BABA's retail business.

Revenue Breakdown
$BABA China commerce retail made up 64% of $BABA's total revenue, remaining as $BABA's most important business division. However, it has decreased from 71% to 64% in Sep 2020. This is encouraging as $BABA gradually makes more money off other businesses.

China commerce wholesale only makes up 5% of $BABA's whole revenue. However, it is by no means an 'unimportant' business division, as wholesale commerce makes the whole $BABA offering much more comprehensive.

Since $BABA group both China retail and international retail as one segment, 'core commerce', for its EBITA and EBITA margins, I would cover these margins in later threads after I also covered $BABA's international business, to show a fuller picture.

Gross Merchandise Value GMV
$BABA's Total GMV on China Retail Marketplaces has grew at a CAGR of 20.82% over the past four years and reached a staggering 6589 billion RMB in fiscal 2020, making $BABA by far the largest e-commerce player in China.

High Retention Rate
According to $BABA, it has a 98% retention rate on high spending consumers, and 96% on moderate consumers and 67% on low spending consumers. This illustrates that there is no going back after a person have experience the convenience of e-commerce.

However, i would like to argue that such retention rate may not be as meaningful as it appears, because e-commerce apps are not mutually exclusive, and i bet most people uses multiple apps to find the best deals.

Online Penetration
$BABA has already reached 50% of all Chinese consumers and 90% in developed cities. Therefore, the lower market and especially Taobao deals will be particularly important for $BABA to continue expanding its reach within China.

Annual Active Consumer
$BABA's annual active consumer has only grew at a 10% CAGR rate from 2018 to 2020. This growth rate suggests that the e-commerce market is maturing.

It must definitely be noted that both $PDD and $JD are growing their annual active users (AAU) faster than $BABA, with $PDD recently topping $BABA with the most (AAU).

Customer grows overtime
Since its getting harder to acquire more customers in China for e-commerce, it is more important that the customer grows overtime. $BABA has demonstrated that their customer grows to spend around 10k in 5 years, which is encouraging.

I would argue that this is the most important metrics to look at when evaluating the $BABA China retail business, because customer growth is slowing. If customer do not spend more overtime on $BABA, there would be a hard limit on how much $BABA can make as a platform.

However, if these customers can continue to spend more (which i believe they will because of higher income and more shopping done online), $BABA still have great growth, albeit not as explosive as before, in China e-commerce ahead of itself.

Risks - Competition
The first risks is competition, competition has been getting stronger with $JD and $PDD, and $BABA's market share has decreased from 80-90% to only less than 50% in 2020.

Although $BABA is still the biggest player, I do see the other players continue to grow and capture $BABA's market share, not because $BABA loses competitiveness, but because the entire commerce pie becomes larger and the Chinese government fighting against monopoly.

Risks - China
There's always political risks with Chinese companies, and this section of $BABA's business is one of the most obvious 'potential target' of the Chinese government because of its huge size. Although i do not see a crackdown, there's definitely a possibility

Risks - Taobao deals, Tmall supermarket and Freshippo
These three have been the main focus on $BABA in recent years to drive new growth. Although all their growth have been impressive, they are still relatively small, meaning that it is inherently easier to grow.

Their current high growth rates are not guaranteed. However, it would be essential as Taobao and Tmall continues to mature and market reaches equilibrium.

Taobao deals will determine how much market share $BABA can capture back from $PDD, and Tmall supermarket and Freshippo will determine $BABA's chance to win at the huge online grocery market.

Conclusion
$BABA's goal is to make it easy to do business anywhere, and it is quite clear that they have successfully done so in China with both Taobao and Tmall. $BABA is without a doubt the biggest e-commerce player in China, and IMO would continue to remain for years to come.

As e-commerce slowly matures and growth slowing, it is evident that $BABA is pushing hard to grow outside of Taobao and Tmall with its other China retail initiatives in China.

These business divisions will likely determine whether $BABA can continue to grow and truly becomes an online retail platform that covers every shopping needs. END//

Thank you for reading this thread, and I hope you have learnt a thing or two about $BABA's China ecommerce and new retail. If you like this thread, please give it a like or retweet, I would really really appreciate it!

Please consider following me @joshuatai0427, where i posts regular threads like this. I am going to breakdown the entire $BABA business in the coming week or two. Thank you for your time and support! I hope you can have an awesome day and may God bless you!

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