Double 11, singles’ day and supply chains on The Future, This Week

Disclaimer We'd like to advise that the following program may contain real news, occasional philosophy and ideas that may offend some listeners.

Sandra So what shall we talk about this week?

Kai Well, we're recording this just in the shadows of the US election, as things are still unfolding. Last week, we had Jevin West on the podcast, and he was talking about things that platforms could do to avoid or curb the spread of misinformation. And we're actually seeing some of those practices being applied. There have been some articles already detailing what social media platforms are doing about this. But as this is unfolding, we'll have to come back to this at a later date.

Sandra Yes, the elections are still the big news of the week. And they're being covered on every network and on every media outlet. And as such, this is also eclipsing other big news stories of the week, the United States on Wednesday formally left the Paris Agreement. And whilst this has been on the books for the past year, and we knew that it was going to happen, it's still a significant moment that the pact that was agreed on five years ago to try to curb the effects of climate change, aiming to keep the increases in temperatures around the world below two degrees Celsius, an accord that over 189 countries remain committed to, United States is no longer one of them. This coming just at the same time as President Xi Jinping has announced at the United Nations General Assembly that China will aim to reduce its emissions by 2030. And by 2060, China will achieve carbon neutrality. And China is currently the world's largest producer of greenhouse gases. So these are both significant stories that have been eclipsed by the US election.

Kai Well the US election is certainly the biggest in terms of public coverage right now, we could argue that climate change is certainly the biggest in terms of long term effect. I have another one that is the biggest, and also one that is coming from China, which is the biggest IPO in the history, which is of course ANT, Ant, which is the financial arm of Alibaba that comprises Alipay, but also Alibaba's microlending business has just been halted, surprisingly. Apparently, the Chinese government has brought out new regulations around microlending and capital requirements, and so the Shanghai Stock Exchange halted the IPO and pulled the listing, potentially either cancelling or at least delaying ANTs IPO as the government sorts out the micro lending market, which is a big part of what ANT is offering. So this one, again, is too early probably to talk about. So we'll park this, but it's a big one.

Sandra And the news comes at an interesting time for Jack Ma, who's the chairman of Alibaba and who was heavily involved with floating Ant and Al pay just in time for China's biggest shopping event, Singles Day, 11.11, coming up just next week,

Kai Which also makes it the world's largest shopping event, and a true spectacle, not just in terms of the consumer side of things and how it shapes consumer behaviour, but also in terms of the sheer logistics that goes into pulling off an event that goes hand in hand with millions of shipments across the country.

Sandra So the two of us had a chat about this, because Singles Day is now the world's biggest shopping event. And this is by an order of magnitude, it eclipses Cyber Monday, Black Friday, Boxing Day sales, end of the financial year sales. And we were asking ourselves, why would a company like Alibaba put itself through the strain that an event of this magnitude puts on an organisation, and an ecosystem, that has to deliver to millions and millions of customers overnight?

Kai And what is it like on the ground to be part of this event? So we decided...

Sandra We need help on this one too.

Kai So we're calling Kishi Pan who you know from our Xiaohongshu episode. Kishi, of course, friend of the podcast, works for SBI and is our informal China retail representative. And we think she can help us unpack Double 11, China's Singles Day.

Sandra Let's call her. This is The Future, This Week from Sydney Business Insights. I'm Sandra Peter.

Kai And I'm Kai Riemer. Every week we sit down to rethink and unlearn trends in technology and business.

Sandra We discuss the news of the week, question the obvious, explore the weird and the wonderful and things that change the world.

Kishi Hello, Kishi speaking.

Kai Hello Kishi.

Sandra How are you? How's the shopping going?

Kishi Very well, still going. Waiting for the second round now.

Kai So Kishi, we understand you've just moved back to China, you have a new apartment, you are in need of a lot of shopping. And it is Singles Day coming up, Double 11. And we want to talk about that and we thought you might know a thing or two about that.

Kishi About shopping?

Kai Yes.

Kishi Well, you've come to the right person.

Kai And about Double 11.

Kishi Definitely about Double 11, double joy. Yes, I'm now in the heart of Shanghai and in the last few days, I've been very busy receiving parcels.

Sandra So we understand Singles Day is the world's biggest shopping event. Can you tell us a bit about what a Shopping Festival is, and how this came about?

Kishi The Singles Day originated from the Internet and it was originally a term used to mock and laugh at oneself, female or male, for being single. So it's also called a bachelor or bachelorette day, and also to promote pure friendship between male and female schoolmates. But by now, few are paying attention to the self-deprecating singles who are shopping. And we also say 'chopping', which I'll explain in a second, and emptying their shopping carts on Taobao and Tmall. In most of the Chinese social concepts, being single is marked as a painful journey. So to kind of endure this pain you spend an occasion of the year to make yourself feel better. So the Singles Day shopping event was initially started as a comforting joke for those lovely singles that are in China. But later on, it grew into a national Shopping Festival. And few are still reminded to mock the singles on the day because they're too busy shopping.

Sandra So it's a bit like a cynical Valentine's Day, right?

Kishi Absolutely. A cynical Valentine's Day is the best to put it, plus a dollar sign.

Kai So I understand this whole thing started in the 1990s, as you explained, but it was turned into an online shopping event in 2009, when Alibaba came in and appropriated the term for its first online shopping event, which was quite humble, only 27 brands, and it has evolved from there, right?

Kishi Absolutely. And to give you an idea, the sales volume of the first Singles Day of 2009, was only about 50 million Yuan, that's about 10 million Australian dollars. In last year, 2019, that number was 268.4 billion Yuan, the daily sales.

Kai Billion, not million.

Kishi Billion with a b.

Sandra And that's nearly 54 billion Australian dollars?

Kishi In one single day.

Kai And that is for Alibaba alone, right?

Kishi That is for Alibaba alone.

Kai Which is really interesting, 50 billion Australian dollars. If you think about it, the entire Black Friday shopping event in the US equates to about 7 billion US, or just over 10 billion Australian dollars. So Singles Day on Alibaba alone is five times bigger than the entire Black Friday in the entire US. That's huge.

Sandra And you could probably add up to that Cyber Monday, Boxing Day sales, end of the financial year sales, all of these special shopping sales events together. And you wouldn't add up to one day festival in China.

Kai And while certainly some of this size is due to the sheer size of the Chinese population, e-commerce, social commerce, online shopping in China, is a phenomenon unto itself that has evolved into something that surpasses what we do in the West, and hence we're talking, right?

Sandra And that really is the result of a very different journey that China took in terms of online shopping that has a very different tradition and a very different start than online shopping in the West.

Kishi Yes, so online shopping, the way it is in China now hasn't always been that way. So in the 90s until early 2000s most of the cities treated their commercial complexes as landmarks, the only landmarks apart from historical sites in the cities. So in the eyes of most Chinese people, abundant goods, dazzling counters and amazing window displays symbolise affluence and social status. They are the biggest miracle in modern society and deserve to be accommodated with the best architecture. However, now many supermarkets in China have been moved underground or to the suburbs, and many shops in the prime locations no longer even need warehouses. Samples are displayed but not sold at the shop. Customers can only scan the QR code and go to the purchase page and receive delivery at home the next day. The web began to wipe out physical commerce that had piled up.

Sandra So when did this happen?

Kishi This happened around 2010.

Sandra So how did this come about?

Kishi During the SARS breakout in China in the early 2000s, people were afraid of going to crowded areas, going to these landmark buildings and commercial complexes. This is when Taobao really launched and had its presence. I remember back then, without digital platforms or online payments, many people placed the order on Taobao. And then taking the account of the sellers banking details to the counter have a physical bank to send payment through and awaiting for sometimes over a week often to receive their ordered goods after the money has been processed.

Sandra That sounds pretty much like any shopping experience I have today.

Kai But things have come a long way since then, of course,

Kishi Indeed. Now I live in the heart of Shanghai. Depends on what I buy, but the fastest I can expect a delivery is sometimes within the hour. For example, yesterday, I was installing a new dryer in my house and I needed a screwdriver and didn't want to go through the trouble of going to IKEA. I decided to place an order on Meituan. And then 30 minutes later, a guy showed up at my front door with a screwdriver. Simple as that, and delivery fee, the equivalent of one Australian dollar.

Kai So that really removes any needs to actually go to a shop or a supermarket. If you can just order single items for very little fee and have them delivered within the hour. That's almost as fast as I need to find my screwdriver in my shed.

Sandra And it might be one of the explanation why online shopping has grown so quickly in China. On Singles Day alone, it's been going up at about 35% per year over the last five years. So that is a huge move to online shopping.

Kai And there's some really dazzling stats. I read on Tmall last year in 2019, on the day, the service executed 544,000 transactions per second, which is just mind blowing.

Kishi Just to make it clear to all our listeners, Tmall and Taobao are practically the same platform. Tmall is a smaller, yet still large ,range of brands within the Taobao platform.

Kai And Taobao and Tmall are, of course, brands of platforms run by Alibaba.

Kishi Correct.

Sandra So what organisational effort does it take to accomplish this?

Kishi Well to give you an idea, the transportation network in China, as of 2013, China's highway length surpassed that of the United States already. Courier companies like Shunfeng, which is one of the biggest delivery companies in China, hires its own entire high speed trains to deliver parcels on Double 11, on the day, and on other days throughout the year.

Kai So hang on, what you're saying is that, while we of course know what high speed trains are, because we have them across Europe, for example, you're saying that they have high speed freight trains for parcel delivery?

Kishi High speed freight trains for parcel delivery only. So instead of people sitting on this comfortable leather seats, you have parcels waiting to be received.

Kai That is just extraordinary. I also read that Tmall alone, Alibaba, had 700 charter flights for delivery on Singles Day in 2019. So there's a gigantic logistical effort that goes into executing this event, right?

Kishi Yes. And it's not just about huge infrastructure networks. It's also about people who are on the ground. In fact, I think one of the biggest, if not the biggest advantage of China's express delivery industry, is the population density. The residential complex that I live in, has around 10 buildings. Within each building, we have at least 24 floors. So imagine, with this kind of population density and the purchasing power concentrated in the country in a small number of areas in the east, basically forms the world's largest and middle income residential zone. A Courier can go from one user or one customer to the next customer just in a minute or two by bike, or even just by changing elevators. When delivering the parcels the couriers make dozens of phone calls at the gate of residential complexes. In big cities they can receive and deliver more than 100 packages every day. And I'm not talking about on Double 11, just any usual day. Each.

Kai Yeah, but Double 11 on top of that poses gigantic challenges, 500,000 trucks, three million delivery people in 2019. And with about a 20 to 30% growth expected for this year, of course, we're adding more logistical complexity on top of that as well.

Sandra But Kishi, it's not just the delivery and distribution of parcels. It's also what it takes going into this. It's hundreds of thousands of brands, of products and services, of live streams of performances.

Kishi Definitely. So I don't just participate so actively on Double 11 because I receive parcels fast, but also, they have what I want to buy. So brands like Apple, L’Oréal, Haier, Estee Lauder, Nike, international brands like this are all participating in the Double 11 events, providing sales or giving out freebies that they don't normally or any other day of the year. This also attract customers who are not very familiar with international overseas brands, and to be introduced to them.

Kai I read that Tmall alone will introduce 2600 new overseas brands into China as part of its Double 11 this year. And also there's of course, the live-streaming that we've previously mentioned on the podcast where a lot of products are going to be sold in live video streams. And we've talked about Lipstick Brother No 1 , and these famous influencers who will of course participate in the event again.

Sandra And again, to give our audience an idea of the size of this event, two influencers alone Lipstick Brother No 1, one of the friends of the podcast, and Viya Huang had already started their live-streaming event ahead of Singles Day, and they already generated, in one day alone, 150 million US dollars in deposits from customers for 11.11.

Kishi I have to also add to that, even though we refer to Li Jiaqi as Lipstick Brother No 1, he did get famous by selling lipsticks, but nowadays he sells all range of products. I'm talking about baby wipes, cleaning products, cosmetics, needless to say, anything you can think of they might show up in his streaming session.

Sandra And he is joined by hundreds of celebrities that are doing individual live-streaming events, and even Alibaba executives that are doing live-streaming sales events.

Kishi Indeed. And so in addition to the sessions hosted by them, there are about 400 company executives and 300 celebrities that host individual live-streaming sessions. Taobao Live, which is a separate app from Taobao will also provide sessions ranging from cosmetics, electronics, to cars and even houses.

Kai So this is a true spectacle. In 2019, pre-COVID, Taylor Swift was even hired to give a concert as part of Double 11, to shore up participation and interest and get people involved. Which raises the question, why do it? Why actually put such a huge stress on the company having to execute all of these things, entertainment, transactions, coordinating brands, new product introductions, and then the logistics of organising delivery via charter flights and high speed trains and millions of delivery people all on the one day?

Kishi From a customer's point of view, we need an occasion to just be celebrative and be wild, and that wildness can be expressed through spending on products that we've wanted all year along. And I think for this year, this is with extra importance. On the podcast I hear you guys previously talked about vengeance shopping, or revenge shopping. The Double 11 this year is one of the biggest channels to express their vengeance shopping as the economy in China recovers from the pandemic.

Kai And you mentioned earlier this idea of not only shopping but 'chopping', and I think you need to explain that to us right now, because that ties in with this going crazy and shopping as an event.

Kishi Yes. So instead of saying shopping, a lot of the netizens in China here say chopping. Basically this is a mark of the consumerism phenomenon. And chopping refers to hand-chopping, basically a term used to describe the shoppers regret for overspending or consuming, especially when the transaction is done online.

Kai So you're saying, 'I'll chop my hand off because I've spent so much which I shouldn't have, it was so tempting that now I have this regret once I have a look at my bank account'. But of course people are turning this around and are now referring to what they're doing as chopping already because they know they're going crazy right?

Kishi Indeed, we're now just referring to shopping as chopping, directly. We know the regret we anticipated, but we're still going to spend it anyway. And don't look at the bank account balance.

Sandra But speaking of bank account balance, whilst on the one hand, this is one reason to do it is to give consumers and an occasion to celebrate and to spend, for companies this is a huge day for raking in profit.

Kishi Absolutely. And for big companies, this is a great way for them to introduce more potential customers to their brands. Taobao and Tmall also uses Double 11 as a platform to introduce newer and smaller businesses. The opportunity to showcase their products and tell their brand stories, amid the pandemic. So this year, in the first round of the Double 11 sales event, it took place from the 1st of November to the 3rd of November. This was the occasion where a lot of smaller brands that are less familiar to customers were introduced.

Kai So one answer to the question, 'why do it?', is just the sheer size, people overspend and a lot of profit is being made. But it's also a day where this year an expected 2 million new products are being launched, new businesses, new brands are being introduced to the Chinese market. And the brands and the platforms are trying to grow their business to new kinds of consumers, in the hope that they'll come back and then have more steady business across the year as well.

Sandra But also, for many of the rising brands, Double 11 represents as much as a quarter of their yearly sales. So on this one day of the year, they make 25% of the sales for the entire year.

Kai Which brings me to the main question again of, why? And I will explain why I ask this question because in traditional wisdom in Western supply chain management, what we're aiming for is a steady flow of business across the year because promotions have always been the enemy of steady supply chain management, because they introduce variability, you need a lot of product on one day, you need huge warehouses to house them, and the capacity sits idle, you need to produce a lot of stuff in that period. People are buying it on that day, but they hold off on shopping so there's nothing much happening before. There's nothing much happening in the weeks after. So from a traditional supply chain management point of view, a day like this, it's just a nightmare. It's the kind of thing that when you teach conventional Supply Chain Management you want to avoid at all cost. So it's really interesting to see how China has found a way not only to make it work, but actually to make it a success and to go for it and try to grow it, because they can.

Kishi So as you already mentioned, there are billions or millions of parcels going out during Double 11. So companies have worked out a very smart strategy as to where these parcels are going by starting two or three days before the actual event day receiving pre-payments from customers. This pre-payments guarantees products being delivered four or five days after it's been processed. So for example, as a Taobao shop owner, I can see the lamp that I'm selling received 10 million prepayments from the area of Zhejiang, from the province of Zhejiang, so I will already start getting my products within that province, for it to be ready to be distributed to the customers.

Kai So that is really interesting, because one of the problems traditionally is of course, forecasting around promotions, to know what exactly do we need on the day, so that we don't run the risk of not being able to execute on time, but also to have too much stock or too little stock. And so prepayment is a really interesting concept. But also I read that Alibaba is now employing sophisticated machine learning forecasting, and they're very successful in already pre-packaging and pre-loading parcels, before they have even been ordered in some cases by customers, just putting the labels on them.

Kishi And the gauging by pre-payments is a fairly reliable estimate, since pre-payments are not refundable at least over 90% of people who put through the pre-payments will end up going through with the transaction.

Kai Which also means that the companies are making money on the 10%, where the pre-payment is basically forfeit, and they take the payment without actually having to deliver.

Sandra But this still only goes partway to answering, 'Why do it? Why submit your entire ecosystem and your supply chains to such a big stress test?. And interestingly an HBR article brings up a quote from the Executive Director of Alibaba Internet Research, Weiru Chen, who says that Double 11 does actually become an entire ecosystem exercise, and that the whole purpose of Double 11 for companies like Alibaba, beyond just making a huge profit on the day, is to actually stress test the entire organisation and push the limits of those supply chains and make them ever more responsive.

Kai So really, what Double 11 is good for in terms of growing your back end capability is to put yourself through this test. Alibaba, JD.com, these companies are trying to grow online shopping, e-commerce, to the wider China, beyond just the Tier 1 and Tier 2 cities. And it's been one of their goals in the last couple of years and this year to actually get more customers involved from lower tier cities. So there's no better way to put your company through a real life test than a Shopping Festival. And if you can master a day like that, it also means you're prepared for the year ahead, where you expect more steady growth, where you want customers to be involved, and where you need to execute with your entire ecosystem.

Kishi That's a really good point. And to add to that, oftentimes, when we talk about e-commerce or China or Internet or Alibaba, we think about places like Beijing or Shanghai, or Guangzhou, and Chengdu, or even Wuhan. But we rarely think about the majority of Chinese cities, which are the third, fourth, fifth lower tier cities. So Taobao also has this deal called RMB1 Sales. So basically one Yuan, the equivalent of 20 Australia dollar sales. This campaign, to enable customers from lower income areas to purchase goods and to participate in this huge shopping event. These are the places where the logistics networks may not be as fully developed as a place like Shanghai.

Kai And we shouldn't underestimate the psychology of a day like that what it instils in the workforce. It's a real event, not just for consumers who spend hours and hours pre-filling their shopping carts. It's also a really, not just stressful, but a joyful or prideful event for the workforce who need to make this happen to grow the systems to scale up the systems and the capabilities of the ecosystem in a country that puts more and more emphasis on online shopping. And as you said, integrating this with offline experiences. You said there's these shops where you just scan QR codes and things are then delivered. And if you roll this out countrywide, you want to be able to execute. And Taobao has apparently given out the aim to be able to do 24 hour delivery to anywhere, any place in China. And China is a big country that has density in some places, like you said, in the middle of Shanghai, but it is a totally different ball game to be able to execute into the more regional areas.

Kishi Absolutely. And these areas, the customers there, they have huge purchasing power potentials that shouldn't be ignored.

Sandra And this one date also gives companies a deadline by which to bring in not only new products and services for consumers, but also internal innovation, so reinventing logistics capabilities, or innovating across the supply chain to service these communities, and so on.

Kai And we need to also see this in the light of the Chinese ecosystem. A lot of the traditional supply chain problems in the West stem from the fact that companies work in isolation, data has not been exchanged. And so it's always been a mantra that the more information we exchange, the more collaboration we have, the more agile the supply chain becomes. In China, these supply chains are now fully digital, the integrated brands are integrated into these platforms. So it's a really good way of actually strengthening that collaboration ,focusing the mind of all the partners in the supply chain, and stress test and develop these new capabilities for a day like Double 11.

Sandra And incidentally, building this kind of capability and having stress tested supply chains and organisations to accomplish this on days like 11.11, turns out to be really handy in case of a pandemic.

Kishi Similar to the capability of being able to deliver parcels to individual apartments doors, during the pandemic equipments like PPE, or essential goods like food and grocery products were able to be delivered to people who are in need. And needless to mention, in cities like Qingdao and Wuhan the capability of going to each residential complex and testing for COVID with each resident living in such complexes, all are demonstrations of such capabilities.

Kai So what we're saying is that by growing e-commerce, online shopping, and the logistics that go hand in hand with this over the past decade or so, China has built its capability to also be resilient in the face of a lockdown needed for a pandemic, for example. Because the country now has the capacity, as you said, to deliver things within 30 minutes in areas of high density where, you know, you need lockdown the most urgently.

Sandra But also the ability to scale this very, very rapidly. So in case of a pandemic, when you close down an entire city, and you need to do this for an entire population, it produces the types of surges in the system that you would see on a day like 11.11.

Kai Not only for the delivery of food, for example, in lockdown, but also to, you know, distribute testing kits and collect samples. When you're testing 11 million people in a city within a week, it comes in handy if you have lots and lots of people working in that sort of small scale logistics across high density areas.

Kishi And to end on a brighter note, the Double 11 shopping event is probably the biggest joyful event, since China has come out of the pandemic. Speaking of which, I better get my wallet ready. And then prepare for the second round, which is on the day of Double 11.

Kai So, thank you Kishi. We don't want to hold you up in filling your shopping cart, because Double 11 is coming up shortly. Get ready, enjoy this day because shopping, as we've discussed previously with you on the Xiaohongshu episode is also a social event, is an event of connecting to others around what you're doing.

Kishi Yes, I have a lot of shopping and chopping and connecting to do after this.

Sandra Kishi, I'll see you online shortly.

Kishi See you shortly.

Kai Thanks, Kishi.

Sandra And that's all we have time for today.

Kai Thanks for listening.

Sandra Thanks for listening.

Kishi Thanks for listening, and thanks for having me.

Megan Sandra Peter is the Director of Sydney Business Insights. Kai Riemer is Professor of Information Technology and Organisation here at The University of Sydney Business School.

Sandra With us every week is our sound editor Megan Wedge.

Kai And our theme music was played live on a set of garden hoses by Linsey Pollak.

Sandra You can subscribe to The Future, This Week, wherever you get your podcasts.

Kai If you have any weird and wonderful topics for us, send them to sbi@sydney.edu.au.

Kai So what's this thing that you wanted to explain?

Kishi So do you know why Double 11 is the Singles Day?

Kai No.

Kishi Because one, one, one, one, they are four singles.

Kai Oh, four single digits, I get it. One, one, one and one is four singles. Excellent. No, I did not know that.

Sandra I could say it's two pairs, but okay.

Kai No, it's not. It's singles. It's all singles. No pairs. There's no twos in it. That's cool, excellent Kishi.