Earnings from Chinese e-commerce giants in focus this week

Chinese consumers are seeking discounts and lower-cost shopping because of their cautious attitude toward spending after the COVID-19 pandemic amid lower economic growth and the downturn in the property sector

Quarterly earnings reports from Chinese e-commerce giants Alibaba and JD.com this week will be closely watched as criteria for the mood of consumers in the world’s second-biggest economy.

Both companies, which account for around 69% of China’s e-commerce market revenue, as per DBS estimates, have faced growing competition in recent years from low-cost platforms like PDD Holding’s Pinduoduo and ByteDance-owned Douyin.

Chinese consumers are seeking discounts and lower-cost shopping because of their cautious attitude toward spending after the COVID-19 pandemic amid lower economic growth and the downturn in the property sector. Alibaba and JD.com have responded to this trend but they risk lower margins by doing so.

This low-cost battleground presents a challenge for Alibaba’s Tmall and JD.com. Both have conventionally sought to move up the consumer value chain by selling increasingly premium products like Apple iPhones, Estee Lauder skincare and Tiffany & Co jewellery, but are now forced to defend that space while also offering a wider range of cheap products to stem market share leakage.

As long as consumers remain highly cost-conscious such policies are likely to further slow revenue growth and erode profit margins, said S&P Global analyst Cathy Lai, adding that both Alibaba and JD.com are moving more into the unbranded goods territory that has been Pinduoduo’s stronghold.

Alibaba “cannot ignore PDD, but nor can it quell the competitive threat by wholly adopting PDD’s strategy. JD.com is in a similar position,” she added.

Under its user first strategy, Taobao and Tmall Group proactively and aggressively invested in product supply, competitive pricing and quality service to meet all tiers of consumer demands, Alibaba’s Taobao and Tmall Group said in statement responding to Reuters request for comment.