Past data shows a strong relationship between monthly online GMV and time spent on e-Commerce apps. November is usually an outlier because GMV growth typically outpaces e-Commerce app usage. In 2020, too, average Daily Active Users growth during November 1-11, up 6-7% YOY, was outpaced by 25-30% GMV growth. It appears that 11.11 sales led to higher conversion from usage to actual purchases and higher value transactions.
3. How did COVID-19 and China’s economic recovery play into consumer retail consumption?
We observed that most of the consumer staple categories remained intact during COVID-19. While a majority of consumer discretionary sectors experienced delayed, rather than diminished, spending some saw a notable impact including travel-related sectors and catering. Most of the other categories have returned to pre-pandemic level, and some did even better, such as luxury products, which benefited from consumption repatriation.
However, 11.11 can’t be viewed in an apples-to-apples comparison to 2019 since the promotional period lasted longer than normal to boost sales as a result of the pandemic. But in general, the discounts depended on channel inventory. For sectors with normalized inventory, such as home appliances, we saw benign competition; but for those with high inventory, apparel and footwear, retailers increased the discounts offered.
One notable change: market leader Alibaba extended the promotion period from two days to 11, splitting the peak demand into two shopping windows. We believe the change showed more concentrated consumption during the promotion period, like what happened during the 6.18 promotion earlier in the year.
Also, several leading online platforms, such as Meituan and Pinduoduo, have invested aggressively into the emerging community group purchase model. This location-based approach allows residents within the same apartment structure to receive discounts by purchasing together in bulk. Their strategic investments have benefited from the rising online penetration for grocery products in the lower-tier markets. We expect that continued investments in the community group purchase business will accelerate the online penetration for fresh food and Fast-Moving Consumer Goods (FMCG).
Greater China leads recovery
For many luxury brands, pent-up consumer demand in Greater China propelled recovery from the pandemic. With demand largely aided by consumption repatriation due to the global travel controls, we see categories in the premium space, and with higher exposure to overseas spending, as having a more explicit room to grow in China’s domestic market in 2021. We believe that the government’s policy including duty-free shopping is also supporting demand.
In one example, multinational fashion holding company Tapestry recently reported 1Q21 earnings (July to September), which showed that Greater China is leading its global recovery. The company saw 40% growth YOY, with sizeable improvement across its brands: Coach, Kate Spade and Stuart Weitzman. The top-line growth was helped by innovative product assortment, enhanced marketing and expanded reach across direct channels and third-party online distribution.
Kevin Yin, Head of Greater China Consumer Research, J.P. Morgan