China's e-commerce binge tests logistics, rakes in sales

Masses of Chinese will be buying online goods during the country's version of Cyber Monday

Packages at the YTO Express shipping center in Shanghai.

Packages at the YTO Express shipping center in Shanghai.

What happens when the world's most populous country goes on an online shopping binge?

E-commerce giant Alibaba Group gave a glimpse of that on Tuesday, when China kicked off its own version of Cyber Monday. The sixth annual Chinese discount event is expected to clog the packaging industry, ring up billions in sales, and fatten the earnings of big-time e-commerce players, along with thousands of participating merchants.

Held on Nov. 11, which is the Singles' Day holiday in China, the sales festival offers consumers deep discounts on products and attracts droves of buyers across the country each year. Alibaba Group, which runs two of China's largest online retail sites, has made a killing off of sales from the event, and processed US$5.8 billion worth in goods during last year's holiday.

The amount is over three times what Cyber Monday -- the Monday after the Thanksgiving holiday -- made in the U.S. last year, according to analytics firm comScore. And it just goes to show that Alibaba, perhaps best known for its $21.8 billion initial public offering on Wall Street, has risen to become one of the world's biggest Internet companies.

For this year's event, research firm IDC expects Alibaba to help sell almost US$8.7 billion worth in goods.

"This is the power of the Internet. This is the power of the Chinese consumer," said Jonathan Lu, CEO of Alibaba Group.

At midnight Tuesday local time, Alibaba began its sales festival and online orders began to pour in. At the end of the first hour, the company had processed about $2 billion in goods, with the number of orders so far reaching 52 million, according to company data.

To show off the data, Alibaba has invited hundreds of journalists to its offices in Hangzhou, China, where it's erected a large display tallying all the orders in real-time. Company executives are confident the display will post big numbers by Tuesday's end.

"E-commerce is still in an early stage in China, and more and more people will do online shopping more frequently," said Daniel Zhang, Alibaba's chief operating officer, speaking with journalists.

The shopping event, however, won't be without challenges. YTO Express, one of China's biggest shipping firms, has hired 30,000 additional workers to deal with the flood of deliveries from Singles' Day, which celebrates people who are single.

YTO Express, which has 72 shipment centers in the country, projects that it will process 17 million packages in the day after the Singles' Day sale, a jump from the 6 million daily average, said company CEO Xiang Feng. Over 70 percent of those packages will come from Alibaba.

"That's our biggest day. A big test to our capacity," he said, while standing outside one of the company's shipping centers in Shanghai. Everyday, the facility processes 800,000 packages, but during the holiday, the figure is expected to reach 2 million, the maximum capacity for the center.

Xiang is hopeful that packages will arrive in a timely manner. Following last year's sale, packages shipped 1,400 miles from Guangzhou to Beijing took about three days, he said.

But others expect a longer wait. Brian Lee is the CEO of handbag retailer Sino Supreme, which has a major virtual storefront on Alibaba's Tmall site and sells through other Chinese e-commerce sites. During Tuesday's sales event, he projects his company will sell 27,000 handbags, a surge from the 200 they typically sell in a day.

The massive sales volume, however, means the company and its shipping partners will have their hands full processing orders. In the past, packages sent out to customers have taken seven to 10 days to arrive in some cases, a major delay from the two days it normally takes, Lee said.

"Customers do understand that you are going through hell, so they kind of have a lower expectation," he added.

Despite the logistical hurdles, the Singles' Day sales festival is a huge money maker for the company, generating about 15 to 20 percent of all the company's online sales for the year. To meet demand, Sino Supreme has stocked up on about 50,000 handbags, Lee said.

Participating merchants through Alibaba's Tmall site are offering discounts of up to 50 percent on their goods. Some merchants such as Android smartphone maker Xiaomi quickly sold out on certain deals within 15 minutes of the start of the sales event.

This year's festival also marks the first time Alibaba has sought to globalize the annual event, offering discounts through its English-language AliExpress site. After the first hour, the U.S. ranked as the festival's fourth-largest market, behind China, Hong Kong and Taiwan.

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