Date: Thursday, November 11, 2021
Source: The Wall Street Journal
China’s biggest shopping season is getting squeezed by the global supply-chain crunch.
The annual shopping festival, known as “Singles Day,” has over the years grown from a one-day shopping event into weeks of promotions that rake in more revenue than Black Friday and Cyber Monday combined. However, this year’s event has been dampened by production snarls.
China’s factory-gate inflation has been climbing as energy and other raw materials get more expensive. Power outages have halted or slowed manufacturing in several provinces, while the global semiconductor shortage continues to weigh on electronics production. Some imports are arriving slower than usual amid a global logistics disruption.
All that is leading to delays for some consumer goods and tough decisions for merchants struggling to secure inventory. Some merchants are still sticking with their usual price discounts during the festival, despite higher costs and production delays, to keep selling goods. Others are offering smaller discounts and cutting advertising on e-commerce platforms to help maintain supplies and profit margins, consultants said.
“We all have to find a balance: Do we want to preserve sales or profits?” said Wen Siqing, who runs stationery stores on Alibaba Group Holding Ltd. ’s Taobao and ByteDance Ltd.’s short-video platform Douyin. Ms. Wen said she hasn’t raised prices much for fear of losing sales, even though she’s paying more for items such as notebooks and drawing paper this year.
The challenges in China are a harbinger of what’s to come this holiday shopping season elsewhere in the world, after a breakdown in the supply chain this year upended manufacturing and shipping globally. In the U.S., retailers are already warning of shipping and logistics issues, encouraging shoppers to place their orders as soon as possible.
Two of China’s largest e-commerce platforms, Taobao and JD.com, show that delivery of the latest smartphone models from Apple Inc. and Huawei Technologies Co. could take up to some four weeks. The customer-service staff of some online stores on these platforms said the slow shipment is mainly due to shortages of chips and other electronics parts.
Alibaba didn’t respond to requests for comment. In a press release, Alibaba said it has helped its merchants navigate supply-chain disruptions this year by stocking warehouses and chartering flights through its logistics network. A JD.com Inc. spokesperson said the company uses its supply-chain abilities to work with brands and merchants under all circumstances.
Apple didn’t respond to a request for comment. Earlier this year, Apple warned that the chip shortage would affect iPhone production toward the end of the year. Huawei, once China’s dominant domestic smartphone maker, has been losing share to rivals after U.S. sanctions impeded its access to critical components. A Huawei spokesperson said the company has worked to ensure products reach consumers as soon as possible.
One Chinese smartphone maker based in Guangdong said that along with the chip shortage, recent power outages in the southern province also led to production delays. Facing a power crunch, Chinese factories in some provinces have been forced to close or cut back on energy use since August.
According to analysts at S&P Global Ratings, manufacturers of consumer goods have been the most affected by the power outages, since they disrupt production and add to higher energy costs. Meanwhile, a surge in raw materials prices could squeeze producers further. S&P analysts estimate that steel and copper prices have risen about 40% year to date for home-appliance makers, and yarn and wool have risen about 30% for apparel makers. In October, China’s factory-gate prices jumped 13.5% compared with a year earlier.
In Gaoyang County, an area southwest of Beijing where one-third of the towels used in China are produced, the price of cotton and other textiles has risen about 50% since September, according to a manager at Baoding Mengcuijiao Textile Co., a towel manufacturer and wholesaler. That has cut into towel makers’ profits, she said, adding that her company hasn’t raised its prices for fear of hurting sales despite strong orders for Singles Day.
A cosmetics manufacturer in Suzhou said the rising price of oil and other chemicals has posed a challenge, leading the company to raise its product prices after it faced a 30%-40% increase in costs over two months.
Jacob Cooke, chief executive of e-commerce consultancy WPIC, said brands are generally offering smaller discounts this year, likely due to limited supplies or pressure on profit margins.
While placing advertisements on e-commerce platforms such as Alibaba’s Tmall is usually extremely competitive, Mr. Cooke said that this year was the first time he has seen ad spots open up in late October as the Singles Day festival got under way, which he attributed to other sellers canceling placements because of insufficient supply.
The festival, historically an extravagant affair, is also under the specter of a shifting regulatory environment for China’s technology sector.
In recent weeks, several government agencies have summoned Alibaba and other tech giants, warning against improper sales practices during Singles Day, such as spamming consumers with messages, deceptive pricing or advertising, falsely inflating transactions and other anticompetitive behavior.
Alibaba was the target of an investigation by Beijing’s top market regulator earlier this year, which found that the e-commerce giant had abused its dominant market position by pressuring merchants to sell exclusively on its platforms and resulted in a record $2.8 billion fine.
This year, Alibaba has emphasized the positive social impact from Singles Day through its philanthropic donations and green initiatives, such as promoting environmentally friendly products and suppliers. Rival JD.com also said it is focused on sustainability and reducing waste.
As e-commerce platforms and brands have offered big markdowns outside of the festival, Singles Day deals have become less compelling to some consumers such as Fu Yandong, a 34-year-old auto engineer in Wuhan. “One can shop at fairly low costs throughout the year, from one platform or another,” he said.
Still, he ordered a bag during this Singles Day festival. He is waiting two or three weeks longer than usual to receive it, which the store attributed to delays in importing the necessary leather. He sees no point in getting anxious. “What else can we do? I’ll just wait,” he said.