Alibaba gives way to China ecommerce rivals on Jack Ma Boulevard

In Shaji in eastern China, factories on Ali Road and Jack Ma Boulevard churn out cabinets and coffee tables. The streets were named in honour of Alibaba founder Jack Ma after his company helped to transform the farming town into a community of online merchants over the past two decades.

But now the factory owners say Ma’s platforms do not guarantee sales. They are beginning to put their wares on rival online stores, including Pinduoduo, JD.com and ByteDance’s Douyin, to stay afloat.

“The market forced me to turn to Pinduoduo, otherwise we would have been eliminated,” said Zuo Jian, who runs five factories in Shaji. “Merchants are leaving Alibaba and so are customers.”

More than a half dozen merchants said Chinese shoppers’ behaviour had changed, with buying across platforms the new norm, forcing them to follow suit and open online stores elsewhere.

The diversification of online sales underlines the problems facing Alibaba, which is attempting an ambitious restructuring while also trying to resurrect its main ecommerce business.

Factories selling on multiple platforms are a far cry from Shaji’s early years, when Alibaba’s sites were the only option for merchants. Shaji, with Dongfeng village at its centre, became famous as China’s model “Taobao village”, a term Alibaba popularised to refer to a new blueprint for rural development.

There are 7,780 Taobao villages, according to the company. Many such as Shaji started with a few merchants and grew as their success spurred neighbours and relatives to join in, gradually turning fields into factories.

Online sellers are the lifeblood of any ecommerce platform. For Alibaba, merchants bidding to get their goods displayed prominently on its Taobao and Tmall sites, and the commissions that sellers fork over on each sale, drive the vast majority of the ecommerce company’s profit.

But Alibaba’s accounts show that last year these revenues were 4 per cent below their 2021 peak. Analysts at research group Bernstein estimate that the group’s share of China’s ecommerce pie has shrunk from 68 per cent in 2019 to 42 per cent in 2023. “Initiatives they’ve carried out so far have yet to halt the market share slide,” noted Bernstein’s Robin Zhu.

Eddie Wu, Alibaba’s new chief executive, took direct control of Taobao and Tmall in December. Last week, he told investors the group was focused on revamping the ecommerce business to improve the user experience and expand the number of products sold directly by factories.

Wu is also orchestrating Alibaba’s wider restructuring as he works to fend off rivals. Pinduoduo, owned by PDD Holdings, in November last year briefly eclipsed Alibaba as China’s largest ecommerce platform by market value for the first time.

In Zuo’s office, a computer screen cycles through a live video feed of his workshops in Shaji. He said about 60 per cent of his sales now came from Pinduoduo, with Alibaba and JD.com, and to a lesser extent Douyin, splitting the rest.

After starting to sell on Alibaba in 2015, he joined Pinduoduo’s marketplace three years ago. Staff at the company brought him to its Shanghai headquarters for strategy sessions and still occasionally advise on which product types need greater supplies.

The direct support contrasts with Alibaba’s hands-off approach. “Ali people didn’t care about us at all,” he said. “Now they’ve started coming here, but what can they bring us, they don’t have any shoppers.”

Still, Zuo said he only viewed Pinduoduo volumes as sufficient to keep his factories humming, while his profits came from selling higher-margin goods on Taobao and JD.com. “We can’t count on any single platform, we need to be diversified,” he said.

Pinduoduo, known for its cut-rate prices, has in particular picked up speed as China’s economy stalls. Factories in Shaji said that users on the platform focused only on low prices and that an attempted Alibaba copycat app unveiled in 2020 called Taobao Deals never caught on.

“Pinduoduo has lots of traffic so we don’t need to buy so many adverts,” said a factory owner who makes coffee tables and dressers. Her sales are now roughly split between Pinduoduo and Alibaba, she said, declining to give her name.

In response to a Financial Times request for comment, Taobao and Tmall said the two combined were China’s largest ecommerce service by gross merchandise value and that the platforms had increased their merchant count, transacting shoppers and order volumes over the past year, without providing details.

Luo Zhendong, a professor at Nanjing University who has written a book on Taobao villages, said the term was no longer accurate. “A large number of Taobao villages are no longer primarily using Taobao,” he said. “They are actually ecommerce villages now.”

“After the pandemic, everyone’s spending power fell,” he said. “It’s normal for Pinduoduo to do well.”

Still, some factory owners in Shaji said they were resisting selling on Pinduoduo. Li Su makes higher quality made-to-order aluminium cabinets and said Pinduoduo shoppers were too thrifty to buy his products. 

“Traffic is declining on Taobao and Tmall, that’s true, but that is still where the best customers are,” he said. At Alibaba’s peak, about 30 per cent of the traffic to his online stores was free, he said. Now it is 15 per cent at most, and he pays for the rest by buying adverts.

A young factory owner, who was overseeing about 60 workers assembling mirrors, said he gave up selling on Pinduoduo last year when he was unable to do it profitably.

“Alibaba traffic is definitely declining,” he said, noting he would focus on increasing sales on JD.com and overseas this coming year. “You can’t count on any one platform, they are all unreliable,” he said, declining to give his name. 

Zeng Yiwu, an associate professor at Hangzhou Normal University, said Alibaba’s rural market had been hit hard by the rise of other ecommerce platforms.

“Shoppers and sellers in small cities and rural areas are no longer limited to Alibaba’s platforms as they were a decade ago,” he said.

“Alibaba needs to come up with a really good strategy to deal with the fierce competition among major platforms.”