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China tech

China's e-commerce kings JD.com and Alibaba rebound from pandemic

Sales surge at home and abroad as wary shoppers avoid brick-and-mortar retail

China's e-commerce market bounced back in the second quarter after the coronavirus disrupted operations earlier in the year.   © AFP/Jiji

HONG KONG -- Zhang Zhaohui used to grab breakfast from a street vendor on her way to work everyday. Now she orders it from across the country, via China's second-biggest e-commerce platform.

"JD.com is an ideal place to buy buns," the 32-year-old Beijing resident said. Her favorite -- steamed buns with chestnut filling -- are made by a restaurant some 1,200 miles from the Chinese capital and can be delivered to her doorstep the next day.

The change in Zhang's routine was a matter of necessity at first, as pandemic-induced lockdowns left her stranded at home. But even though Beijing's social restrictions have eased, Zhang said she will stick with her new online menu.

"I'd love to continue having the buns," she said, admitting that she once ordered 100 of them at a time. "They are my best discovery during the pandemic."

Words like that are music to the ears of JD.com, which saw its quarterly sales grow at their fastest pace since 2018. The Nasdaq-listed company reported net revenue of 201 billion yuan during the April-June quarter, a 33.8% increase from the same period last year. Larger rival Alibaba Group Holding, which is dual-listed in New York and Hong Kong, also delivered revenue and profit that surprised Wall Street.

In their earnings call last week, the top two Chinese e-commerce companies both credited the pandemic for their explosive growth.

Alibaba CEO Daniel Zhang did not mince words: "COVID-19 has accelerated digital transformation of consumer behavior and enterprise operations. Alibaba is a key beneficiary of this development."

The better-than-expected financial performances are a relief for Alibaba and JD.com, both of which took a hit in the previous quarter as a weeks-long lockdown disrupted operations and weighed on sales. The strong comeback has also confirmed industry watchers' projection: Despite short-term setbacks, the Covid-19 outbreak is a boon for online retail.

Indeed, almost all internet companies have benefited from the pandemic as reduced physical interactions mean rising demand for digital solutions.

Hong Kong-listed Meituan Dianping said in its latest financial report that the number of merchants joining its food delivery platform increased by 110% in the April-June period on the year since the lockdown demonstrated the importance of building a virtual presence.

Tencent Holdings, another Chinese heavyweight listed in Hong Kong, reported a 40% growth in its online game revenue, while Nasdaq-listed Huya Inc. added nearly 17 million monthly active viewers to its live-streaming site in the three months between April and June.

Few internet companies, however, made inroads the way e-commerce companies did.

Chinese e-commerce companies collectively sold roughly 6.1 trillion yuan worth of goods in the first seven months of 2020, up 9% on the year, according to the National Bureau of Statistics. Such an increase is particularly impressive given that Chinese consumers have tightened their belts amid the economic downturn -- the country's total retail sales decreased 9.9% in the first seven months against the 2019 levels to roughly 20.4 trillion yuan.

"I have not been to the supermarket even once since the outbreak," said Zhang, the Beijing bun buyer.

While the Chinese capital has not reported any new infections for weeks, Zhang said she remains concerned about potential spikes. On top of that, the discomfort of wearing a mask -- a mandatory requirement for anyone entering supermarkets in Beijing -- has also deterred her from going. Instead of paying a visit to brick-and-mortar stores, Zhang prefers to stay scroll online malls from the comfort of her home.

Others have also picked up habits and hobbies during the pandemic that, if they continue, could give e-commerce sales a further boost.

Alibaba-backed Lazada is winning over new customers in the Philippines and elsewhere in Southeast Asia due to pandemic-induced lockdowns.   © Reuters

Sun Lin, a marketing specialist in Beijing, recently found her calling in cooking.

The 35-year-old used to dine out regularly to cope with her busy schedule. But with entertainment options drying up during the lockdown, trying out new recipes in the kitchen became first a hobby and then a routine for Sun.

As a result, she now orders meat, fruit and vegetables once a week from Alibaba's Ele.me app or MissFresh, a grocery upstart backed by Tencent -- a significant increase from 2019, when Sun made only 12 purchases on MissFresh for the entire year.

Every additional order matters, as gaining new users has become an uphill battle. Government statistics show that some 710 million Chinese, or nearly 80% of total internet users in the country, have already shopped online as of March 2020. To maintain their growth momentum, Alibaba and JD.com have launched aggressive sales promotions, further squeezing their profit margins.

The pandemic is also giving a lift to Chinese e-retailers with global ambitions, as consumers in overseas markets, who are also shunning physical stores, start experimenting with online shopping. 

Ashley Yutuc, a 20-year-old Filipino, is among the latest converts. After coming across an online advertisement of Alibaba's e-commerce affiliate Lazada, the college student decided to give it a go.

Now, Yutuc makes three to six orders on average each week, buying everything from clothes to home decor to skincare products.

"Sometimes I just click because the product is on sale," she said, giggling. Shopping online has become a habit that will likely continue even after the pandemic, Yutuc added.

"I think it's still the safest way to shop because this virus might still linger even after the pandemic," she said. "It's better to be safe than sorry."

Alibaba's Zhang told investors in an earnings call on Thursday that Lazada has shown "strong progress" in tapping into the Southeast Asian market during the June quarter, with its order volume more than doubled from a year ago.

"The pandemic has a significant impact on many Southeast Asian countries and it has converted many consumers into online shoppers," Zhang said. "We believe the increasing adoption of online shopping is beneficial for the healthy growth of the region's e-commerce industry over the long term. "

Additional reporting by Nikkei staff writer Cliff Venzon in Manila

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