Alibaba Builds a ‘Black Friday’ for China; It’s the Biggest Online Shopping Day in the World. And It’s in China, Not the U.S. Taobao and Tmall account for more than half of all parcel deliveries in China

Alibaba Builds a ‘Black Friday’ for China

It’s the Biggest Online Shopping Day in the World. And It’s in China, Not the U.S.

JURO OSAWA

Updated Nov. 8, 2013 7:13 p.m. ET

In the U.S., it takes Thanksgiving, plus the approach of the year-end holidays, to trigger the biggest shopping weekend of the year. In China, all it takes is a sale by Alibaba. Every Nov. 11, millions of Chinese shoppers flock to the e-commerce websites operated by Alibaba Group Holding Ltd. They spend more on those sites during that one day of discounts than Americans do on all online retailers on Black Friday and Cyber Monday combined.As Alibaba plans for what could be the biggest technology IPO since Facebook Inc.,FB -0.06% it is recognized as the dominant player in China’s surging e-commerce industry. But the 14-year-old company, founded by a former English teacher in Hangzhou, is hard to categorize. While it is often called the Amazon.com AMZN +1.96% of China, Alibaba is more a blend of eBay Inc., EBAY +0.82% including its PayPal financial arm, andGoogle Inc. GOOG +0.80%

By one measure, Alibaba is the world’s largest e-commerce platform: The total volume of merchandise handled last year by Taobao and Tmall, the company’s two main shopping sites, topped one trillion yuan ($160 billion), larger than last year’s totals for Amazon.com and eBay combined.

Taobao and Tmall account for more than half of all parcel deliveries in China, Alibaba says.

“It’s hard to find a Chinese Internet user who has never used Taobao or Tmall,” said Atsushi Watanabe, a consultant at Shanghai-based T.U. Business Consulting Co., which helps Japanese merchants use Chinese e-commerce sites.

Taobao, a gigantic marketplace with seven million merchants and 800 million item listings, is like a Chinese bazaar, with small vendors selling everything from tiger-striped leather jackets to origami decorations.

Tmall is more like a traditional shopping mall, with storefronts for brands such as Nike Inc.NKE +1.88% and Gap Inc. GPS +9.75% Shoppers go to Taobao for low prices and surprises and to Tmall for trusted brand names, Mr. Watanabe said.

Shopping on Taobao is part of China’s social fabric. Zoe Zhou, a 27-year-old who works for an interior-goods company in the southern Chinese town of Huangjiang, says the arrival of a Taobao package in her small office can trigger an impromptu fashion show.

A few years ago her company planned a trip to Thailand and the five women in the office ordered swimsuits on Taobao, Ms. Zhou said.

The packages arrived while their three male colleagues were out, so the women used the office to try on their new swimwear. “When I come across a bad store [on the site], I tell my friends not to buy anything from it,” Ms. Zhou said.

The Nov. 11 sale is a tradition started in 2009, when 27 merchants on Tmall offered discounts to perk up sales in the otherwise quiet period between China’s autumn holidays and Christmas.

The 11.11 Shopping Festival, as the event is now called, coincides with what is known in China as Single’s Day, a vaguely defined holiday on which young people lament or celebrate being single. Alibaba says it chose the date because it was easy to remember.

Last year, Tmall and Taobao together generated $3.1 billion in sales on Nov. 11, according to Alibaba.

By comparison, total online spending in the U.S. on Cyber Monday—the Monday after Thanksgiving and one of the country’s best Internet-sales days—hit $1.46 billion last year, setting a single-day U.S. record, according to comScore. Online sales totaled $1.04 billion on Black Friday, the day following Thanksgiving.

Alibaba was founded by Jack Ma as a way to link Chinese suppliers with their overseas clients, cashing in on China’s rise as a global exporter.

But that business, called Alibaba.com, now makes up a relatively small part of the group’s operations.

Taobao has grown sharply since its 2003 launch to become Alibaba’s biggest unit. Like app developers who rely on Apple Inc. AAPL +1.57% or on Google’s Android operating system, millions of Chinese merchants depend on Taobao.

The site doesn’t charge sellers commissions, but the vast crowd of consumers it draws forces sellers to spend heavily on advertising and other services offered by Taobao so they can stand out. Their ads appear with search results, giving Taobao a Google-like feel.

Tmall, a far less crowded version of Taobao, requires each seller to pay a deposit and annual service fee and charges a commission on each transaction.

Last year, Taobao and Tmall accounted for the majority of Alibaba’s revenue. Alibaba Executive Vice Chairman Joe Tsai told The Wall Street Journal last year that Taobao and Tmall both had profit margins of more than 50%, higher than most other e-commerce platforms anywhere.

In the second quarter, Alibaba’s group net profit more than doubled to $707 million, while revenue rose 61% to $1.74 billion, according to Yahoo Inc., YHOO +3.15% which holds 24% of the Chinese company.

SoftBank Corp., a Japanese Internet and mobile-services company, is Alibaba’s largest shareholder, with a 36.7% stake, while Mr. Ma holds about 7%.

Alibaba’s second-quarter revenue was much smaller than Amazon’s $15.7 billion, because the Chinese company doesn’t sell products directly the way Amazon does. But its operating profit margin of 49% for the quarter far exceeded Amazon’s 0.5%.

One key to Alibaba’s success is Alipay, which was launched in 2004 as a payment system for Taobao users. Alipay, which uses an escrow system to ensure payment security, helped attract merchants and consumers who would otherwise have shied away from doing business with strangers online.

Still, Alibaba isn’t without its problems. As Tmall and Taobao get more crowded, sellers have to spend more on ads to draw attention to their storefronts; while this boosts Alibaba’s revenue, some sellers say they are getting weary of the rising costs.

The company also has a range of competitors including Beijing Jingdong Century Trading Co.’s JD.com, an Amazon-like online store with its own delivery service. And strong growth prospects have helped propel the stocks of rivals 58.com and VIPShop.VIPS +5.90%

Another challenge comes from smartphone-based services, such as Tencent0700.HK -1.47% Holdings Ltd.’s WeChat messaging application, with its 300 million users in China, which could lure mobile Web traffic from Taobao.

Alibaba acknowledges the challenges. To stay competitive as a mobile e-commerce platform, the company this year invested in an array of services popular with Chinesesmartphone users, such as Sina Corp.’s Twitter-like Weibo microblog business and mobile mapping-software firm AutoNavi Holdings Ltd.