Alibaba Group Holding Limited (NYSE:BABA) has turned to the ~930 million consumers in third and fourth-tier cities to boost its slowing sales growth, the Financial Times reports.
Alibaba's Taobao Deals target the fast-growing market of bargain-hunting shoppers in smaller and less affluent cities. Sales of Jinye's spongy tissues have swelled since it became one of the first companies to open a store on Alibaba's Taobao Deals.
Retailers sell end-of-season products or create a separate label to sell the same goods cheaply without denting sales of the mainstream brand.
The app also offers coupons, subsidizing knockdown prices for companies that want to access shoppers in lower-tier cities without lowering prices.
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Taobao Deals' monthly active user base swelled to 150 million by November 2021, up 75% year-on-year, firing up rivalry with the price-competitive Pinduoduo Inc (NASDAQ: PDD), selling products directly from factories or farms to consumers.
Morgan Stanley estimates the consumption in China's lower-tier cities to surge from $2.3 trillion in 2017 to $6.9 trillion in 2030.
For years, Alibaba had focused on shoppers in wealthy first and second-tier cities like Shanghai and Beijing through its flagship Taobao and upmarket Tianmao platforms. However, the growth on these two platforms has slowed from rising competition and regulatory pressures.
"In two years, Taobao Deals has managed to mop up consumers that Taobao and Tianmao didn't reach," an analyst concluded.
An expert noted that Alibaba's fight to penetrate the lower-tier markets by splashing the cash to win a fast-growing market has eaten into its profits due to the lack of platform loyalty in the e-commerce battle for China's lower-tier cities.
Alibaba lost ~60% of its value since the revocation of the Ant Group IPO in 2020. Subsequent anti-monopoly probes and concerns about Chinese equities' delisting from the U.S. exchanges have further weighed on the stock.
Price Action: BABA shares traded lower by 3.12% at $98.25 premarket on the last check Thursday.
