Despite record numbers, Alibaba´s profit on Single´s Day might be illusive – Ben Cavender

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Ben Cavender

Ben Cavender

Alibaba, and its competitor JD.com made a record sales (or gross merchandise volume, GMV, as it is called) during Single´s Day. But retail specialist Ben Cavender also looks at the little print in the contract, and wonders in CNN Money if the record sales contribute to the profits.

CNN Money:

GMV tallies the monetary value of buying activity over a certain period of time, but it doesn’t take into account various hiccups — for example, customer returns, or if the seller runs out of stock and can’t deliver the product. That means final sales numbers will likely be lower.

“With a sales holiday like this, because there is a lot of impulse purchasing and a lot of gifting, there is no guarantee that people are going to end up liking the product,” said China Market Research’s Ben Cavender.

“Alibaba does see a spike in returns following these sales days,” he said. “Once you start dealing with returns, it’s going to wipe out most of your margins from the sales in the first place.”

Think about it this way: After paying $300 for three pairs of shoes, a customer decides they only like one pair, and returns the others. The transaction generates $300 in terms of GMV, even though the customer spent only $100.

Alibaba wouldn’t specify how many returns it receives, but a spokeswoman said “the number of returns to the entire GMV is miniscule.” Alibaba shares fell 2 percent on Wednesday in New York.

The other thing to remember is that $14 billion in GMV doesn’t translate to $14 billion in revenue for Alibaba. The company makes its money from fees or commissions paid by sellers on its online portals.

For Alibaba, GMV “doesn’t mean that much, because it’s no guarantee of the money they’re going to make off the transaction,” Cavender said.

More in CNN Money.

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