Online retail numbers remain robust for the first eight months of the year, and this is a positive indicator to Alibaba. For the first eight months, online retail sales grew 36% and accounted for 9.8% of total retail sales vs. 8% a year ago. Worth reminding investors is that China leads the world in e-commerce penetration and we expect penetration to continue to grow, driven by mobile device penetration in second and third-tier cities as well as the lack of proper retail infrastructure in those cities. We can easily envision China’s online retail penetration to reach 20% in the next 10 years driven by those two factors as well as higher mobile consumption driven by online-to-offline services that are heavily invested in by BABA, Baidu and Tencent. Looking at the individual segments, online sales of services was up a whopping 41%, as were discretionary items such as food. Apparel grew 27% and other discretionary items grew 39%. All these figures imply that August online sales alone grew 27% y/y, still solid given the near-term weakness of the Chinese economy.
As for offline retail, jewelry grew 17% y/y vs 14% in July but it was largely due to a lower base from last year. As such, we would not be quick to jump into TIF stock until we see material improvement from the demand side. Interestingly, home appliances and electronics accelerated in the month, up 14% vs. 8% in the prior month. This could potentially be a negative to JD.com given this could imply that BABA and Suning JV may be taking share from JD in the online segment.
In conclusion, we remain bullish on BABA while cautious on JD and TIF.
