A Conference Note From Meredith Sun

OTR Global attended the 2015 China Yiwu World E-commerce Conference 2015 April 12-13 in Yiwu, Zhejiang. The conference touched on a wide range of topics in ecommerce but focused on finding the next opportunity within cross-border commerce, O2O, We Shang, hurdles in the ecommerce supply chain and decentralization. Because of the character of Yiwu, which is famous for its small commodity markets and tremendous amount of goods, the conference focused on small and midsized vendors and the corresponding platforms for these types of vendors, mainly Alibaba Group Holdings Ltd.’s Taobao, We Shang and JD.com Inc.’s marketplace. (For this reason, the content from the conference does not directly relate to established brands and platforms that cater to such vendors, like Vipshop Holdings Ltd., Jd.com’s direct business and Alibaba’s Tmall.)

Key points of the conference:

1. Decentralization
Centralized platforms, including Taobao, Tmall and JD.com, do not fit into the future of an increasingly fragmented, mobile-dominated era. The fast development toward the Internet of Things make many believe “shop anywhere, anytime” should be the future of ecommerce, and decentralization fits into this highly fragmented shopping style. Too many vendors get access to consumers from only one entrance (such as Taobao.com or JD.com), which could inevitably cannibalize sales and push up the cost of acquiring consumers when the natural traffic growth of the platform trends slow. Most participants interviewed at the conference complained it was increasingly difficult and expensive to sell through large platforms such as Taobao and JD.com. A manufacturer said, “Taobao stores with annual sales of about 100,000 yuan [$16,135] who rely on only loyal consumers and don't spend on Alibaba’s ads can still make a profit, but those who actively advertise on Taobao.com or JD.com can reach 1 million yuan [$161,290] or even more but actually end up with no profit; [founder and executive chairman of Alibaba] Jack Ma gets all the profit (through advertisements).”

Vendors are not leaving Taobao, Tmall or JD.com because of their established reputations and large traffic counts, but an increasing number of small and mid-size businesses are exploring new business models on various mobile apps, especially Tencent Holdings Ltd.’s Wechat. “Taobao, Tmall and JD are PC ecommerce; they are not mobile commerce [M-commerce] despite the fact that their mobile apps still hold the largest traffic. We need to find the next big opportunity in M-commerce; we can’t do nothing and wait.”

2. We Shang
We Shang: A general name for M-commerce stores on mobile apps that have no PC presence (unlike Taobao, which has a mobile app generated from its Taobao stores on PC).

We Shang is getting great attention from small and midsized vendors this year. Various companies provide apps that are helping vendors (mainly individuals so far) open stores on mobile and share the link on multiple social networks, including WeChat, for free. In addition to the no-cost entry, the stores are very simple to open, which attracts vendors. We Shang service providers, such as Hangzhou Qi Ma Technology Co. Ltd.’s Youzan.com also provide free but highly innovative social-network-based marketing strategies and supply chain management to vendors for free. This then motivates more vendors to seek these type of services and allocate less marketing spend on Alibaba and JD.com. Currently, JD.com's vdian and Paipai vdian and Koudai Gouwu’s Koudai.com are leading We Shang and were offering aggressive promotions to attract vendors at the conference. Although We Shang is still a questionable business model with concerns about pyramid sales and the possibility of annoying the network of users on WeChat, more and more big brands and companies have stepped into this business model as they attempt to connect directly with their consumers through social networks. Suning Commerce Group Co. Ltd recently launched its vdian mobile system and encouraged all of its current employees to open a store through its vdian app and sell products within their network of friends on WeChat and other social networks. On March 23, Taobao also stepped into We Shang by launching the Tao Xiao Pu app, which helps vendors easily open a store on Taobao to allow users to share the store’s link on most social networks, including WeChat. According to news, 2 million vendors have already opened a store with Tao Xiao Pu, and 60% of them are new vendors who do not already have stores on Taobao or Tmall.

3. Quality vs. Price
Interviews with vendors and conference speakers said providing better-quality product is far more useful for making profit than providing discounts to consumers and low price alone is not going to attract loyal consumers to M-commerce. Interviews with vendors showed most decided to scale back on price wars this year. So far, low price has been key for online sales in China. At the conference, the head of Baidu Inc.’s ecommerce said loyal consumers or fans of the store or brand who appreciate good quality will be the most important asset for mobile stores. According to recent news, Baidu is building an O2O ecommerce platform named Baidu Mall that focuses on high-quality products and promises to help brands connect online consumers to their brick-and-mortar stores. Previous attempts by the Internet giant to build an O2O platform were not successful. However, Baidu is putting much more effort into ensuring it is a success this time around. Since January, they have approached 1,000 mid- to high-end brands directly to see if they want to list their products on the platform. They are avoiding distributors to ensure products listed on the site are authentic and good quality. Brands that list their products in the online mall will have their first year insurance deposit of 100,000 yuan ($16,135) and the first-year service fee of 30,000 yuan ($4,842) waived and get 50% off any commissions. Baidu is promising the brands they will have easy access to Baidu’s 600 million-plus users and get support from Baidu’s Big Data resources and other departments, such as Baidu Map. Baidu Mall is expected to be up and running by the end of June.  

4. Supply Chain
One speaker at the conference pointed out the weak supply chain was a big obstacle for further development of China’s ecommerce industry. Big Data provides a lot analysis, aids in logistics so warehouses that ship to consumers further down in the supply chain have developed quickly. But early in the supply chain, smaller manufacturers that provide product to vendors, who essentially act as distributors, lack Big Data and scale and remain underdeveloped with their own logistics and warehouses. These vendors have had difficulties keeping up with the increasing demand requirements in the current M-commerce era.

5. Cross-Border
Cross-border is the hottest area for all major platforms and new players to compete. Imports are the focus this year due to Chinese consumers' increasing appetite for better-quality products from overseas, and bonded imported zones also make the prices of imported product more acceptable. More companies from traditional industries, such as logistics and warehouses, are likely to step into cross-border ecommerce in 2015. NetEase Inc. put big efforts to make its newly launched cross-border ecommerce website, www.kaola.com.

Also see OTR Global's April 16 Online Advertising - China report. OTR's next report on China Ecommerce - Retail will be published April 23.

CONFERENCE DETAILS
WHAT: China Yiwu World E-commerce Conference 2015
WHEN: April 12-13
WHERE: Yiwu, Zhejiang, China
WHO: About 4,000 vendors and 50 guest speakers, including ecommerce companies’ executives, ecommerce vendors, entrepreneurs, government officials and industry experts