In the first article in this series on cross-border e-commerce from China we saw how some ten years ago, Amazon started aggressively recruiting Chinese merchants to sell on its marketplace. Then five years ago the media wrote about the fraudulent tactics that some of these merchants applied to get higher rankings in the search results for their products. In 2021 Amazon banned 3.000 such merchants from its platform. Even though this was only a fraction of, according to some estimations, one million Chinese merchants selling on Amazon, it made the Chinese realise their dependence on the American e-commerce giant. And they have taken steps to reduce this risk…
According to a report by Marketplace Pulse, after the ban the market share of Chinese sellers on Amazon platform at the end of 2021 dropped to 33%, from 40% a year earlier. Still, at an online event for Chinese sellers in early 2022 Amazon claimed that the number of Chinese merchants had seen double digits growth in 2021. Their share of its gross merchandise value (GMV) had also remained the same, Amazon claimed. Indeed, by February 2022 Marketplace Pulse reported that 44% of sellers on Amazon were based in China, up from 16% in 2017.
These impressive figures hide what many Chinese merchants were doing. Having realised that solely depending on Amazon was too risky, some of them had started to diversify adding more sales channels, more sites and more countries to the mix. The Shenzhen Cross-Border E-Commerce Association, a trade body representing more than 2,600 cross-border trading companies in Shenzhen, had estimated the loss for Chinese merchants caused by the Amazon ban to be more than 100 billion RMB. The association and advised its members to seek alternatives. And alternatives there were plenty, both old and new ones.
China’s biggest e-commerce company, Alibaba Group, had started building its empire in 1999 with a B2B website for importers sourcing goods in China (alibaba.com). In the decade that followed Alibaba launched new C2C and B2C websites in its well documented fight (link in Dutch) with eBay. In 2010 Alibaba entered the B2C cross-border e-commerce sector with the launch of AliExpress. This website and app have become a popular destination for people around the world looking for cheap goods.
Details on AliExpress, which in Alibaba’s investor reports gets wrapped up with other international platforms like Lazada, are scarce. In 2019, the last time AliExpress got a spotlight presentation at Alibaba’s investment day, the platform reported $10 billion GMV and almost 80 million annual active consumers. Russia, Spain, France, Poland and Brazil were its major markets.
Previously having focussed on Chinese merchants, AliExpress started to expand more aggressively in Russia, Turkey, Spain and Italy In 2019. tt’s adjusted strategy saw it recruiting local merchants and brands to sell on its platform. Considering AliExpress’ reputation for cheap stuff from China, few western brands seemed to be interested, but many small merchants were enticed by AliExpress’ relatively low commissions of 5% to 8% of sales (Amazon mostly charged them 7% to 15%).
AliExpress might be one of the first and most well-known of Chinese cross-border e-commerce platforms, it’s hardly the only one. LightintheBox, Banggood and DHgate are other commonly used platforms. And besides these Chinese webshops, merchants also have a range of alternative western platforms to sell through, from eBay and Shopify to the American webshop Wish, which is largely built around drop-shipments from China. In March 2021 Walmart opened a channel for Chinese merchants on its marketplace and had added 5.000 sellers by October, at which time the Chinese made up 20% of all sellers. Some of them were among the 3.000 that had been exiled from Amazon.
Besides Chinese and western marketplaces, a more recent trend sees Chinese companies setting up their own websites selling directly to western consumers, like apparel webshop Shein (explained in the video below). Sixth Tone found at least 10 similar Chinese cross-border fast-fashion companies, including Cider, Urbanic, ChicV, Doublefs, Cupshe, JollyChic. Five of these had been founded in 2019, and three as recently as 2021. And it’s not just apparel; we also see the arrival of webshops in other categories, like outdoor furniture (Outer) and mobile chargers (Anker).
In a financing round earlier this year, Shein’s value was estimated to be $100 billion, making it the third biggest startup after Bytedance (of Douyin and TikTok fame) and Elon Musk’s SpaceX. Shein has recently expanded its self-sourced fashion businesses into platform territory with new product categories like pet accessories and home decoration that third parties are selling on its website.
Ochama, a pick-up store concept by JD.com, also gives Chinese merchants an option to sell packaged food and non-food products in its test market, The Netherlands. And last but not least, TikTok is trying to replicate the e-commerce success of its Chinese sister app Douyin by launching several test markets for cross-border e-commerce, including the UK. (We’ll return to TikTok in a future article.)
Although all these Chinese initiatives are often struggling with local consumer habits, legislation, language and work ethics they have one clear advantage, both on western and Chinese platforms: price. In China’s new drive for cross-border e-commerce, products are often sold directly from Chinese factories to western consumers.
According to a source of The Wall Street Journal, in 2004 90% of the Chinese sellers were trading companies, while in 2018 80% were factories. Having made importers, wholesale and retail redundant, the price these Chinese manufacturers can offer is often a fraction of the regular retail price western consumers have been used to (see this article on how this C2M model has already changed China’s domestic market – link in Dutch). This F2C (factory-to-consumer) model has started to squeeze the margins of middlemen that sell comparable products on platforms like Amazon.
Western consumers are happy takers. Take the aforementioned example of Shein, where most items fall in the price range of €10-€20. In 2020 Deloitte predicted that Shein and its clones would sell 150 to 200 billion RMB (€22 to €30 billion) in 2021, with Shein taking the lion’s share of 100 billion RMB gross GMV. More recent estimations by Credit Suisse show that during the two years of the pandemic Shein’s sales grew sixfold to $19 billion in 2021, comparable to the revenue of H&M in the same year. In the US Shein now accounts for 31% of the U.S.’s fast fashion market, overtaking Zara and H&M’s combined share.
If you have a closer look at some of the products of Shein and do some reverse image searching on Google, you can come across rather revealing findings. Take for instance the two pictures below. Same model, same product. In one case it’s sold on Amazon for more than €57, while Shein has the same product for one sixth of that price. You might think that this is an example of the many trademark infringements Shein has been accused of. Closer inspection finds that the seller on Amazon is a company in Anhui, a Chinese province where some of Shein’s suppliers can be found. A manufacturer from Anhui seems to be betting on two horses, one having a much higher payout.
There’s no doubt about it. With a growing number of both Chinese and western channels to sell through and an advantage in the pricing of their goods, Chinese manufacturers that find their home market saturating are increasingly coming directly for your wallet.
In the next article in this series, we determine why cross-border e-commerce from China has become so prominent now and will look at the government support Chinese merchants and facilitators are receiving.