What’s is behind the glories of Chinese E-commerce ?

We know that Chinese consumers like to purchase through e-commerce platforms and especially on marketplaces such as TMALL or JD.com because they are convenient. Indeed, these platforms offer a greater range of available items and have become the channels of choices for Chinese shoppers looking to purchase foreign products. Fashion and cosmetics products are part of the most appreciated categories. However, when we take a closer look at how some Chinese e-commerce sites work, it shows a far less rosy picture. To launch an online-only business was before a smart way to trade in China but now, it can be difficult for foreign brands who don’t have a legal entity or physical stores in China to work with these platforms. Let’s dig a little deeper into how Chinese e-commerce sites work, then you will know what to expect.

Chinese e-commerce website work on consignment

Consignment in the e-commerce’s area is the act of sending to another agent your brand’s goods and giving to him the purpose of sale, but retaining legal ownership until the material or goods are sold. The agent sells the goods on behalf of the sender according to instructions and items that are not sold are returned to the consignor.

Many Chinese e-commerce websites work on consignment. Most of the time they have their own buyer team that selects items to sell on the site and, the consignee does not have an unconditional obligation to pay for the product (although it may be required to pay a deposit). In that case, it’s already a bit annoying for brands as they don’t know if whether the products will be sold or not. If not, brands will lose a lot of money giving their stock to these online stores.

Les Georgettes China

Also, the consignment is not ideal from a branding point. As the consignee didn’t pay for anything, there is a risk that the platform doesn’t take care a lot about the brand’s success, including the management of the product’s presentation online. The support from the e-commerce platform isn’t ensured, neither controlled. For many luxury brands, consignment is a big issue.

E-commerce Buyer team

As stated above, e-commerce platforms could get to choose which of a brand’s products they want to sell, which they think would meet the demands. While the consignee should follow the instructions from the consignor, when brands make their own suggestions, e-commerce buyers can point out they know better the market. That’s the reason why Brands rarely accept such conditions and are not attracted by the consignment model.

However, in fact, the Chinese market can be a bit different from a foreign market. Shoppers have their own consumption behaviors and preferences. It’s important to learn before about your target Chinese consumers and the way to market in China. You will also need to adapt yourself and be ready to welcome the fast-growing environment.

The requirement of deposits and commissions

From a financial point of view, working with Chinese e-commerce platforms isn’t only about gains. Brands are typically asked to pay a deposit first and some additional fees to sell on their platform. This investment should not be ignored. For example, Elleshop asks for a deposit of 30,000 RMB as a guarantee, in order to protect the e-commerce platform and its customers in case of quality issues that require refunds.

If you want to sell through e-commerce platforms in China, make sure that you can carry all the fees and the amount of deposit required. They are both defined in advance, brands are asked to sign a fixed-term contract (at least three years for Elleshop), regardless of their sales results.

Imported products have to pay the VAT

E-commerce platforms don’t support the shipping of the product from its home country, they ask brands to make them available in China. In that case, they have to carry about all the tax, including the value-added tax (VAT).

E-commerce platforms require an official VAT invoice (fapiao) to be able to pay you. And to get that, your brand needs to have a legal entity in China. If not, you might need to find a trading company, which could be costly and sometimes risky if you do not have any connections in China.

How to choose between Go / No Go?

To summer, before going on an e-commerce project in China, you should consider the financial side and the fact that you may have less flexibility. Chinese e-commerce platforms represent an interesting way for a brand with legal entities, if you have in addition your own store in China, it can be a real solution to expand your business in China.  For smaller brands with no existing presence in China, you may need to start with other solutions such as WeChat for e-commerce.

Wechat

The advantage is that WeChat requires few for entry investment (as standalone website or marketplaces) and technical development (as for creating an app) and allows customers to complete the entire shopping journey only within its ecosystem. WeChat is nowadays also a very good tool for marketing, used to reach and catch online Chinese consumers.

Guide to Wechat marketing for Fashion and Luxury Brands

TMALL and JD.com

Also, you have to choose your e-commerce partner considering the difference between these different platforms in China. TMALL and JD.com are the most popular in China, and they also have a huge user database. Their influence and marketing power is very important. Some platforms like Mei.com are famous for their flash sales, which help brands clear out excess inventory.

Need an expert advice?

We have developed many successful e-commerce projects because we know how to effectively promote your e-commerce business in China by using the latest digital tools. Our agency offers a complete range of service for e-commerce marketers from e-commerce consulting to digital marketing operations.

Gentlemen marketing agency is the most visible digital agency in China. Do not hesitate to contact us for more information.

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