From the sluggish "Double 11" to the unstreamable "618", consumer demand has been weak in recent years, and the domestic e-commerce market is no longer "high-growth". Platforms have to turn their attention overseas, and the competition among cross-border e-commerce platforms has entered a white-hot stage.
The "Four Little Dragons Going Global" have gathered Alibaba's AliExpress, Pinduoduo's TEMU, TikTok's e-commerce, and the emerging fast fashion giant SHEIN. In addition to them, JD.com, which has been absent from cross-border e-commerce, and Alibaba, which has already entered the game, both hope to gain more from the overseas market.
At the end of July this year, Taobao Fashion announced the "Global Free Shipping Plan for Fashion". It is said that this is an all-in S-level project. Recently, insiders from Taobao revealed that Taobao intends to further increase its overseas strategy, upgrading the original "Global Free Shipping Plan for Fashion" to the "Taobao Tmall Overseas Growth Plan", expanding global free shipping from the fashion category to the entire industry.
JD.com has launched the 2024 China Original Fashion Recruitment Plan to support the development of Chinese original designers and fashion brands, helping them to enter a broader international market. At the same time, JD.com announced an investment of 1 billion yuan to focus on the fashion category for product optimization, flexible supply chain, and other improvements.
Advertisement
It is not difficult to understand that e-commerce platforms are eager for overseas growth, but both Taobao and JD.com have chosen to start with the "fashion track". What is the attraction of selling clothes overseas for platforms, and will the fashion field be a perfect test field?
Taobao and JD.com are flocking to "fashion going global"
The overseas expansion of China's fashion industry has a long history. Since the 1980s, due to the incomparable labor cost advantages and industrial chain advantages of the domestic fashion industry, domestic fashion manufacturers have undertaken textile OEMs from Japan and Europe and the United States, and have gone overseas through a capacity model. Chinese fashion brands have also "blossomed" during this period.
However, due to the rapid development of domestic e-commerce platforms, the domestic fashion industry has become more and more "inward-turning", and the profit margins of many manufacturers have also been compressed. More fashion brands have begun to see going overseas as an important strategic direction for seeking growth points, such as well-known brands like Li-Ning, Anta, and Bosideng.
In recent years, with the rise of the "Four Little Dragons Going Global", Chinese fashion manufacturers have also ushered in a more convenient way to go overseas. Taking SHEIN as an example, it started from the apparel field and proposed a "small order and quick return" supply chain model, which is to first put a small batch of products for testing, and then use terminal data feedback to determine which products can become "best-sellers" and quickly reorder.
Behind this model, the support of the domestic mature and complete garment manufacturing industry is indispensable. There are more than 500 garment manufacturers in Panyu, Guangzhou, who specifically supply goods for SHEIN.
But it can also be seen that the domestic garment production capacity is huge, and what is lacking is not "supply" but "demand". Garment manufacturers hope to find a new way out, which is also why Taobao and JD.com both choose to use garments as a starting point to further layout cross-border e-commerce.
Firstly, domestic garment demand has slowed down, but there is still a bonus for garments going overseas. In the first half of this year, the total retail sales of clothing and other goods above the designated amount in China reached 515.63 billion yuan, a year-on-year increase of 0.8%, and the growth rate slowed down by 14.7 percentage points compared with the same period in 2023.
The domestic economic growth has slowed down, and consumer demand for clothing has also slowed down synchronously. "High return rate" has become a hot search term in the clothing industry this year. Some clothing merchants said that the return rate of this year's 618 reached 80%, setting a historical record, which is far higher than the 50% "life and death line" that can make a profit, and it can even be said that "selling one piece means losing one piece".
However, looking at the global market, Statista data shows that the global clothing market scale has reached 673 billion US dollars in 2023, which is twice the scale of the global furniture market (330 billion US dollars).
Secondly, going overseas is not only "another possibility" for most garment manufacturers, but also a new growth engine for e-commerce platforms. At present, the three major e-commerce giants Alibaba, JD.com, and Pinduoduo are all facing their own operational bottlenecks.
In the first half of this year, Alibaba's revenue growth stagnated, and net profit slightly declined. Among them, Taobao Group achieved a revenue of 113.373 billion yuan, a year-on-year decrease of 1%, which is the only group among the six major business groups with negative revenue growth.
Although JD.com has maintained profit growth, its revenue growth has also stagnated. Among them, the revenue of the core business of electronic products and home appliances decreased by 4.65% year-on-year.
Although Pinduoduo's revenue and profit have soared, the year-on-year growth rate of revenue and net profit in the second quarter has also begun to slow down. The management even stated at the performance meeting that the trend of long-term profit reduction is inevitable.
Therefore, domestic e-commerce platforms are further integrating resources in the hope of breaking through the domestic growth bottleneck. Taking Alibaba as an example, although domestic e-commerce business revenue has slowed down, in the first quarter of 2024, its overseas e-commerce revenue increased by 45% to 27.448 billion yuan. Its subsidiary AliExpress has surpassed overseas e-commerce giants such as Amazon and eBay from the United States, becoming the largest e-commerce platform in Europe.
For Taobao, garments are its most advantageous category, with clothing retail sales accounting for more than 35% of the platform, which is the largest channel on the platform. It is not difficult to understand that e-commerce platforms, including Taobao, will take the garment track as the focus of going overseas, as there are enough merchant scales to support the development of cross-border e-commerce.
Finally, the garment category is more in line with the trend of going overseas. The garment industry has always been a track where overseas merchants compete to enter, and the strong demand for fashionable clothing in overseas markets has given birth to a rich and diverse range of tracks.
After years of development, especially in recent years, when various platforms are actively promoting the original factory model, they have mature experience in payment, logistics, after-sales, and flexible supply chain, which also provides a foundation for the overseas expansion of non-standard products such as garments.
The overseas market has become a new gold mine for e-commerce
Garment merchants need to explore new overseas channels; Taobao and JD.com, as e-commerce platforms, intend to further cultivate cross-border e-commerce, and the two parties will inevitably agree.
However, for most garment manufacturers, it is not easy to cross the border from traditional manufacturing to the e-commerce industry. Therefore, Taobao proposed the "Global Free Shipping Plan for Fashion".
Simply put, existing Taobao merchants do not need to open another store. As long as they join the plan, they can sell goods globally through multiple apps such as the overseas version of Taobao, AliExpress, and Lazada. After receiving orders from overseas consumers, merchants only need to send goods to the domestic consolidation warehouse to confirm receipt, and merchants still have the right to set their own prices and ownership of goods.
In addition, Taobao promises 0 returns, 0 refunds, and 0 freight insurance, sharing the operating costs of high domestic return rates and freight insurance for merchants.
However, this model is not unfamiliar to most cross-border merchants. Essentially, it is another "semi-hosted model", where the platform "underwrites" for merchants, and merchants need to pay a 20% commission, including a 15% cross-border value-added service fee and a 5% basic service fee.
Although JD.com has not disclosed more details on how to support garment merchants to go overseas, JD.com has always focused on the "direct operation model" in the domestic e-commerce market, ensuring product quality and logistics after-sales through self-operation. If JD.com further explores cross-border e-commerce, it is likely to provide a "hosted model" for merchants.
In recent years, the "semi-hosted model" has sprung up like mushrooms after rain. AliExpress was the first to try it, followed by TEMU and SHEIN, which have also been tested in the United States. The transformation of cross-border e-commerce platforms from a "full-hosted model" to a "semi-hosted model" is mainly based on operational strategy and operational cost considerations.
On the one hand, the full-hosted model means that merchants lose autonomy and are passively involved in the platform's operational strategy aimed at "explosive orders", which makes many merchants feel "restricted" and exacerbates the contradictions between merchants and platforms.
On the other hand, as the number of merchants increases, the platform's operational and management capabilities are approaching the bottleneck. According to calculations by the CICC team, under the full-hosted model, last year's third quarter TEMU in the US market, the operating loss per order was about $8.2, and the operating loss per order in other regions was about $10.3. Therefore, appropriately giving up some "operational rights" can also reduce the platform's burden on logistics and warehousing.
But precisely because the "semi-hosted model" has become the general trend of cross-border e-commerce, how can Taobao and JD.com differentiate themselves? In fact, Taobao's "Global Free Shipping Plan for Fashion" is still somewhat different from the semi-hosted models of SHEIN and TEMU.
Firstly, it is the merchant's pricing power. Under the hosted models of TEMU and SHEIN, merchants do not have pricing power. Some merchants have reported that TEMU's operational policies are also quite overbearing. Even under the semi-hosted model, merchants who do not accept bargaining will be taken off the shelf.
However, Taobao chooses to give "pricing power" back to the merchants, because merchants without pricing power are only "working for the platform". Merchants with pricing power have brands that truly belong to them, and the enthusiasm of merchants is significantly different.
The second is the operational strategy. When cross-border platforms become brand merchants, they often focus on creating best-sellers, occupying the market through low-price strategies, and profiting from scale advantages.
However, under the Taobao model, as brand merchants, merchants have the right to choose different high, medium, and low positions. For example, Taobao store Hua Shang Ge mainly has a "new Chinese style" and the customer price range is between 1500 yuan and 5000 yuan. The low-price strategy is no longer the only competitive advantage for the platform or merchants.
Finally, it is more focused on the Chinese market. It is reported that the first phase of Taobao's "Global Free Shipping Plan for Fashion" will cover Asian regions such as Singapore, Malaysia, South Korea, Hong Kong, Macao, and Taiwan. It is expected that Japan, Australia, and Canada will also be included in the global free shipping scope in the future, and the common feature of these countries is that there are many Chinese people.
Compared with TEMU and SHEIN, which first chose to enter the North American market, Taobao places its first overseas stop in the Chinese market. On the one hand, it can better utilize its own logistics advantages. For example, Alibaba's local e-commerce platform Lazada also focuses on the Southeast Asian market. On the other hand, "Chinese aesthetics" and Taobao's system of fashion merchants can be more "seamlessly connected", reducing the difficulty for merchants to go overseas for the first time.
Compliance, supply chain, and sustainability
Of course, although Taobao's "Global Free Shipping Plan for Fashion" has made more differentiated considerations in terms of business model, overseas destination, and target consumer groups, whether the "free shipping plan" can expand from fashion to all categories and gradually go global still needs to wait for market and merchant feedback. Before that, the challenges and problems faced by other cross-border e-commerce platforms cannot be ignored by Taobao and JD.com.
The first is the compliance issue. In April and May of this year, SHEIN and TEMU were successively identified by the European Union as ultra-large online platforms, and the two need to comply with the strictest provisions of the EU's Digital Services Act within 4 months. In addition, some insiders revealed that the European Commission suggested canceling the current tax-free threshold for imported goods under 150 euros, which is aimed at Chinese e-commerce apps like TEMU.
While cross-border e-commerce platforms are rolling out to overseas markets through price advantages, they have long been "watched" by regulatory authorities in various countries. Industry insiders believe that the reason why some companies have not been able to go overseas for a long time is related to the stricter policies of Europe and the United States on data security and tax standards.
Therefore, cross-border e-commerce still needs to make more efforts in the compliance area to meet the regulatory requirements of overseas markets. Otherwise, once they violate the rules, they may face huge fines or be required to comply with stricter tax regulations.
The second is whether the products can adapt to going overseas. For example, while TEMU and others have swept the overseas market with a low-price model, they have also attracted a lot of bad reviews. Many users have reported poor product quality, wrong goods, simple packaging, and express package tampering.
Whether it is the garment category or other categories, excessive price competition will inevitably lead to a decline in product quality. Most overseas users want low-priced and high-quality products, not cheap and low-end products. Long-term export of low-quality products to overseas will ultimately affect the platform and even the reputation of Chinese brands.
In addition, as non-standard products, garments also need to consider the cultural differences of local consumers. For domestic merchants, their supply chain also needs to make corresponding adjustments, including styles, designs, fabrics, etc. Whether they can adapt to local conditions will be the key to the success of platforms and merchants going overseas.
Finally, it is the sustainable development of the platform. At present, most cross-border e-commerce platforms, after going overseas, attract users through policies such as advertising, low prices, free shipping, and free returns; on the merchant side, they enhance scale advantages through the hosted model, to a certain extent, belonging to "sheep merchants", subsidizing overseas consumers.
However, the sustainability of this model is also increasingly questioned. After all, relying on advertising and low-price subsidies can bring a certain surge effect, but in the end, it still needs to return to the platform's daily operations.
Data shows that Temu's growth rate in the US market has begun to show a slowing trend. In August of this year, Temu's sales growth rate year-on-year dropped to 37%, and its growth rate in July was 45%, and the growth rate in the second quarter of last year was as high as 99%.
For Taobao, it is also the case. Global free shipping and logistics support are actually a low-price subsidy strategy. In the short term, it can indeed attract a large number of overseas users. For example, since the launch of free shipping for garments, the number of users in Malaysia increased by 10% month-on-month in August, but its sustainability also needs further observation.
Taobao stated that by cooperating with "local return service" insurance companies, it ensures that merchants can achieve "0 returns, 0 refunds". However, against the backdrop of rising global logistics and supply chain costs, this move will inevitably increase the platform's operating pressure. In the end, "global free shipping" still needs to continue the game with "return rate", and the quality of merchants will become more important.
But no matter what, Taobao and JD.com's exploration of the diversity of global cross-border e-commerce through "fashion going global" is an innovation worth trying for both garment merchants and the e-commerce industry.
For Chinese garment merchants, in addition to production capacity and product going overseas, "Chinese brands", "Chinese design", and "Chinese aesthetics" are also expected to go overseas with "global free shipping"; for the Chinese e-commerce industry, it is expected to get rid of the stereotype of "low price".
In recent years, Chinese e-commerce platforms have suffered a lot from "inward-turning". From domestic to overseas, the "detours" that those platforms have taken are also reminding everyone all the time:
Going overseas competition is not just one model of price war. Cross-border e-commerce platforms need to find breakthroughs from brand building, product models, and ecological development to better meet the challenges in compliance, supply chain, and sustainability. To make overseas markets a real "second growth curve", e-commerce platforms still need to further create differentiated competitive advantages. It is necessary to strengthen oneself.