cnycqc.com

The Overseas Expansion Path of Chinese Apparel Enterprises

 

Since entering the second half of the year, cross-border e-commerce platforms and domestic e-commerce platforms have begun to diverge in their approach to the "low-price" strategy.

Domestic e-commerce heads left. Platforms like Taobao, Tmall, Pinduoduo, and Douyin have started to move away from the "lowest price" route, continually implementing policies such as discounts, exemptions, and rebates. They have shifted from driving merchants to lower prices to "let both buyers and sellers stay!"

On August 26, during the Q2 earnings call, senior executives from Pinduoduo unexpectedly lowered their revenue and profit growth forecasts, emphasizing "supporting high-quality merchants and transitioning to high-quality development" as the key focus for the platform.

Cross-border e-commerce heads right. Platforms like Amazon, TikTok E-commerce, Shopee, and others have been hearing a lot about rising platform fees. The battle for dominance around "low prices" is still in full swing.

So, will the current state of domestic e-commerce be the future for cross-border e-commerce?

Advertisement

"Trade Across the Seas" will use the apparel industry as a case study to explore this.

The "Low Price" War Has Reached its Limit

For many years, pulling merchants into the "low-price" game to retain customers was a shared consensus among major e-commerce platforms in the face of the "customer retention era."

At the end of 2022, Liu Qiangdong, who made a dramatic return to JD.com, clarified that the company would focus on "low prices" as its most important strategy over the next three years. "As long as the user base and sales are large enough, even God will bow down to us."

In January 2023, JD.com launched the "Spring Dawn Plan," which lowered the threshold for merchants to join and, for the first time, integrated its self-operated and third-party (3P) businesses, promising "whoever can achieve low prices will be given preferential treatment."

At the same time, Taotian Group also introduced a pricing power system to provide more low-priced products.

In May 2023, Jack Ma, who also made a return to Alibaba, mentioned in an internal meeting that the next opportunity belonged to Taobao, not Tmall.

Shortly after, Douyin E-commerce followed suit. In May of the same year, Douyin E-commerce reorganized its operation teams into two groups: branded merchants and non-branded merchants, with order volume as the core evaluation indicator for non-branded merchants.

By early 2024, Douyin E-commerce made "pricing power" its highest priority task and launched "Super Value Buy," mirroring Pinduoduo's "billion-dollar subsidies."

The "low-price" war reached its peak during the 6.18 sales event in June.

Faced with increasing pressure from competitors, Pinduoduo, the "low-price gatekeeper," made a special rule during the 6.18 period: the transaction prices of activity orders were not counted as the lowest price to encourage merchants to offer more competitive prices during the sales events.

According to 36Kr reports, just before the 6.18 event, Liu Qiangdong deliberately changed JD.com's promotional slogan from "Good and Cheap" to "Cheap and Good."

The parabolic curve of the "low-price" strategy has finally reached its peak and started to descend. This year’s 6.18 marked the turning point.

This year's most lukewarm 6.18 made platforms that had once wholeheartedly adhered to the principle of "whoever acquires users, wins the market" and "using volume to exchange for price" realize that if the price battle continued, merchants might abandon them first.

The End of the Price War

Among all the industries, clothing merchants are perhaps the group feeling the most pressure.

The apparel industry has always been highly competitive, and this year’s 6.18 became the final straw.

The first blow came from changes to the pre-sale system.

For merchants, the biggest change in this year’s 6.18 was the cancellation of the pre-sale mechanism, which had been in place for ten years. Some categories, such as women’s fashion, still allowed pre-sales, but the pre-sale period was limited to 15 days.

The cancellation of the pre-sale system, or its shortening, was undoubtedly a huge blow to domestic apparel merchants, especially fast-fashion merchants.

In recent years, online apparel merchants have developed a strategy known as the "three lids and five pots" approach to mitigate high return rates.

Simply put, this approach involves selling merchandise in batches to avoid losses. If a merchant pre-sells 1,000 garments and expects 80% to be returned, they will only produce 200 pieces. These 200 pieces are shipped first to customers who placed the initial pre-sale orders. Over the next week (within the seven-day no-reason return period), the merchant receives the returned garments, which are then sent to the second batch of customers who ordered. This process continues in cycles, so as to offset the impact of high return rates.

However, this pre-sale system naturally results in poor customer experiences. Delivery times are long, sometimes even exceeding the pre-sale period, and some consumers may never receive their items at all. In some cases, merchants lower the price later due to unsold stock, leading to customers feeling as though they were "scammed" into paying upfront. This is one of the reasons why platforms stopped promoting the pre-sale mechanism during the 6.18 event.

For merchants, the cancellation or shortening of the pre-sale system has removed their ability to offset the high return rates. For fashion items, once a specific sales period is over, the items are essentially out-of-season and unsellable.

The second blow came from the rise of "refund-only" policies.

From JD.com's self-operated refund policy launched in 2014, to Pinduoduo expanding it in 2021, and Taobao’s official launch of the "refund-only" policy in late December 2022, this year’s 6.18 became the year of massive "refund-only" practices in domestic e-commerce.

Merchants who had been relying on the "three lids and five pots" approach to resell returned products found themselves with fewer options. The frequent occurrences of malicious refund-only incidents have caused significant harm to small and medium-sized merchants.

The greatest impact, however, comes from changes in consumer behavior. According to one veteran apparel merchant, the core demographic of domestic fast fashion has long been young women earning less than 8,000 yuan per month, but now, they are changing their shopping habits. "Now, everyone's clothing purchase frequency has dropped, and they no longer impulsively buy just because an item is cheap."

Is Going Overseas the Only Option?

"I lost more than 500,000 yuan during 6.18 this year," said a senior apparel merchant in China, who spoke to "Trade Across the Seas." He explained that the fast-fashion market has become a vicious cycle: when a hot product appears, a bunch of imitators quickly flood the market, driving prices down. From a consumer's perspective, all the products look the same, and they can’t judge quality, so they buy to try on, and if dissatisfied, they return the items, leading to high return rates.

He believes that the changes in platform policies, such as "refund-only" and the cancellation of the pre-sale system, were made from the platform’s perspective to improve consumer certainty, but at the expense of merchant certainty. At present, he wants to focus on quality and branding, but he feels powerless and trapped in a price war that ultimately yields no profit. As a result, he is seriously considering how to transition to cross-border e-commerce.

"Although competition in the apparel category of cross-border e-commerce is intense, it's not as difficult as it is in the domestic market," said Chen Yong, founder of Sevens Marketing Consulting. He explained that overseas markets have certain entry barriers that prevent aggressive competition. Platforms like Amazon have relatively neutral rules, offering sellers more stable profit margins.

Shen Xuefeng, founder of SDS Custom Platform, also sees potential in China's apparel going overseas. Taking the U.S. market as an example, he noted that U.S. women's apparel consumption is still quite robust. For instance, the average price of a washing machine in the U.S. is $10,000, and dry cleaning a single piece of clothing costs about $10, while Shein’s women’s apparel average price is just above $10. Shein's current customer order value is $100, and the annual repurchase rate is nine times.

Shen also pointed out that compared to China's high return rates, U.S. return rates are relatively low. According to his information, the return rate of FBA women’s apparel on Amazon is around 20%, while self-shipped return rates can be as low as 10%.

A Narrow Door is Often a Door to Opportunity

Ted Tianwu, founder of "Trade Across the Seas," believes that the apparel category has reached its limit due to homogeneous competition, all vying for the same small market share.

A popular consumption formula in China goes like this—women > children > elderly > dogs > men. In the apparel category, this has led to the female clothing market in China exceeding 1.4 trillion yuan, with the male clothing market at around 561.6 billion yuan, making women’s apparel three times the size of men’s.

However, several experts familiar with overseas markets have pointed out that while women remain the primary consumer group in most countries, the male consumer group is also substantial and not as extreme as in China.

Within the women's apparel industry itself, there is a hierarchy. According to statistics, the top ten brands in China