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  • If you hate someone, ask him to open Taobao shop

    Post by : expatree

If you love someone, ask him to open Taobao shop; If you hate someone, also ask him to open Taobao shop. This Chinese jingle becomes quite popular because it epitomizes the struggle of e-commerce experience from amounts of small to medium company entrepreneurs. As two of main domestic e-commerce platforms in China, “Taobao” and “Tmall” under Alibaba group, both meet a bottleneck and starting slow down growth rate in recent years. It makes sense why Jack Ma is seeking a new opportunity of e-commerce booming place, for example opening an e-commerce conference with 3000 small to medium company entrepreneurs in Detroit, US.

With no doubt Jack Ma with Alibaba group opens a new age of e-commerce lifestyle to Chinese people, it has changed the way of shopping behavior and improved technology development in payment, logistics and cloud computing service etc. Everything is happened just within 20 years, we are proud of this miracle. However nowadays more and more Taobao and Tmall  shop owners have to face a big challenge of how to survive in e-commerce platform due to soaring hidden operation cost and over spoiled customer shopping policy. We can see the reflection of initial enthusiasm of Chinese e-commerce pioneer from US entrepreneurs, but we are afraid that US entrepreneurs might settle back into “China e-commerce bubble” old road.
5% & 10%
Until 2015 it reported there are around 6 million online shops in Taobao platform, in addition to this, more than 100 Taobao towns, 1000 Taobao villages were born until 2016, which provide a variety of platform service includes procurement, merchandising, customer service, logistics and so on. Unfortunately only 5%, less than 300,000 shops can make a positive profit margin. Another sister platform, Tmall, has more than 60,000 flagship stores with legal license, but the stores who have a positive profit margin only occupy less than 10%.

Image: Taobao shop owner is working on the call of customer service
49% & 1%
Fashion Apparel, especially in women apparel, is one of hot categories in “Tmall” and “Taobao” platforms. In 2015 the “Apparel, Shoes & Bag” section gained 32.3% market share in Tmall domestic. Despite of this huge Chinese market, we are surprised to hear lots of complaints of heavy competition cost from brand vendors. After a thorough investigation, we make an example to figure out the cost amount.

In case of new brand joining in Tmall domestic, here the definition of “new” means “well-known in home country but not in China yet” and the percentage means the proportion of yearly sales revenue.
-  18%: Operation labor cost includes online shop management, product category update, page design, customer service, marketing promotion, warehouse management and logistics, system maintenance.
-  15%: Advertising cost includes online banner, SEO and SEM paid to Tmall and other promotional campaigns for example providing coupons or discount offer followed by Tmall request.
-  12%: Express delivery cost and its insurance cost, in additional to package boxes and bags cost.
-  4%: Finance, admin, facilities and tax cost etc. 
As above, the overall operation cost occupies 49%. The story hasn’t ended yet due to “7 days non-reason goods return” Tmall policy, the average rate of apparel return is around 17%, sometimes even up to 30% after a big online campaign.   
How about “Double 11” campaign? As we know “Double 11” one day sales volume could contribute 30% to 80% of yearly revenue, brand vendor has to pay extra 1 month workload cost from preheating to after-sales stage. Meanwhile Tmall asks a mandatory requirement of 50% discount of each product, which means the profit margin might become less than 1%. This embarrassed achievement of “half the result with twice the effort” results in a significant profit pressure with feeling down in confidence of vendors.
2.7% & 18%
If 1% profit margin is a fixed number, a bigger sale volume is preferred. In another word, vendor has to start another intense fight in traffic driven strategy such as pageview, visits, unique visitor increase of Tmall shop. Despite Tmall has a new brand support project, its policy would be inclined to sales achievement in the platform because of limited online traffic resources. This is a good news to “early bird” vendors rather than beginners.

For example, there are more than 2000 brand vendors in fashion apparel category, no matter how big sales volume or user traffic Tmall has, you have to keep in mind how many traffic you could reach, competing against 1999 brands. Similar to 80/20 rule, an extreme case of Tmall is roughly 90% of the profits come from 10% of the vendors. A joke “You are not a son of Tmall” indicates an “under table” trade off, that Who falls in with Tmall’s wishes, who becomes the king of sales. As brands are pushed by discount focused strategy, continuously price war between Tmall, JD and other players not only spoils Chinese consumers’ opinion on commercial value but also squeeze the online business profitability of vendors.

Image: Top 18 brands in Tmall Apparel 2016 by iResearch iShop OSM model calculation

Tmall occupied 57.7% B2C e-commerce market share in 2016 but it lost 2.7% compared to 2014. A research tells us the trending of e-commerce market diversification in China, classified e-commerce platforms specialized in one product category are rising up and accepted by more consumers. Obviously Alibaba is not happy to face this challenge. 
Image: 2016 B2C e-commerce market share distribution
Something interesting to say, people think Alibaba would be always on the track of e-commerce business growth however Alibaba unexpectedly announced he bought 18% stake from Lianhua Supermarket to show his passion on the innovation of “New Retail”. This behavior concerns the public with a big question, “Alibaba e-commerce business is at inflection point, isn’t it?” Alibaba CEO redefines Alibaba is a data company rather than e-commerce company, no matter how this changed we firmly believe A good platform should be helpful for the sustainable and healthy development of brands.

Image: Jack Ma said “I have no interested in making money” J

We hope our experience helps foreign entrepreneurs to navigate China e-commerce jungle before you “Go or No Go”. Quoted Jack Ma’s message “If you miss the opportunity to sell your products to China, you will miss the opportunity. You will miss the future.” Are you ready?

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Date:2017-06-27 15:58:38
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