As more and more China’s companies choose to develop their E-commerce business on Alibaba’s B2B(1688.com and Alibaba.com), B2C(Tmall.com), and C2C(Taobao.com) platforms, bubbles in E-commerce industry have expanded at a rapidly increasing pace. A number of companies got big losses because of the appearance of E-commerce business.
Why? Let’s talk about this problem in the followings:
Lack of ideas and thinking of “E-commerce”
Senior managers of China’s companies do not have right ideas and thinking about “E-commerce”. People pay too much attention to the definition of letter “E” which stands for “electronic” instead of “commerce” which means buying and selling goods and services. As a senior level manager, such as CEO and CFO in the company, our primary target is supposed to be maximizing the profit of the company for shareholders. However, in reality, most of China’s companies only care about the influence of online marketing instead of making profit from online sales. They believe Internet could help them with branding and marketing their products.
This provides opportunities for Alibaba Group to connect their online platforms to billions of China’s corporations’ business. At the same time, Alibaba tells fancy stories to China’s entrepreneurs, such as CEO and CFO, of different big companies across industries about the massive influence of online marketing on their platforms(Tmall.com and Taobao.com).
As out team has worked for many big corporations and helped them with E-commerce business development and operations, the problems of bubbles in China’s E-commerce industry have been quite meaningful for us to worry. The problem will be discussed from platform to platform. Today, our focus is about the most prevailing platform – Alibaba’s Tmall.com.
Tmall.com (high-end B2C platform)
Tmall is one of China’s largest online sales platform. For sellers who want to join in the Alibaba’s Tmall platform, you are required to provide certain official documents of qualifications, such as CE verification certificate, trademark certificate, and authorization documents from brand holder. In addition, you have to pay certain deposit(usually more than $10,000 USD) and annul service fees(more than $10,000 USD). All these numbers vary depending on in which category your business is. After successful registration and background check with Tmall, you are officially an seller in the Tmall.com. Usually you are able to carry one or more brands in the platform. Tmall will charge you sales commissions on your each successful transactions. The rate of sales commissions is usually about 5% in average across all categories and industries.
You might not think this is a big number. Moreover, you will be shocked when you know about the business environment in the Tmall.com. In the past decades, China’s companies have built their own off-line channels to sell. As customers’ preferences and habits change fast all the time, people prefer to shopping on-line in the past few years. Thus, in order to catch the attention from this types of customers across the online sales platform, selling products at a low price is always a good idea for companies. This is the beginning stage for company to do business on Tmall.com.
After your online shop has accumulated certain sales record. You would always receive invitations from Tmall’s marketing team which suggests your shop to participate their “events” and “festivals” on the platform for some special dates of the year. In order to join in these activities, you have to provide big discounts to customers across products in your online store. For instance, sometimes you are required to keep all products 80% off regular prices in the past 90 days. In addition, you have to keep all products free for delivery across most cities of the country. These are just prerequisites in order to join in events. Then, the marketing team of Tmall would suggest you to invest more money for keeping your online store and products high rankings in these events. I still remember that there was a furniture company on Tmall.com which got 40 million USD daily sales on China’s Black Friday. However, it is hard to imagine that their gross profit for that day was only 250 thousand USD, which is about 6.25%. Indeed, they have paid Tmall 5% sales commissions and extra costs on online advertisement for high rankings in Tmall’s search engine. If you do some basic calculations, you would find out that the net profit is not that significant.
Alibaba has made the Internet platform sound noisy to people and told fantastic stories about getting succeeded in the E-commerce. Nevertheless, they never tell you how much more money you have to invest in order to achieve that stage called “SUCCESS“. If you say, E-commerce will lead our economy to grow. Of course, most of you will say YES. But if we say, will E-commerce help companies to make more profits? None could provide a confident answer towards it. Overall, the concept we talked about today is quite interesting and may offer another new idea for the smart investor and entrepreneur to think about.
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