Outlook resonates with consumers’ rising demand for quality everyday products
A crowded Macy’s mall in downtown New York is where Qu Fang first met her business partner Mao Wenchao 11 years ago.
Back then e-commerce was still a novelty in China, and there weren’t many Chinese traveling and buying overseas. Nostalgia propelled them to chat as both were shopping for products unavailable in China for friends and family.
The encounter finally led the pair to co-found the e-commerce site Red (or Xiao Hongshu in Chinese, meaning ‘little red book’) in 2013, which serves an online community of foreign brand fans.
“In starting a business, the scenario in which you met your partners and form your ideas really matters,” Qu said in her office in Xintiandi, a posh bar area with restored stone-arched houses in downtown Shanghai.
Red is far from the only digital player focusing on the sales of high-quality foreign merchandise in China. E-commerce juggernauts like Alibaba Group Holding Ltd and JD.com.Inc have long had a footprint and pushed hard on imported goods. But Red plans to set itself apart with a special focus on community and user sharing.
It works by letting its users－65 percent or more of them are young and well-educated women－post pictures of their beloved products online. It then connects them with overseas sellers of everything from anti-aging masks to FolliFollie watches.
No financial incentives are given to those who share, but Red has become an incubator of word-of-mouth marketing.
“Sharing is an inherent trait in women. Those who buy things here are vocal opinion leaders, and many promote our platform on a voluntary basis,” Qu said.
The three-year old app has gained traction in China with 32 million registered users by the end of 2016. Red did not disclose financial details, but it has become the latest darling for venture capital firms, attracting investment from GGV Capital, Zhen Fund, and potentially Tencent Holdings Ltd, according to Bloomberg data.
Red is betting on a huge market where growing disposable income and freer-spending mindset among the millennials are pushing demand for high-quality, personalized products from abroad.
Retail has been one of the last globalization holdouts, but technology is giving consumers access to a world of products previously unavailable, said Vishal Bali, managing director of Nielsen China.
“Choice is enhanced by cross-border e-commerce. The growing middle-class is trading up and demanding a greater assortment not found at their domestic retailers,” he said.
The platform will thus serve as a gateway to swapping fashion ideas and discovery and purchase of these products from overseas, Qu said.
“The likes of Red are riding on the surging waves of demand for imported goods as well as the prevalent social media usage in China, and the potential is huge,” said Qi Xiaozhai, head of the Shanghai Society of Commercial Economy, a think-tank under the Shanghai Commission of Commerce.
Combining social networking with business is an area that even dominant e-commerce players covet. For instance, social commerce took the center stage at the annual sales gala in December at Alibaba’s customer-to-customer site Taobao, where consumers shared and recommended products via virtual communities and webcasts.
The model works well. Boosted by word-of-mouth, Red has become the sole or the largest distribution channel for many brands in China including Japanese medical cosmetics maker Dr. CiLabo. For instance, anonline sales campaign for a skin toner that lasts only a few days could sometimes beat several months’ worth of sales at physical counters.
Since their business benefits from the vast number of bloggers who post their findings, making friends with users has become a motto held by Red employees. They organize monthly afternoon tea parties with selected users, asking for feedback and suggestions.
It analyzes user data to determine what will sell. It then approach brands and have the merchandise imported to its warehouses in Shenzhen and Zhengzhou.
The goal of Red is to resonate with the ongoing consumption upgrade across China, where people have turned from “show-off consumption” to “quality consumption”, Qu noted.
“Lavish purchasing of designer bags and high-end jewelry marked the past. We see rocketing demand for daily items, from toothpaste, shampoo to masks and hand creams. Improving the quality of life is the priority,” she said.
While most of their users are concentrated in the wealthier costal areas of China, Qu is confident it’s only a matter of time for the brand to penetrate the rest of the country.
“We have users in Xinjiang Uygur and Tibet autonomous regions. We offer good stuff made worldwide, I am sure our users will come to find us,” she said.
