Target and Toys R Us posted overall sales declines during the holidays.
This new ‘manufacturer-to-consumer’ e-commerce is growing steadily, as Chinese factories seek to make up for softening domestic demand in China. A new industrial park opened last week in a major e-commerce center that’s designed to facilitate cross-border e-commerce.
The world’s most advanced economies can only dream of 7.5% annual economic growth, but when China’s year-over-year growth came in at 7.5% in the second quarter it represented a slowdown for the world’s fastest-growing large economy. With domestic demand softening, Chinese manufacturers are looking to keep their factories humming by selling directly to online shoppers in the West.
In the latest sign of that trend, an industrial park opened last week in the city of Hangzhou that specializes in facilitating cross-border online sales. Among the companies setting up shop in the facility are Hangzhou-based Alibaba Group Holdings Ltd., the dominant e-commerce marketplace operator in China and No. 1 in Internet Retailer’s 2013 Asia 500 rankings; eBay China; ChinaPost EMS, the express mail service of the national postal system; and E-DreamValley E-Business LLC, a company that provides training, legal services, logo and patent registration, and other services for Chinese manufacturers seeking to sell online through such online marketplaces as those of eBay Inc. and Amazon.com Inc., No 1 in the 2013 Top 500 Guide.
Yinkan Zhang, CEO of E-DreamValley, says he’s encouraging Chinese manufacturers to stop thinking solely about their business-to-business opportunities and also think in terms of manufacturer-to-consumer sales via the Internet. “M2C help manufacturers reduce the layers of sales channel and increase their profits significantly,” he says. “Generally, the profit ratio will increase from 5% of B2B model to 30% of M2C.”
A case study on the E-DreamValley web site quotes a Mr. Wang who owns an auto parts manufacturing company that he says sells $60 million a year on eBay sites, and enjoys much larger profit margins than when the company sells parts wholesale. “For example, a normal auto part, the cost is $1.40. U.S reseller will sell at $4.80 in U.S, but I only earn 10% of the final price,” Wang says. “Now my company sells directly to overseas customers at $2.80, but I earn 50% profit of the final price. It’s a huge gain in profit for any company. “
Many other Chinese companies are selling on sites operated by eBay, which since 2007 has been helping Chinese companies offer products on its marketplaces around the world and encouraging them to use its PayPal service to accept payment. In a November 2012 report, eBay said more than 7,500 of these large eBay sellers and PayPal merchants in China, Hong Kong and Taiwan were selling more than $100,000 a year to online shoppers in other countries, with 598 selling more than $1 million a year.
Of those sales 77% were on eBay sites, which means 23% were off eBay, including on the Chinese companies’ own e-commerce sites. One example of a large seller that’s launched its own site is Gofavor.com, which sells inexpensive jewelry. While the company would not reveal its sales in dollars, co-founder Wu Hongbo says the company ships 60,000 to 70,000 parcels per year, mostly to Europe and North America, and is growing annually by 30%.
Another example of a Chinese company selling directly to foreign shoppers via the web is Beijing-based LightInTheBox Holding Co. Ltd., which last month raised $79 million in a U.S. stock offering. The retailer, which sells wedding and prom dresses as well as home and electronics items, reported 2012 sales of $200 million from the e-commerce sites it operates in 17 languages. Of those sales, just over half were to consumers in Europe and 24%, or $48.0 million, to North America. In fact, its European sales make LightInTheBox No. 177 in Internet Retailer’s 2013 Europe 500 rankings of the region’s leading online retailers.
LightInTheBox said in its IPO filing that Chinese companies have strong prospects for selling online to consumers around the world. “They enjoy access to a large, low-cost export-oriented manufacturing base, global payment and logistics solutions and globally scalable online marketing,” the filing said. It also quotes a projection by Chinese market research firm iResearch Consulting Group that online direct-to-consumer sales of Chinese goods to consumers in other countries will grow from $1.7 billion in 2012 to $9.0 billion in 2015, a compound annual growth rate of 75.8%.
Hangzhou, located 110 miles southwest of Shanghai, is the home of many express delivery companies that work with Chinese e-commerce giant Alibaba. The city of 8 million also has attracted many small and midsized manufacturers of such products as toys, clothing and handbags.
Read more about Chinese companies selling directly to online consumers in the West in “Direct to China,” the cover story in the August issue of Internet Retailer magazine. Click here to sign up for a free subscription.