Why Flash Sale Sites Might Work in China, and Not the U.S.
After a record US$9 billion of sales on Singles Day, the world’s biggest 24-hour e-retail extravaganza, the market in China for flash sales appears stronger than ever. However the one-day feeding frenzy may not the best indicator of health when it comes to the flash sale site model.
Flash sale sites that run year-round as opposed to one day-sales are frequently criticised for the questionable sustainability of their model. Most U.S. flash sale giants have seen steady losses over the last two years. However new entrants to the China market are optimistic, claiming that the simplified experience and access to merchandise makes flash sale sites an ideal model in China’s developing consumer market.
Vipshop, China’s largest online apparel discounter, has seen its stock rise strongly in 2014. The relatively new company has seen sharp growth through a primarily mobile-driven model of discount flash sales. In February this year the B2C retailer also acquired a 75% equity stake Chinese cosmetics retailer Lefeng.com.
Xiaoher is another flash sale newcomer that has managed to gain momentum recently, completing its US$10 million Series A funding with the help of venture capitalists Lightspeed China Partners (LCP) this month. Xiaoher is the Chinese version of niche site Zulily, which targets mothers and children with discounted products.
According to Xiaoher CEO Michelle Meng, the flash sale model is successful in China because it functions more like a catalogue, simplifying the online e-retail experience. She claims that users across over 3000 Chinese cities were checking the site for new deals going live every day at 7am, as opposed to coming to the site for a specific product.
“Traditional e-commerce sites require shoppers to choose from a series of complicated options. Most of the Chinese women who shop with us are from the middle of the country where these functions are unfamiliar.”
According to Meng, Xiaoher shoppers preferred the simplicity of browsing pre-selected deals, rather than seeking out products. “It’s almost like a subscription, but many women from China’s interior don’t have email, so this is a simple alternative.”
Xiaoher and other Chinese flash sale sites also have another distinct advantage over their US counterparts, in that inventory is much closer to home. Volatility in the U.S. flash sale market is directly related to merchandise availability. Sites rely on sourcing off-season, or otherwise discounted, bulk merchandise that can be acquired according to consumer demand and then sold at a substantially cheaper price. However there are very few flash sale companies that can source enough merchandise without taking the next step into manufacturing their own.
Meng, who claims Xiaoher stocks over 2000 brands, believes the flash sale model can survive in China without in-house production.
“We continue to reach out and find more [brands]. They are very willing to cooperate with Xiaoher, because traditional sales channels are too expensive, while Xiaoher is free and brings them lots of sales,” says Meng.
The flash site model emerged in the U.S. just before the financial crash of 2008, as entrepreneurs took advantage of the heavily discounted merchandise that retailers were attempting to offload as the economy declined. Companies like Gilt saw a revenue increase in the area of 250% during the years immediately following the crash.
However market conditions have since stabilised, putting more pressure on sellers to find inventory. Gilt may end up being the last of its previously swollen competitor pool in the U.S., following news last July that main competitor and eBay affiliate, Rue La La may be sold to Gilt Groupe at a US$400 million valuation.
The thirst for e-retail deals in China certainly isn’t dwindling. However it was reported that an estimated 50% drop in sales preceded the Singles Day event this year, showing that Chinese consumers are not necessarily as impulsive as flash sale merchants may like.
For sites like Xiaoher, the consumer preference for simplicity and a seemingly endless supply of cheap inventory appears to be giving the flash site model a second life in China – at least for time being.
Editing by Mike Cormack (@bucketoftongues)