A version of this post by Thomas Graziani first appeared on WalktheChat, which specializes in helping foreign organizations access the Chinese market through WeChat, the largest social network on the mainland.

There is no shortage of providers of WeChat stores (WalktheChat is one of them!). But, whether we like it or not, we all have to admit that there is one leader in the market: Youzan.

Let’s take a closer look at the largest WeChat store provider in China.

We also wrote a step-by-step guide on how to create a WeChat shop using Youzan.

What is Youzan?

Youzan is the largest provider of WeChat stores in mainland China.

If you want to set up a store for your brand on WeChat, you need to find a solution provider to help out. Unlike Tmall, WeChat doesn’t have a single interface to set up stores. Instead, WeChat provides a toolbox for many service providers to design their own offerings.

Most providers (including WalktheChat) provide two versions of the WeChat store: an HTML5 store which works also outside WeChat, and a WeChat Mini-program version which is specific to WeChat.

Youzan provides a Software-as-a-Service (SaaS) solution to set-up a WeChat store, which can be managed either via their website or via a native App.

The Youzan platform is used by major brands such as Dell or Walch, and by top influencers such as Becky Li.

In a recent conference, Youzan revealed that traffic to merchants’ WeChat mini-programs was mostly coming from swipe-down access from the WeChat home page (27%), official account menus (15%), and official account articles (14%).

How big is Youzan?

Youzan claims to serve more than 300,000 merchants. It also boasted a Gross Merchandise Volume (GMV) of RMB 33 billion (about $4.7 billion) in 2018.

GMV for the first three quarters of 2019 was RMB 38 billion.

The GMV of Youzan has been booming over the last few years, with a YOY growth rate of more than 200%.

This GMV, although significant, remains tiny in comparison to pure e-commerce competitors such as Taobao. Taobao generated RMB 2.69 trillion of GMV during fiscal year 2018, 81 times more than Youzan.

These figures show that, although WeChat stores drive large volumes of sales, large marketplaces do remain the main channels for e-commerce sales in China.

The group has also been struggling to turn a profit. In fact, its losses widened to HK$839 million (about $107 million) in 2018.

How does Youzan make money?

Most Youzan revenue comes from subscription fees to its WeChat store platform. The company charges between RMB 6,800 to 26,800 per year for access to the platform. More expensive plans give access to more advanced features (CRM, multi-level marketing, electronic invoices, additional data, etc.).

Some specific features, such as WeChat mini-programs, also require merchants to pay additional fees.

These SaaS subscription fees make up for more than half (52%) of Youzan revenues. Another 28% comes from transaction fees.

In contrast, Youzan’s competitor Weimob managed to grow its advertising revenues to account for 66.6% of its business. Weimob thus displayed better financial performance than Youzan, reporting a profit during H1 2019.

Opportunities ahead

There are a lot of cards left to play for Youzan to keep expanding and reach profitability.

The company benefits from support from Tencent. In April 2019, Tencent invested HK$1 billion into Youzan, giving it a 6.5% ownership stake in the company. This support from Tencent is of course game-changing for Youzan, given the reliance of the platform on social sales.

Youzan has also struck a deal with Baidu. In August 2019, the two firms launched a joined venture named Qima. This collaboration will enable better integration between Youzan and Baidu’s own mini-program system.

Innovation has also been coming to the WeChat Ecosystem: WeChat now supports live-streaming, which promises to increase GMV and exposure for merchants.

Youzan also partners with Kuaishou, one of the largest short video platforms, enabling users to add an e-commerce link to their videos. However, most of the top influencers on Kuaishou still choose to link to Taobao stores.

Controversial work culture

Zhu Ming, the founder of Youzan, is generally known as “Bai Ya.” Bai Ya has shocked the media all across China in January 2019 by supporting 996 culture. Since then, Bai Ya has claimed it was a misunderstanding and that 996 is not a mandatory policy of Youzan.

996 is the expectation that employees will work from 9 a.m. to 9 p.m., six days a week. Youzan also requires employees wanting to take more than three days of leave during a national holiday to file an application directly with the CEO.

These statements have triggered controversy, but they are not so outlandish in the Chinese tech world. Alibaba’s founder Jack Ma has called 996 a “huge blessing” in April 2019. Richard Liu who runs JD.com, along with other tech founders, has expressed a similar sentiment.

Bai Ya is also a thought leader in the tech and SaaS community. He shares his own take on business-related topics on his personal WeChat blog. Some of his popular articles covered SaaS valuation models, company culture, leadership, and product design principles.

Conclusion

Youzan has managed to stand out as a leader in the very competitive market of WeChat stores. The company’s revenue and GMV are booming. Youzan has also managed to find powerful allies such as Tencent.

The platform, however, is not out of the woods yet. Its losses are growing faster than its revenue, and its work culture has attracted controversy and might make it harder to attract talent.

Youzan will have a tough fight against competitors such as Weimob and LOOK, and against substitution offers such as Tmall or JD.com. But given what has been achieved so far, there are reasons to be hopeful.

WalktheChat specializes in helping foreign organizations access the Chinese market through WeChat, the largest social network on the mainland. Visit them at walkthechat.com

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