Veronica Zhang uses re-commerce, or secondhand selling, platforms regularly, but she’s always careful about the people she’s dealing with. The one time she let her guard down, she was nearly defrauded.
The mom of a five-year-old uses the platforms both to buy and sell. Although she uses them less frequently than mainstream shopping apps like Taobao and JD.com, she says they are good places to find bargains on certain products like baby strollers and picture books. Children her son’s age tend to outgrow clothes and toys very quickly, she explained to TechNode, and selling lightly used kids stuff is good for both her wallet and her home, so why not?
“Baby exercise mats in very good shape are up to 50% cheaper than the retail price of a brand new one,” Zhang said (our translation). To close a good bargain or make a sale, however, requires lots of research. “I normally spend hours or a few days checking the sales history of the seller or buyers, comments from previous buyers, as well as their credit scores, before finding a potential candidate to proceed for payment,” Zhang added.
Usually, the Shanghai native limits her purchases from these platforms strictly to a few categories like toys, books, and vouchers and event tickets. She avoids products that could affect the health of her child or herself, such as food items or skincare products.
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After a few satisfactory deals, Zhang was feeling safe. Then, in December 2018, she listed for sale a RMB 2,000 ($309) prepaid card for online retailer JD.com on Alibaba-backed secondhand platform Idle Fish, known as Xianyu. The card was a gift from her company.
She sold the card without her usual background research. After Zhang sent the buyer the gift card account number and password online, however, the buyer claimed the prepaid card was invalid and requested reimbursement. Zhang still had the physical card as proof, and immediately called the police, who told JD.com to freeze the account. It turned out the buyer used the gift card immediately upon receiving the codes from Zhang. Finally, after Idle Fish customer service ruled in Zhang’s favor when settling the dispute, she got the payment. But it took her a whole week to resolve the issue, dealing with the police, the buyer, JD, and Idle Fish.
“I may continue to use the platform, but will be even more cautious in choosing the people I’m dealing with,” Zhang said.
Secondhand e-commerce on the rise
Product brands, consumers, and even the government have called upon major Chinese e-commerce platforms to halt the sale of fake goods for as long as the marketplaces have operated. More recently, e-commerce giants have made an effort to weed out various illicit products, and have gained some ground thanks to the development of newer technologies. The potential to list on global stock markets has also provided stronger motivation to operate an above-board business.
However, problems with fraud and counterfeits are still rife in the relatively new secondhand market, a smaller industry with players that have little budget for additional operational costs and less motivation to go through the trouble.
In China, secondhand e-commerce generally refers to markets for lower-value used goods, excluding expensive items such as cars and houses. The sector gained momentum in China as an environmentally friendly lifestyle choice, embraced by a younger generation of consumers. Moreover, selling and exchanging “idle” stuff has become a necessity for more affluent consumers who need the room in their homes.
China’s secondhand e-commerce market increased 53.2% year on year to RMB 248.69 billion in 2019, and is expected to grow 44.2% to RMB 373.55 billion in 2020, according to a report from e-commerce database EBT published in July. The market size increased more than eight-fold compared with its RMB 4.5 billion value in 2015, although its annual rate of growth slowed to double digits in 2018 after more than 600% year-on-year growth in 2016.
The biggest platforms include Alibaba’s Taobao spin-off, Idle Fish, and Tencent-backed Zhuanzhuan, which were each valued over RMB 20 billion in 2019. Trailing these two sites are a series of smaller vertical players, including JD-backed secondhand electronics platform Aihuishou, fashion and luxury reselling app Plum, and book resale platforms Duozhuayu and Yuelin.
However, these marketplaces are increasingly earning a reputation as a wild west in which real bargains come mixed with fraud, counterfeits, bait-and-switch pricing, and illegal products such as salacious comics and wild animals.
Market chaos
Zhang is far from alone. A January report released by the state-backed consumer rights protection organization of eastern Jiangsu province showed that more than 90% of the 10,615 users surveyed have had negative experiences on secondhand shopping apps. User complaints involved a variety of illicit practices, including counterfeits, pirated online courses, pirated video and audio content, lewd comics, and more.
The complaints name 12 platforms including Idle Fish, Zhuanzhuan, Paipai, 58.com, Plum, and Aihuishou. In the same month, the authority summoned the platforms and called on them to rectify their business practices.
Some consumers mistakenly purchase knockoffs, but a significant number of consumers do so intentionally, and shop on secondhand platforms largely because the monitoring is more relaxed. Such apps contain products labeled as a “quality fake” or “fake.”
TechNode found a merchant on Idle Fish advertising a pirated video replay of lectures for an English training course from Zebra AI for RMB 18. When TechNode asked about buying the product, the seller sent a WeChat account name, and asked to make a deal off the platform. Via WeChat, she told TechNode the real price was RMB 35—still a savings compared to the RMB 2,000 Zebra AI charges for the course.
In order to leverage user traffic, professional sellers, who stock loads of brand new products, flood the secondhand platforms designed for amateur sellers selling their own unused stuff.
Users who click into a product entry tagged at super low price on Idle Fish are likely to be redirected to a professional Taobao seller’s storefront, only to find the item priced at going market rates.
Empty bottles, packaging, and receipts of expensive cosmetics are also for sale on secondhand sites, indicating a gray market for counterfeit product sales. One Idle fish user sells packaging of luxury skincare brand SK-II for RMB 70, while another sells empty bottles of La Mer for RMB 50. These could be used by counterfeiters, but some Chinese consumers collect packaging from luxury brands for their own use.
Secondhand platforms have a history of providing a home for such gray markets. Users in recent years have been caught selling unlicensed medicine and cigarettes, used underwear, wild animals, as well as listing services from prostitutes.
Grow big, then grow up
Sales of counterfeits and other illegal goods and practices are nothing new in China’s e-commerce industry, but established platforms have taken steps to regulate their marketplaces. Monitoring secondhand e-commerce is more difficult because the majority of sellers are individuals, rather than professional merchants or enterprise retailers concerned with credibility, according to local media reports.
In some cases, transactions are not carried out on the platform. The Jiangsu consumer council survey showed that around half of the transactions are completed within the app, while the rest are directed to other social apps to avoid monitoring.
When TechNode contacted the ZebraAI video seller, she immediately shifted the conversation to WeChat, making it difficult for Idle Fish to monitor the transaction and any payment.
Monitoring is still optional for platforms, according to Song Peijian, professor at the Business School of Nanjing University.
In its early days, Taobao was known as a safe haven for sellers hawking fakes and low-quality goods, but it has developed systems to regulate its marketplace.
“Taobao started to invest heavily in addressing the dark side of e-commerce as a super-sized marketplace that faced public and regulatory scrutiny,” Song said. Secondhand platforms have less motivation to do so when the market is still relatively small, he added.
Despite its growth, the secondhand market is still at an early stage and the size is too small for serious regulation, said Song. Idle Fish, a clear leader in the market with over 70% market share, is the largest player with approximately RMB 200 billion gross merchandise value (GMV) sold in fiscal year 2020, a small fraction of RMB 7.05 trillion ($1 trillion) GMV earned in the wider Alibaba ecosystem during the same period.
In other words, the companies are ignoring trust issues as they work to survive and grow.
Platforms run the risk of losing users to rivals if rigorous rules barring fakes and other illicit products are implemented. “In spite of the legal concerns, there certainly is user demand for illegal products and they will go to other platforms,” Song said.
Plus, Song said, monitoring costs money.
To some extent, the platforms are not all to blame, Song said. Weak enforcement of e-commerce laws laws, in place since 2019, has left space for illegal products and practices to flourish. Local governments can also be reluctant to push too hard on major taxpayers like Alibaba and Pinduoduo. It’s easy even for more mature platforms to backslide when constraints become lax, he said.As a Chinese idiom says, when the water is clean, fish cannot survive. Similarly, a market won’t get a chance to grow big if too much regulation is in place when it’s young, Song said.