JOIN USChinese love a new online shopping mecca
In the months leading up to his college graduation in June, Yang Fugang spent most of his days away from campus, managing an online store that sells cosmetics, shampoo and other goods he often buys from local factories.
Today, his store on Taobao.com — China’s fast-growing online shopping bazaar — has 14 employees, two warehouses and piles of cash. “I never thought I could do this well,” said Yang, 23, who earned $75,000 last year. “I started out selling yoga mats, and now I’m selling a lot of makeup and cosmetics. The profit margins are higher.”
Taobao fever has swept Yang’s school, Yiwu Industrial and Commercial College, where administrators say a quarter of its 8,800 students now operate a Taobao shop, often from a dorm room.
Across China, millions of others — recent college graduates, shopkeepers and retirees — are also using Taobao to sell clothes, mobile phones, toys and just about anything else they can find at neighbourhood stores and wholesale markets or even smuggle out of factories.
Internet analysts say this booming marketplace — reminiscent of the early days of eBay, when Americans started emptying their attics for online auctions — has turned Taobao into China’s newest internet darling. Though just six years old, Taobao (Chinese for ‘to search for treasure’) already has 120 million registered users and 300 million product listings. Its merchants produced nearly $15 billion in sales last year.
The company claims that sales through its website are already larger than any Chinese retailer. And, analysts say, sales on its site this year will surpass Amazon.com’s expected sales of about $19 billion.
The sky is the limit
“This is the next big segment for China’s internet,” said Jason Brueschke, an analyst at Citigroup in Hong Kong. “It’s their Amazon and eBay combined.”
Like eBay, Taobao does not sell anything itself; it simply matches buyers and sellers. It has a firm foothold in China because many parts of the country still have poor transportation, and some local authorities favour their own government-owned outlets, making the retailing system inefficient. The global recession also left once-booming factories overflowing with goods the rest of the world does not seem to want.
The so-called Taobao addicts are helping to pick up the slack in a sluggish economy. “I can’t live without Taobao,” said Zhang Kangni, a graduate student in Shanghai. “First, it’s cheaper. I found a dress at a store in Shanghai. It’s a Hong Kong brand that sells for $175. I found it on Taobao for $33.”
But sceptics ask: Can Taobao actually make a profit and emerge as a true web powerhouse?
The company is not publicly traded and therefore does not disclose financial information, but listings are free on Taobao and the company makes no money from online transactions. Almost all Taobao’s $200 million in revenue comes from advertising, which the company says covers virtually all its operational costs.
The company has been criticised, however, for contributing to a flourishing trade in counterfeit goods. Taobao brushes aside such criticism, saying it has a new programme that is effectively cracking down on counterfeits. Company executives also say Taobao is poised to earn huge profits, but that their first priority is creating an online community.
“Our vision for Taobao is to build a consumer’s paradise, where people can shop online and have fun,” Jonathan Lu, Taobao’s president, said. “If you make the company better and better, profits will naturally follow.”
When Taobao was founded in 2003, it appeared to have no chance. EBay and its Chinese partner, EachNet, controlled 90 per cent of China’s online shopping. But Ma, a former English teacher, quickly undermined eBay’s fee-based service by offering free listings on Taobao, essentially giving away ads to anyone who wanted to sell.
At the time, eBay executives ridiculed the strategy, with many repeating that “free is not a business model.” But almost immediately, the site took off, and in 2006, eBay pulled out of China, citing dwindling market share and large losses. Today, it is Taobao that commands 80 per cent of China’s e-commerce market, according to iResearch.
Taobao has thrived, analysts say, because people do not need much capital to start online stores. This year, Taobao says its site could help create half a million new jobs, mostly among young people opening new online stores.
Cost cutting
Items smuggled into China from Hong Kong, Europe or the United States are also sold on Taobao, evading high import duties and enabling sellers to profit by undercutting the prices of merchandise in regular stores. An Apple MacBook Air that sells for $2,225 in Beijing, for instance, costs just $1,508 in Hong Kong, a difference of 33 per cent.
Counterfeit goods are also readily available, even though Taobao claims to have removed two million ‘fake branded goods’ from the site.
In Yiwu, which claims to be the site of the world’s biggest wholesale market, Taobao has started to change the look of Yiwu Industrial and Commercial College.
The school’s vice dean, Jia Shaohua, points out an area designated as a startup site for students seeking to get rich. He points to students taking orders by computer, packaging products, sorting inventory and taking photos of the items for display online, then adds,
“Around the school now, there is a whole Taobao industrial chain.”
Every afternoon, even this summer, when the school should be relatively empty, one can hear the ripping sounds of tape being wrapped around boxes in a building that could pass for a United Parcel Service shipping terminal.
“The students don’t need a lot of money,” Jia said. “They just get orders and go find the
items at local factories.” Yang, the cosmetics seller, has become a campus hero. He operates his own warehouses a few miles from the school, in the basements of a pair of residential buildings.
Standing in his crowded warehouse, near boxes of Neutrogena sun block, hairpins, toothbrushes and a wide assortment of cosmetics, Yang says business could not be better. “Soon, I’ll reach $1,50,000 a month in sales,” he said, flashing a big grin.