Douyin has also set its sights on 'low prices'. Recently, Douyin launched a store called 'Super Cheap Little Shop'. According to the Douyin account introduction, the prices of various products sold in the store will be cheaper, and the product range will be updated daily, with some products priced as low as 0.01 yuan. (Image source: Douyin)
In recent years, it is not uncommon for e-commerce platforms to 'attack' lower-tier markets and attract traffic through low-price strategies. For example, Taobao and JD.com both have clearance and end-of-line sections, and the low-priced products in Douyin and Kuaishou live streams are mostly inventory, bargain finds, and odd-sized or discontinued items. A search for 'clearance' on Xiaohongshu shows over 550,000 products with 'clearance' in their titles or tags.
But interestingly, low-priced inventory clearance clearly yields lower profits than selling at regular prices. So why are e-commerce platforms willing to engage in the 'inventory clearance' business? What are they really up to?
From the perspective of most consumers, the cheaper the products on e-commerce platforms, the better. Discounts, promotions, and coupons are best if available every day. It is precisely for this reason that many platforms have started to try the inventory clearance business, as it helps them establish a price advantage. Inventory also has unexpected benefits.
First, it drives traffic. Taking Xiaohongshu as an example, after breaking out from social platforms, its average product-carrying rate far exceeds that of Douyin, Kuaishou, and Weibo. Merchants have also begun to flock in to compete for traffic dividends, with the majority being small merchants with 'clearance' labels. By planting content on Xiaohongshu and using the appeal of clearance and special offers, they can make a product or even a store go viral. This approach is similar to the early paths of Douyin and Pinduoduo.
Second, it helps businesses clear inventory, thereby attracting merchants to the platform. An industry insider told Value Planet that in e-commerce platforms, service and trade products are most afraid of inventory backlog, as it can lead to capital strain and even the risk of a broken capital chain. Therefore, it is very necessary to clear inventory to ensure smooth cash flow. (Image source: Xiaohongshu)
For example, at the beginning of the year, Taobao launched an industrial belt support plan to address issues such as inventory backlog and capital turnover for factories in some regions. Through measures like Taobao Live traffic subsidies, anchor training, and one-on-one guidance from customer service, it helps small and medium-sized enterprises clear inventory. Currently, live streaming is considered an important means for industrial belts to clear inventory.
A merchant who previously sold Taobao end-of-line products told Value Planet that Taobao's end-of-line clearance mainly includes several scenarios. If hot-selling items are used for clearance, they can leverage their own traffic and the clearance gimmick to drive sales of new products. The clearance price should be attractive, even below cost, but the quantity should be controlled to avoid excessive cost pressure. For example, new product sales can be included in the product detail page, using the old product's link to drive new product sales. If it is a slow-moving item, it should be cleared as soon as possible. When clearing goods, don't worry about whether you can make money. You can refer to the pricing standards of the same industry, or even set the lowest price on the entire network. After all, even if this clearance product doesn't make money, it can bring more traffic due to its price advantage; otherwise, the longer it takes, the harder it is to sell.
In short, end-of-line clearance is not just low-price dumping, but reasonable allocation based on the actual situation of the product, so that end-of-line products can still bring certain resource returns to merchants.
Why is the 'lowest price on the entire network' model sustainable?
Currently, many e-commerce platforms are testing the 'lowest price on the entire network' model. The reason this model can be sustained is first that the live streaming model has cost advantages. Live streaming e-commerce is a model that eliminates intermediaries and can achieve direct delivery from first-level warehouses to consumers. Compared with traditional offline retail, it has advantages in circulation costs, warehousing costs, channel efficiency, and price. From a category perspective, live streaming e-commerce breaks regional and category restrictions. Apparel is the product with the highest penetration rate, while beauty, food and beverages, fresh produce, home appliances, and digital products are also hot sellers, and even cars, houses, and rockets have been sold.
Second, in the current internet ecosystem, the sales capability of live streaming e-commerce is undoubtedly the highest. Data shows that as of June 2022, the number of live streaming e-commerce users in China reached 469 million, accounting for 44.6% of the total netizens. According to data from the Ministry of Human Resources and Social Security, by the end of 2021, the number of practitioners in the live streaming industry nationwide exceeded 10 million, with the number of industry anchors reaching 1.234 million, and the number of practitioners growing at a monthly rate of 8.8%, covering a user scale of over 800 million. (Image source: iiMedia Research)
From the current effects, the 'lowest price on the entire network' live streaming model is very efficient for merchants to clear inventory and promote new products. For merchants, not only do product sales increase, but they can also obtain traffic subsidies on e-commerce platforms like Taobao.
Can 'inventory special sales' become the next track?
It is foreseeable that for a long time to come, price will remain the focus of competition among e-commerce platforms. Currently, not only has Douyin opened 'Super Cheap Little Shop' focusing on low prices, but Kuaishou has also prepared a 'New Mall' and re-emphasized the 'price power' action, making strategic plans around price. In addition, Taobao has launched a 99 special sales channel on its APP homepage, with the entrance marked with '9.9'. Pinduoduo has long had a '9.9 special sales' entrance. E-commerce platforms using 'low prices' to gather popularity has evolved from a phased user acquisition action to a daily routine. (Image source: Vipshop)
Previously, Vipshop's label has always been genuine product special sales and inventory clearance. It is understood that many big-name cosmetics on Vipshop are cheaper than overseas, counters, and official websites, mainly due to joint efforts with Vipshop to give up profits. For users, they can buy big-name products they previously hesitated to buy at affordable prices; for brands, through internet special sales, they can cover more consumer groups and expand brand influence. This seems to be a win-win situation.
However, the 2022 financial report data shows that Vipshop's operating conditions are not too optimistic. In the fourth quarter of 2022, Vipshop's GMV fell 4.6% year-on-year to 54.4 billion yuan, and its revenue growth rate also dropped significantly by 11.88%. (Image source: iiMedia Research)
In the fourth quarter of 2022, Vipshop's active user count also decreased 3.05% year-on-year to 47.7 million. Active users refer to registered members who have purchased at least one item on Vipshop during the period. At the stock price level, Vipshop's stock price has fallen from an intraday high of $46 in March 2021 to a closing price of $14.32 on June 1 this year, a decline of more than 68% in over a year.
At the same time, Secoo, which mainly deals in luxury goods clearance, is also in the same situation. According to financial reports, in the first half of 2022, Secoo achieved revenue of 1.1643 billion yuan, down 23.69% from 1.5256 billion yuan in the same period of 2021, and a net loss of 816.2 million yuan, an expansion of 1909% compared with the loss of 40.62 million yuan in the same period of 2021. In December 2021, Secoo received a delisting warning from Nasdaq. According to Nasdaq standards, a listed company's stock price falling below $1 for 120 consecutive days will be forcibly delisted.
So, is the 'inventory clearance special sales business' really feasible? The above-mentioned industry insider said that if 'special sales' is only for merchants to attract traffic, then for e-commerce platforms, building a closed loop is still a long way off. Currently, the underlying logic for e-commerce platforms to attract consumers is not the same. The problem that 'Xiaohongshu cannot do e-commerce well, and big factories cannot do content planting well' has been difficult to solve for a long time and has almost become a metaphysical problem in the e-commerce field. For example, Xiaohongshu is mostly about content planting, and the 'private transactions' market among platform users is thriving. Many individuals and merchants on Xiaohongshu divert traffic to private domains and run their small businesses vigorously, but for the platform itself, it is difficult to build itself into an 'online mall'.
From another perspective, if a platform wants to build a business closed loop, it needs to be responsible for the quality and results of goods, after-sales, etc., and also build a complete supply chain system. This is also difficult for traffic platforms with insufficient 'reserve forces'. Zhuang Shuai, an expert in the retail e-commerce industry, said, 'The construction of a supply chain system requires a very long process and a lot of capital. Xiaohongshu does not have its own payment tools and fulfillment systems, and relying only on existing traffic is difficult to form scale.'
For shelf-based e-commerce giants like Taobao and Tmall, content planting itself is difficult to be compatible with the platform logic. The logic of shelf-based e-commerce is to have demand first, then touchpoints, and finally trust, while the logic of content e-commerce is to have touchpoints first to produce content, and then let users generate demand. For example, Taobao Live is a centralized content e-commerce platform, with traffic distribution controlled by the platform. Kuaishou and WeChat Live, based on the underlying content or social platform attributes, mainly rely on designated private domain traffic for live streaming traffic. Therefore, this also causes Taobao live rooms to be for selling goods, needing to continuously attract and retain users with the 'lowest price on the entire network', and compared with anchor trust, most users value product cost-effectiveness more. Kuaishou and WeChat Live are different; anchors pay more attention to emotional connection and trust endorsement with fans, and convert this into paying users. Douyin is a form between the two models.
Overall, the low-price strategies of big factories have backing guarantees, but their attractiveness is not as good as rising stars like Xiaohongshu. Traffic giants like Xiaohongshu and Douyin can attract users but cannot guarantee 'logistics'. At present, low-priced, high-repurchase products are more suitable for live streaming sales. Many consumers make impulse purchases because of the high cost-effectiveness of products in live rooms. The commonality of such products is low price and high frequency. Although such products are suitable for live streaming, competition is relatively fierce.
Industry analysts believe that in the current e-commerce market, companies need to form differentiation in the current involution model, and then improve product quality and fulfillment services. Therefore, regarding the future of live streaming e-commerce platforms, forming differentiated characteristics is a direction generally favored by the industry. Even with a 'low price' strategy, each needs to find its own advantages and maintain a certain level of competition and balance with each other. For example, Taobao's huge user base, strong supply chain capabilities, and complete merchant system strengthen the tool attributes of live streaming, so Taobao Live is more suitable for mature brands; Kuaishou's large number of lower-tier market users, entertainment-oriented content attributes, and live streaming trust-based sales model dilute the pickiness about brands, so Kuaishou is suitable for factories and white-label products. WeChat Live, although having the largest user base on the entire network, is still a private domain traffic pool, so it is more suitable for stores or individuals with fan accumulation or community resources.
On the road to inventory clearance, different platforms have different 'foundations'. Vipshop is a vertical inventory clearance platform, mainly focusing on women's consumers with apparel, shoes and bags, beauty, and mother and baby products; Kuaishou relies on live streaming e-commerce to clear inventory, penetrating lower-tier markets with those low-priced, high-repurchase products; Pinduoduo is a comprehensive inventory clearance platform, covering fruits and vegetables, daily necessities, apparel, shoes and hats, basically covering all aspects of life.
In the end, users want cost-effectiveness, merchants want to clear inventory, and platforms are just doing a 'favor' to facilitate the match. That is the essence of the inventory clearance business.