Scan the QR code in the image to register Over the past year, I've been asked by many distributors: "I want to open a store on Taobao/Tmall, or on Pinduoduo. Do you think there's still an opportunity?" Whenever I encounter this question, my reply is that online e-commerce has basically no more dividends left. Focus on offline business. Local offline business still has barriers of location and local consumption. In terms of risk resistance and cyclicality, it may be more suitable for distributors than online. Of course, not many people actually heed this advice. Frankly speaking, many distributors who open stores on Pinduoduo or Taobao do not do so with a long-term vision. More often, it's because they have price and gross margin support from the brands they represent, and with online e-commerce being so hot, they feel itchy and then hire a clerk to do it part-time. After doing it, they get some sales, but few actually make significant money. Before the Chinese New Year, through a friend's introduction, I met Ms. Du Xiaoying, a second-generation distributor. She opened 12 stores across Taobao, Tmall, JD, and Pinduoduo, and within just two years, achieved nearly 50 million RMB in sales with considerable profitability. How did she do it? What are the key capabilities? Is there still an opportunity for traditional distributors to do online e-commerce? Let's hear her story. I hope this article can provide some inspiration and food for thought for distributors who have already entered e-commerce or are considering it. -01- Audit background, stumbled into agency business Yiwu Duchao Daily Chemical Trading was established in 1996, making it one of the earliest distributors in China's commodity circulation field. Its business volume exceeds 100 million RMB, representing brands such as Unilever, Shanghai Jahwa, Darlie, and ABC. In the past two years, the daily chemical category has been impacted by online e-commerce, and the business has basically remained stable. At the beginning of 2017, Du Xiaoying left her audit job and was in a state of drift. By chance, the CEO of Unilever and the regional general manager visited Duchao Daily Chemical. At that time, Duchao Daily Chemical, as a major client, gave a speech and also communicated with Unilever, hoping to get authorization for Duchao to sell online. After this communication, at the end of 2017, Du Xiaoying filled out an application, and at the beginning of 2018, she received the authorization, thus embarking on the e-commerce agency business. Getting the authorization was just the first step; the key was how to proceed. Du Xiaoying told New Distribution that after receiving the authorization, she attended Tmall's relevant training courses for 6 days and 6 nights. Besides basic e-commerce operation methods, the course also covered "big data development." How to collect data, use data models for business analysis and forecasting, and then find opportunities in your category—perhaps due to her audit background, this was not difficult for Du Xiaoying. Of course, this course also gave her more confidence to do this business well. In 2018, Duchao Daily Chemical's online business reached 8 million RMB; in 2019, it reached 24 million; and in 2020, 48.5 million, doubling every year. Besides mastering business operations, Du Xiaoying's strategy from the start differed from traditional distributors. Traditional distributors first have business then add people, but Du Xiaoying did the opposite: even when the business was small, she built the organizational structure first. Du Xiaoying told New Distribution, "When I decided to return to e-commerce in 2018, my first requirement was complete staffing: independent Taobao operations, graphic design, customer service; independent shipping system; each position with clear responsibilities." Although the initial personnel costs were high, she couldn't save money by having one person do everything for all platforms. Obviously, the results were evident: by the second month, the store achieved daily sales of 20,000 RMB. To date, Duchao Daily Chemical's online business has a team of 30 people: 15 in shipping, 2 in finance, and 13 in operations. "Only with people can you do things well," Du Xiaoying said. "At the beginning, our team was not only 'new' but also 'young.' The only thing we could do better than others was perfect execution. At that time, Taoxiaopu was fighting against Yunji and Beidian. The Xiaoxiao (platform manager) required us to list 200 products in one weekend. We did it immediately, working overtime." When the Xiaoxiao saw that our team had high execution, trust was built, and related resources naturally tilted towards us. Of course, besides internal efforts, the external environment was also a particularly good time. At that time, there were only about 6-8 merchants truly focusing on daily chemical categories. To date, Duchao Daily Chemical has a total of 15 online stores: 2 Tmall stores, 1 Taobao store, 3 JD stores, and 9 Pinduoduo stores. -02- Profitability and product selection strategies for online agents Besides the startup process, how to achieve profitability and select products in actual operations is also key. Let's start with the path. Du Xiaoying told New Distribution that for distributors, the market retail price and purchase price are not within their control; only the space in between can be adjusted. First, every distributor should know their cost structure and review each SKU. Based on the hot-selling products on each e-commerce platform, calculate the true gross margin for each, then combine with shipping costs, material costs, operational costs, etc., to derive the actual net margin, and finally create a gross margin grading table. Then, select suitable products. For example, for Tmall and Pinduoduo, Du Xiaoying requires an overall gross margin of 25%-30%, and through screening, identify which SKUs meet the standard. If only a few SKUs meet the standard, the set gross margin might be too high, so lower the threshold. After screening SKUs, look at cost optimization and promotion costs. Regarding product selection, Du Xiaoying has had both successes and failures. Let's talk about a failure first: an online agency for a certain brand of tissue. Because the sales target signed at the time was not large, the purchase cost was higher than the "big customer" price, so there was no advantage in purchase cost. Also, tissue is a bulky item. In a city like Yiwu, if the product weighs less than 0.1 kg, there is a clear cost advantage in shipping, but for tissue, due to its large volume, there is no shipping advantage. After calculating from various dimensions, the middle margin could not support any paid activities or promotions. Now a success story: Knorr, under Unilever. In 2020, Knorr signaled that it would enter the retail sector from the foodservice industry. Because it's a seasoning, it's light and doesn't take up much volume; any combination is under 0.3 kg. Through differentiated product specifications and combinations, on Pinduoduo, within a week of listing, without any promotion, it broke zero. Also, very few general taxpayer companies sell this product. It launched in August, and by January, it achieved monthly sales of 250,000 RMB. Summarizing Duchao Daily Chemical's core online business strategy: Either you have a purchase price advantage (you are a big customer with lower prices), or you have a cost advantage (like Yiwu's natural shipping advantages), or you can seize the first-mover advantage in a niche category (regardless of volume, find opportunities in niche categories; even if monthly sales are only a few thousand, the gross margin is considerable). Besides these "hard indicators," the ultimate competition is operational efficiency. In August 2020, when the business began to stabilize and become profitable, Du Xiaoying spent nearly 300,000 RMB on a flagship ERP system. This might be unbelievable for traditional distributors, but Du Xiaoying believes that as long as it improves overall operational efficiency, it will have great long-term value. Du Xiaoying told New Distribution, "For the post-80s and post-90s generation, we trust systems more. The numbers produced by systems are not questioned. When everyone uses the same system, it's transparent; anyone can check inventory and lock inventory, which invisibly reduces many errors and communication time costs." -03- Is there still an opportunity for traditional offline distributors to enter online? If I hadn't had this communication with Du Xiaoying, I might have firmly believed that traditional distributors are not suitable for online. But after hearing her words, my opinion changed. Du Xiaoying told New Distribution that although the current market environment is not as good as before 2015, when just opening a Tmall or Taobao store could make you rich, it doesn't mean there is no opportunity at all. From the perspective of e-commerce dividends, for example, Douyin and Kuaishou still have many dividends. The current channels are so fragmented that as long as distributors focus on any one channel, they can achieve results. But behind such results, it's definitely not "grassroots entrepreneurship" but rather a regular army operation. Looking back at the merchants who opened stores on Taobao in the past, many were guerrillas, like the wholesale stage in the 1990s with husband-and-wife teams and tricycles. But now, in the commodity circulation business, without a regular army, survival is impossible. Similarly, to enter online e-commerce now, to gain a foothold and achieve long-term development, if distributors do not have a complete online business organizational structure, data analysis capabilities, and effective resource reserves, I think it's better to forget it. Du Xiaoying emphasized that you must not do business the way you did in the entrepreneurial era, through hard work and early rising. You can have the spirit of hard work, but you must go to battle with well-equipped weapons!