FROM ONLINE BACK TO OFFLINE – WHEN LIVE COMMERCE REACHES ‘INVOLUTION’

The next phase of Chinese e-commerce?

Latepost recently reported about a new trend in China: merchants saying goodbye to livestreaming and moving to offline retail.

Platforms like Douyin (the Chinese version of TikTok) have the traffic and 'eyeballs' of consumers; merchants must bid for this traffic, which has become increasingly expensive. China has not seen major new platforms in recent years, and too many merchants are trying their luck online while demand does not grow. Profits disappear, and ‘involution’ (内卷nei juan) sets in. Only those with scarce products or the lowest prices can still have good business.

Online advertising has become more expensive than offline rent. One merchant stopped selling clothing on Douyin. She used to sell RMB 20 million worth of apparel monthly, but when exposure opportunities dwindled, her profit shrank. Meanwhile, other merchants have seen competitors copy their goods at lower prices using lesser-quality materials.

She now rents a non-streetside store for RMB 6,000 (about $825) per month (in the past years, rents have fallen, although a streetside store still costs RMB 30,000). She spends RMB 2,000 per month on advertising through short videos on Douyin. Interestingly, merchants can use Douyin’s localised push to mobile phones a few kilometres around the store, a functionality initially designed for local services such as restaurants, scenic spots and amusement parks. Instead of competing with countless merchants that ship nationwide in livestreams, they can compete with fewer local rivals. Their exposure can even be so high that they become local celebrities.

The videos make customers come to the store willing to buy. She sells hundreds of thousands of yuan per month. When she only sold online, she got RMB 2,000-4,000 for every RMB 1,000 of advertising. While she gets less foot traffic than the expensive streetside store, conversion is as high as 85% of her visitors. The return rates are significantly lower than with sales in livestreams, which are commonly at least 30% but can be as high as 80%.

There's one thing she needs to watch out for, though. When one ‘hot item’ goes viral in a national livestream, the sales are spread throughout the country. But if an item gets that popular in a local area, too many people will start wearing it.