While the Indian government is cracking down on Chinese e-commerce companies that evade customs duties and service taxes, Hangzhou-based e-commerce company Club Factory is making its roots in India stronger.
Yun Lou, Club Factory’s co-founder, told The Passage that it is in process of on-boarding more Indian sellers on its platform. Currently, more than 80% sellers on Club Factory are based out of China and courier their products to India. Lou wants half its sellers to be from India.
“We want to build a better local ecosystem in India. This is going to be the focus of our company this year. We have already begun the process this year,” Lou said.
Although Lou declined to give the number of Indian sellers the company has roped in by now, people in the industry estimate it has on-boarded 150-300 new sellers on its platform.
A New Delhi-based courier company that provides logistics solution to Club Factory and dozen other Chinese e-commerce companies for their cross-border transactions said Indian sellers account for 8,000-10,000 orders per day for Club Factory. In total, Club Factory does 50,000 to 60,000 orders a day.
With this, Club Factory is essentially aiming to be an Indian company than be known as a Chinese brand that sources products from China. Helen Wong, partner at Qiming Ventures, one of the early investors in Club Factory, said though the founding team is Chinese, it is essentially an Indian company.
Wong said the cross-border e-commerce market is growing really fast. “Big players have not tapped into the supply chain in China, especially for fashion,” she said.
Another reason why Club Factory wants to get more Indian sellers on board is to increase its Gross Merchandise Volume (GMV) before the next funding round. Club Factory is already in final discussions to raise its next round of funding, according to media reports.
Sources in the industry confirmed to The Passage that investors are pushing Club Factory to have more Indian sellers on board. Products sourced from India would reduce its expenses and take it off the Indian government’s radar for evading customs duty.
Wong said the media has unnecessarily listed Club Factory among Chinese companies that claim goods as gifts and evade import duties during transit at airports. Lou said sellers who are found shipping products through improper paperwork are delisted from its marketplace. He did not reveal how many sellers Club Factory has delisted due to tax evasion.
Wong said India is its main market and the company is committed towards doing the business in the correct way. “It is already doing quite well in India in terms of making products available to young people who like to buy affordable fashion products. It is doing a good job of attracting loyal customers, including women and men,” she said.
Taking on Indian players
With Club Factory roping more Indian sellers and aiming to source half its merchandise from India, it will cease to be a pure-play cross-border e-commerce company and will be no less than Amazon, Myntra or Flipkart in terms of its operation.
Lou, however, makes it clear that his company does not compete with Amazon and Flipkart. Rather, he considers marketplaces such as ShopClues and Snapdeal as his competitor.
“Since they (Snapdeal and ShopClues) too are into non-branded products sold at relatively cheaper price, they naturally become our competitors. Similar to these marketplaces that source most of their products locally, we have also begun to do that,” Lou said.
He said the target audience of Club Factory is very different from that of Myntra and Amazon. “Our average order value is much lower than theirs,” he said.
Apparel, which is the biggest category for Club Factory, accounts for 40% of its sales in India.
Alibaba-backed Paytm Mall is also a competitor of Club Factory. Although its sales volume has gone down by half, it is currently shrouded in a cashback fraud estimated to be worth Rs 10 crore (USD 1.4 million). It has roped in Ernst & Young to investigate the fraud and has already fired some employees and delisted around 100 sellers.
“If you just combine Club Factory, Snapdeal and ShopClues, we are talking about a good 300,000 orders a day. If Club Factory gets more than 10% of 300,000, it takes their volume to 4x. It’s a well thought strategy,” a source said on condition of anonymity.
The shipping model
Lou brought Club Factory to India in 2016, two years after starting the company. It quickly positioned itself as a go-to platform for unbranded, stylish and affordable fashion products. It showed its commitment to the Indian market by spending huge marketing dollars. Last year as well as this year it roped in Bollywood actors Ranveer Singh and Manushi Chhillar for its television and internet advertisement.
Among Chinese e-commerce companies that are into cross-border selling, Club Factory is the biggest in terms of volume, sources said.
“It is definitely the leader among Chinese players such as Shein, AliExpress, Wish, etc. In India, if you leave out Flipkart and Amazon, there are very few companies that do the kind of volume that Club Factory does,” said a person who handles cross-border delivery for Club Factory, Shein, AliExpress, among many others.
Although, Wish has been present in India for the last three years, even before Club Factory and AliExpress, it lacks a strategy for the India market.
“Somehow Wish has still not come up with a very sound strategy in terms of how they want to get into the market and how they want to expand,” the person quoted above said.
Wish is still testing its supply chain in India and is yet to zero down on partners.
“Shein’s strategy is slightly different. They follow the captive mode. They have finalised on their product aggregators, which makes it easier and gives them space for scale,” the source said.
Lou said Club factory keeps the entire control of the supply chain for itself. It has three warehouses currently in India—one each in Delhi, Mumbai and Bengaluru.
“Given the kind of volumes that Club Factory does, it makes sense that they want to control the whole supply chain. Club Factory and Shein, both have different strategies in terms of how they want to send products into the country. And both are doing pretty well,” the source said.