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Analysis

China’s Xiaohongshu To Trim Its E-commerce Wing

Aug 16, 2018 by Lousie Dang
China’s Xiaohongshu To Trim Its E-commerce Wing

China’s social and cross-border e-commerce unicorn Xiaohongshu (also known as Red) is planning to lay off half of its e-commerce team in the next three months, company insiders claim.

Though the company has denied this, Zhang Min, a Xiaohongshu’s employee told reporters that the layoff is already underway, tech portal All Weather TMT reported.

Xiaohongshu was founded in 2013 and currently boasts more than 100 million users and 30 million monthly active users, most of whom are urban millennial females having high consuming power and premium taste.

This lifestyle online community operates like a combination of Instagram and Amazon where users share photos and videos, write posts and tag items in their pictures that link to e-commerce listings of beauty, fashion, food, travel and entertainment.

In June, the USD 3 billion Xiaohongshu closed a USD 300 million Series D funding that was led by Alibaba. Other investors included Tencent Investment, Zhen Fund and GGV.

For Alibaba, the investment marks an indirect push into the international market and its newest strategy to further expand its e-commerce business via content sharing, which is the strength of Xiaohongshu.

Having accumulated a huge amount for social consumption data from its users, Xiaohongshu has since developed a closed shopping circle on cross-border sale of luxury items.

Instead of choosing a marketplace model like most Chinese e-commerce sites, Xiaohongshu maintains partnerships with foreign brands and has its own inventory for added quality assurance, directly shipping orders to users from their warehouse.

However, faced with fierce competition from Tmall international, JD.com and ymatou.com, the company’s cross-border e-commerce strategy could not help the unicorn to monetize.

According to a market report by Analysys, Xiaohongshu only earns a 4.3% market share in cross-border e-commerce in Chinese market. On the other hand, its inventory model and weak supply chain management also cause heavy financial burden for the company.

Xiaohongshu’s unsatisfying e-commerce business not only affect its online traffic but also causes some difficulty for the company to raise capital. The company had secured the Series D after more than two years since it closed the C round in 2016.

Having Alibaba as its leading investor, the market predicts Xiaohongshu will directly channel its e-commerce business and huge online traffic to Tmall.

The company will then allocate more resources to further expand its community and content- sharing. In the next few years, Xiaohonghu aspires to become another TikTok in beauty and fashion vertical.

With the funding support, Xiaohongshu seems determined to start over again as a content-sharing platform targeting Chinese shoppers’ unmet desire of discovering and sharing shopping experiences and let Alibaba handle major part the e-commerce side.

Lousie Dang

Lousie Dang is a Beijing-based investment analyst. She focuses on innovation and investment in emerging markets. She can be reached at wd602@nyu.edu

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