In China, as the economy continues to falter, consumers are tightening their belts, and businesses are facing severe internal competition. E-commerce shopping platforms are grappling with slowing sales growth and rising price pressures. In order to attract customers, they have resorted to significant discounts and generous return policies, leading to sellers on these platforms struggling for survival.
“The good days of e-commerce are over,” said Lu Zhenwang, an e-commerce operator in Shanghai, whose platform helps small vendors sell daily necessities. “The competition this year is extremely fierce, and I believe many sellers may not last beyond three years,” he said.
The Chinese economy is being weighed down by a prolonged real estate crisis and high unemployment rates, severely impacting consumer confidence. Despite e-commerce platforms offering extreme discount deals, influencer-driven sales, and generous return policies to boost industry revenue, these practices are harming the sellers they rely on.
Once dominating 27% of China’s retail industry, e-commerce growth in recent years has been replaced by single-digit figures as the economy slows down, according to EuroMonitor International data.
In China, the 618 online shopping festival is the second-largest annual sales event after “Singles’ Day.” However, this year’s 618 sales growth has slowed down. Data provider Syntun reported that during the festival ending on June 20, the total GMV (Gross Merchandise Volume) decreased by 7% compared to the same period last year, totaling 743 billion yuan (102 billion USD). This marks the first decline in 618 sales.
Lu Zhenwang noted that the enthusiasm for shopping extravaganzas has significantly cooled off. “You don’t know how many products you can sell, but you have to establish inventory for it,” he said. “It’s almost impossible to see explosive growth during shopping festivals.”
During last year’s Singles’ Day shopping festival, sales only increased by 2%.
Sellers have also started to push back against the side effects of e-commerce sales policies. Founder of women’s clothing brand Inman, Fang Jianhua, called for controlling the “return protection” policy, which forces sellers to bear the cost of returns. Sellers on e-commerce platforms told Reuters that they are paying a significant price for this policy.
In a WeChat post on June 13, Fang Jianhua stated, “Currently, the e-commerce platform’s return rate is generally around 60%, with a sales receivable rate of only about 30%, creating a significant contrast compared to 60% receivable three to four years ago.”
Lu Zhenwang told Reuters that the return protection policy has led to a soaring return rate, especially for categories like clothing. “If you sell three clothing items, at least two will be returned, and you have to pay for shipping both ways,” he said.
In daily sales, merchants in China can choose whether to purchase return shipping insurance services. However, during promotions, platforms often impose “mandatory return shipping insurance” as a threshold, forcing merchants to buy insurance to participate. Some merchants complained that e-commerce platform promotions are becoming more frequent, not only during big sales events like Singles’ Day and 618 but practically every month.
Pinduoduo, JD.com, and Alibaba’s Taobao and Tmall under them did not respond to Reuters’ request for comment.
Davy Huang, Business Development Director at e-commerce consulting firm Azoya, pointed out that increased returns due to impulse shopping are straining small retail businesses that lack sufficient cash flow to cover the costs, making their days even more challenging. “But I think return rates are only a small part of the challenges these enterprises face,” he added. “They are also dealing with the high cost of acquiring traffic and collaborating with influencers and live streamers.”
Sherri He, Managing Director of Colliers in China, described this year’s 618 as the toughest shopping festival ever. “Against the backdrop of consumer downgrading, e-commerce platforms are under tremendous performance pressure,” she said.
Retailers are also feeling the impact of factory sales. Sheerling Shi, an economics professor at Monash University in Melbourne, stated that some suppliers on Pinduoduo have been operating at a loss for two years. “They don’t expect prices to eventually cover costs, but they must continue to sell through Pinduoduo, or they will have to shut down their factories,” Shi said.
Lu Zhenwang remarked, “Sales are not growing because there are no new customers, and people’s average income is not increasing as it did a decade ago.” “It’s only competition between platforms and sellers. This is the new normal for China’s e-commerce industry.”