In China, with the continued economic downturn, consumers are tightening their wallets, leading to severe competition among businesses. E-commerce shopping platforms are facing challenges such as slowing sales growth and increasing price pressures, forcing them to attract customers with significant discounts and generous return policies. This has caused sellers on e-commerce platforms to struggle to survive.
“the heyday of e-commerce is over,” said Lu Zhenwang, an e-commerce operator in Shanghai, who helps small vendors sell everyday goods. “Competition is fierce this year, and I believe many sellers won’t last three years,” he said.
The Chinese economy is suffering from a prolonged real estate crisis and high unemployment rates, severely impacting consumer confidence. Despite e-commerce platforms offering extreme discounts, influencer-led promotions, and generous return policies to boost industry revenue, these tactics are harming the sellers that the platforms rely on.
At one time, e-commerce accounted for 27% of China’s retail industry, but according to data from Euromonitor International, e-commerce growth has been replaced by single-digit figures in recent years as the economy slows down.
In China, the 618 online shopping festival is the second-largest annual sales event after “Singles’ Day.” However, this year’s sales growth during the 618 event has slowed down. According to data provider Syntun, the total transaction volume (GMV) during the shopping festival ending on June 20 decreased by 7% year-on-year to 743 billion yuan ($102 billion). This is the first time the sales during 618 have declined.
Lu Zhenwang noted that as a result, enthusiasm for shopping festivals has waned, with Singles’ Day now being viewed as a risky proposition. “You don’t know how many products you can sell, but you have to build inventory for it,” he said. “Explosive growth is almost impossible during the shopping festival.”
During last year’s Singles’ Day event, sales only grew by 2%.
Sellers have also started to push back against the negative effects of e-commerce sales policies. During the 618 shopping festival, the founder of women’s clothing brand Inman called for control over 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 high price for this policy.
Lu Zhenwang told Reuters that the return protection policy has led to a surge in return rates, especially for clothing categories. “If you sell three pieces of clothing, at least two will be returned, and you have to pay for shipping both ways,” he said.
In daily sales, businesses in China can choose whether to purchase return shipping insurance, but during promotions, platforms require sellers to buy this insurance as a condition for participating. Some sellers complained that “e-commerce platforms have more and more promotions, not only during big events like Singles’ Day and 618, but almost every month there are various promotions.”
Pinduoduo, JD, Alibaba’s Taobao, and Tmall did not respond to Reuters’ requests for comments.
Davy Huang, Business Development Director at e-commerce consultancy firm Azoya, stated that due to impulse buying, consumers’ return rates have increased, and small retailers do not have enough cash flow to bear the costs, making their days even tougher.
“But I believe return rates are just a small part of the challenges these companies are facing,” he added. “They also face high costs in acquiring traffic and collaborating with influencers and hosts.”
Sherri He, Managing Director of China at consultancy firm Colley, called this year’s 618 the “most brutal shopping festival ever.” “E-commerce platforms are under tremendous performance pressure amid consumer downgrading,” she said.
Retailers are also feeling the impact of factory direct sales. Sheri Ling, an economics professor at Monash University in Melbourne, stated that some suppliers on Pinduoduo have been operating at a loss for two years.
“They are not relying on prices to eventually cover costs, but they have to do so (continue selling through Pinduoduo), otherwise they will have to close their factories,” Ling said.
Lu Zhenwang remarked, “Sales are not growing because there are no new customers, and people’s average income has not increased as it did ten years ago.” “It’s only competition between platforms and sellers. This is the new normal in China’s e-commerce industry.”