In 2015, online cross-border commerce platforms will be key for Chinese online retailers.
Online retailer Jumei
Jumei is number 1 within Chinese beauty products online retailers with a market share reaching 22.1% in 2013, according to the Frost & Sullivan’s report. First of all, the online retailer rapidly gained popularity after it’s website jumei.com launch in March 2010.
The company thinks that its online platform is one of the most trusted destination for Chinese consumers that want to discover and buy well-known brands’ beauty products, fashionable clothes and lifestyle products. While trying to understand consumers’ needs and preferences and thanks to its strong merchandizing capacities, Jumei adopted effective sales formats in order to encourage purchases through its website.
Moreover, Jumei benefits from the possibility to offer a wide choice of imported cosmetic products to its consumers. However, recently, investors are worried about the recent reform about the fall of tariffs taken by the Chinese government and also the new free-trade of imported products agreement between China and South Korea.
Yet, Jumei Global’s net revenues during the first quarter of this year increased to 51% mainly thanks to the online platform. In 2014, these ones represented 10% of growth.
VIPshop by JD.com & Tmall by Alibaba
From their side, the two Chinese online commerce leaders which are JD.com and Alibaba, through their online shopping platforms, seem to want developing their own cosmetic lines and their own baby products lines within the year.
JD.com is the biggest rival of Jumei. Indeed, this one opened online commerce platform reserved to one country only. Thus, JD.com is composed of one platform for Japan, one for South Korea and one for France.
Nvertheless, for its part, Jumei with the development of its platform signed exclusive agreements with foreign brands, mainly with small brands which want to import in China. Jumei is lucky. According to the board, 90% of imported products proposed for sale on its website do not have rivals elsewhere in the same online shopping sector in China.
Free-trade agreement between China and South Korea
Recently, an agreement between China and South Korea has been signed regarding free trade on a wide product line. Nevertheless, due to expensive prices of Korean products, the board of Jumei doesn’t think that beauty products won’t be part of this agreement.
But investors shouldn’t worry. Indeed, there are 2 things to know about Jumei. Firstly, Jumei possesses a strong position within Korean cosmetic products sale and since these ones do not seem to be part of the free-trade agreement, Jumei’s rivals which are Alibaba and JD.com are in the same situation that Jumei : none particular avantage in order to spread its presence on cosmetics import market.
Next, it has to know that the biggest tax that Jumei has to face est the 50% passage parcels one which will be bill according to the 2% import charge. Hence, the one regarding South Korea should now disappeared thanks to the agreement. Thus, Jumei expenditures should decrease.
The grey market
In China, 70% of cosmetics are bought overseas during Chinese tourists’ trips, then they bring them back in China. This kind of purchase is called “the grey market”. It’s really common for Chinese tourists, during their journey to Japan, South Korea or Hong Kong, to buy cosmetics et to bring them back for their friends or their family or even to resell them between consumers. This happens because there is a huge price difference between China and the country of origins of products.
Chinese authorities help
In order to help cross-border ecommerce market growth in China, Chinese authorities implant stricter laws regarding the grey market. Indeed, this one doesn’t have any import charges, nor VAT.
Thus, the number of products that someone will be able to bring back in China will decrease so that these importations will be only personal. This fall will be beneficial for Jumei. Indeed, thanks to this reform, Chinese consumers that couldn’t benefit from the grey market anymore, will turn towards Jumei in order to purchase foreign cosmetics.
In China, import tariffs on cosmetic goods has been reduced. Indeed, these ones went down from 5% to 2%. Yet, this fall won’t have any consequence on Jumei since this tarif represents only a small percentage inside a product price pyramid.
Jumei owns a part of It’s skin
It’s skin. You might not know this brand, yet it is one of the most popular brands in South Korea and in Asia. Thus, Jumei decided to use this strong popularity to invest a minority interest in It’s skin industry in order to boost Korean products transactions growth through its platfrom.
Jumei is not the Chinese ecommerce sector leader but it is the one of cosmetic products ecommerce. And today, Chinese authorities reforms will permit it to establish itself even more inside this sector. Indeed, the Chinese government decided to reduce import tariffs et it just signed a free-trade agreement with South Korea. Even if cosmetics don’t seem to be part of this agreement, this one will still give avantages but there are still unknown.
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