China’s ongoing e-commerce price war leaves sellers struggling | kbnmart

China’s e-commerce sellers are struggling to survive as sales growth slows, pricing pressures rise and shopping platforms compete with more aggressive policies to attract increasingly cost-conscious customers.

The once-thriving e-commerce industry, characterised by shopping festivals featuring parties and celebrities, is now suffering from a faltering economy that has seen consumers struggle to spend their money.
While excessive discounts, influencer-led sales campaigns and generous return policies have greatly enriched the sector, the same practices that sellers are required to adhere to are now harming the consumers on whom the sector depends.

“The good times of e-commerce are over,” said Lu Zhenwang, an e-commerce store owner in Shanghai who sells daily goods to small vendors. “This year, there is fierce competition and I don’t think many vendors will survive for another three years.”

Profit margins are under pressure at big platforms like Alibaba and JD.com, but also at thousands of smaller companies that joined the e-commerce boom that began around 2013.
This boom has led to e-commerce accounting for 27% of retail trade, with 12 trillion yuan ($1.65 trillion) of goods sold annually.

But as the economy slows, e-commerce growth is also slowing, with the double-digit growth of recent years expected to be replaced by single-digit growth, according to Euromonitor data.

One result, Low said, is that enthusiasm for participating in sales festivals is slowing significantly, with the biggest one — Singles’ Day, which takes place on November 11 — a “risky” proposition.

“You have no idea how many products you’re going to be able to sell, but you have to build inventory for them. It’s almost impossible to see massive growth during a shopping event,” he said.

Buyer Protection

As the slowdown began to take hold, sellers began to speak out against the side effects of sales gimmicks.

During the “618” online shopping event – the result of the founding of JD.com on June 18 – the owner of women’s clothing brand Inman called on authorities to curb platforms’ “purchase return protection” policies that force sellers to bear the cost of returns.

Such policies began on PDD’s low-priced platform Pinduoduo in 2021 and proved so popular that others followed suit — at great cost to sellers, sellers told Reuters.

“The return rate on e-commerce platforms is 60%,” Enman founder Fang Jianhua wrote on social media. He said that before the policies, the rate was around 30%.

Fang said major platforms, which sellers rely on, should not use “consumer-first” policies that add to the burdens of businesses, many of which must sell below cost to maintain high positions in search results amid multiple discount events.

The e-commerce operator said return protection policies have caused return rates to rise in categories such as apparel.

Although clothing return rates have always been relatively high, they have jumped since the requirement for buyers to pay postage when returning goods was removed, sellers said.

“For every three pieces of clothing you sell, at least two will be returned, and you pay the courier cost both ways,” Lu said.

Alibaba’s Pinduoduo, JD.com, Taobao and Tmall did not respond to requests for comment.

Sell ​​at a loss

Consumers have increased their impulse return rate, making life more difficult for smaller retailers who don’t have the cash flow to afford it, said Davey Huang, business development manager at e-commerce consultancy Azoya.

“But I think return rates are only a small part of the challenges these companies face,” he said. “They also face high costs of traffic acquisition and high costs of working with influencers and streamers.”

Retailers are also feeling the impact of factories selling directly to consumers at factory prices. As a result, some sellers on Pinduoduo have been operating at a loss for two years, said He-Ling Shi, an economics professor at Monash University in Melbourne.

“They don’t have much hope that prices will eventually be enough to cover their costs, but they have to do it (continue selling via Pinduoduo) or they will have to close their factories,” Xi said.

The operating environment is bad because the e-commerce boom has created what is known in China as the “neiguan” effect – working harder for less revenue, Lu said.

“There is no sales growth, because there are no new customers and people’s average income is not as high as it was 10 years ago. There is only competition between platforms and between sellers. This is the new normal of China’s e-commerce industry,” Lu said.