Online flash sales may become short-lived craze in China
July 17, 2013 Leave a comment
Online flash sales may become short-lived craze in China
Staff Reporter
2013-07-17
With the trend of online group shopping on the downturn, “flash shopping” has been sweeping China’s e-commerce market. Flash shopping features sales of certain merchandise, mostly brand name products, at a 10-50% discount for members of e-commerce websites during a specific time frame. Vipshop.com pioneered the sales practice and its success has enabled its market value to grow six-fold in one year, prompting major e-commerce operators to join the fray. The participation of major e-commerce operators has aggravated the competition for flash sales, slashing profit margins. Vipshop.com revealed that flash sale operators used to collect 20-26% commission from vendors, a major source of their profit, but the commission has dropped to 5%, following the rollout of flash-sales channel by Vancl. As a business model, flash sales operators lack core competitiveness in customer traffic, service, supply chain and commission levels.At 10-15% discounts, flash sales are comparable to closeout deals at brick-and-mortar retailers. Fifty listed textile and clothing firms published 2012 yearbooks as of April 17 this year, according to which they are laden with 57 billion yuan (US$9.3 billion) in inventory. The inventory level of the entire industry is estimated at over 250 billion yuan (US$40.8 billion), offering fertile ground for the development of flash sales business strategies.
In order to cash in on the huge inventories, many textile firms, including renowned brands such as Li Ning and Septwolves, have conducted closeout sales, becoming a major supply source for flash-sales platforms. Other merchandise, such as cosmetics, constitute only a minor portion of flash sales. The concentration on clothes is another weakness of flash-sales platforms.
Flash sales rely on impulse buying and merchandise is frequently returned, greatly increasing operational costs for flash sales platforms. The average merchandise return rate of vipshop.com stands at 15-20%. The rate for clothing tops 28%.
Observers also note that flash sales operators may have difficulty finding suppliers of goods, after inventories of textile firms have dropped to reasonable levels.
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