Online flash sales may become short-lived craze in China

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.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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