By TONY JIN
Published: January 29, 2008 01:00 AM
Published: January 29, 2008 01:00 AM
Turnover at Taobao.com grew 156% to US$5.98 billion last year, putting it ahead of all major retailers bar Bailian Group. Yang Guoqiang of the China Business News takes a look at the growth of China’s most popular online shop, and the challenges ahead
Can Taobao.com, China’s most popular online shop, outsell domestic retailers like Bailian Group and global giants like Wal-Mart, or even the entire traditional merchandising sector? We do not have an answer. But one thing for certain is that Taobao needs to improve its quality control and logistics systems and build its credibility.
According to Taobao, online throughput rocketed 156% last year to US$5.98 billion (RMB43.3 billion), putting it ahead of domestic competitors VanGuard (RMB37.9 billion in turnover) and Dashang Group (RMB36.1 billion) and its biggest foreign competitor, Carefour (RMB24.8 billion). Its turnover was second only to Bailian Group’s RMB77.1 billion.
Taobao’s rapid success began just five years ago, since when its sales have expanded at least 100% a year, well above the 15% increase in sales throughout China’s retail sector and the 40% annual gain posted by large retailers in China. Taobao estimates that China’s online spending totaled US$8.16 billion (RMB59 billion) last year.
According to Taobao, the company took just five years to reach a point (RMB40 billion in turnover) that took Wal-Mart 29 years. However, Yu Yang, the president of Analysys, a leading Internet-focused business consultancy, disagreed with Taobao’s 4-versus-29 claim, claiming the trend towards online shopping made comparison with a store-based retailer meaningless.
“They are doing business with two totally different modes,” he said. “Wal-Mart does all the things itself, including sourcing and distributing. It even has its own plants. But Taobao is just a distributor.
“From a market perspective, Taobao’s turnover is collective while Wal-Mart’s is individual,” he added. “Wal-Mart represents the highest level of the retail sector whereas Taobao represents the newly emerging online shopping sector.”
Taobao is, however, still stacking up well with store-based retailers, as a comparison with cosmetics giant Avon shows. Avon collected RMB1.7 billion in revenues last year from its 7,000-plus stores across China, far lower than Taobao’s RMB2.6 billion collected from cosmetics.
Taobao’s revenue from nursery products surged 361.5% year-on-year to RMB1.2 billion in 2007; revenue from SIM card and recharge card sales surged 427.7% to RMB1.76 billion; revenue from clothing surged 970% to RMB5.78 billion, more than the revenues from clothing sales in all shopping malls in Beijing combined.
Taobao.com is also becoming increasingly attractive to the white collar community. Statistics show nearly nine million people visit the website everyday. Super centers in China, like those owned by Wal-Mart and Carefour have 15,000 visitors on average everyday, meaning it takes 600 large supermarkets to match the number of visitors to Taobao.com. At the end of 2006, there were just 600 large foreign-owned retailers in China.
The red hot website had 53 million registered users as at the end of 2007, up 76.7% on 2006, 24.4 percentage points higher than the 53.3% increase last year in China’s online population.
However, for e-commerce, creditability, logistics, security and tax collection remain a problem. Beijing introduced a rule on May 30 2007 requiring vendors to have a license in order to sell their merchandises online. But the rule only applies to small and medium sized firms and is not applicable to big websites like Taobao and eBay.
Taobao is currently diversifying its revenue sources as it looks to stop charging customer-to-customer sellers transaction fees. Much like its rival Sina.com, Taobao is looking to sell advertising space to name brands, and it also plans to sell advertising space on the right column of its search page, in imitation of Google shopping.
It also plans to offer a range of value-added services to help sellers. “If you do business yourself you can earn 100 dollars,” Taobao president Lu Zhaoxi said. “With the help of Taobao’s vast platform and network, you can earn 1,000 dollars. I’m sure you are willing to give me 20 to 30 dollars out of the extra 900 dollars, aren’t you?”
Lu said some of Taobao’s big private vendors had become fully-fledged businesses so were shifting from a customer-to-customer model to a business-to-customer model, and some name brand companies were also looking to sell their goods online. Taobao will broaden its revenue sources and emerge as a platform offering both customer-to-customer and business-to-customer services, he said.
This article originally appeared in Chinese in the China Business News on January 25, 2008. The China Perspective takes no responsibility for the accuracy of the original article
Can Taobao.com, China’s most popular online shop, outsell domestic retailers like Bailian Group and global giants like Wal-Mart, or even the entire traditional merchandising sector? We do not have an answer. But one thing for certain is that Taobao needs to improve its quality control and logistics systems and build its credibility.
According to Taobao, online throughput rocketed 156% last year to US$5.98 billion (RMB43.3 billion), putting it ahead of domestic competitors VanGuard (RMB37.9 billion in turnover) and Dashang Group (RMB36.1 billion) and its biggest foreign competitor, Carefour (RMB24.8 billion). Its turnover was second only to Bailian Group’s RMB77.1 billion.
Taobao’s rapid success began just five years ago, since when its sales have expanded at least 100% a year, well above the 15% increase in sales throughout China’s retail sector and the 40% annual gain posted by large retailers in China. Taobao estimates that China’s online spending totaled US$8.16 billion (RMB59 billion) last year.
According to Taobao, the company took just five years to reach a point (RMB40 billion in turnover) that took Wal-Mart 29 years. However, Yu Yang, the president of Analysys, a leading Internet-focused business consultancy, disagreed with Taobao’s 4-versus-29 claim, claiming the trend towards online shopping made comparison with a store-based retailer meaningless.
“They are doing business with two totally different modes,” he said. “Wal-Mart does all the things itself, including sourcing and distributing. It even has its own plants. But Taobao is just a distributor.
“From a market perspective, Taobao’s turnover is collective while Wal-Mart’s is individual,” he added. “Wal-Mart represents the highest level of the retail sector whereas Taobao represents the newly emerging online shopping sector.”
Taobao is, however, still stacking up well with store-based retailers, as a comparison with cosmetics giant Avon shows. Avon collected RMB1.7 billion in revenues last year from its 7,000-plus stores across China, far lower than Taobao’s RMB2.6 billion collected from cosmetics.
Taobao’s revenue from nursery products surged 361.5% year-on-year to RMB1.2 billion in 2007; revenue from SIM card and recharge card sales surged 427.7% to RMB1.76 billion; revenue from clothing surged 970% to RMB5.78 billion, more than the revenues from clothing sales in all shopping malls in Beijing combined.
Taobao.com is also becoming increasingly attractive to the white collar community. Statistics show nearly nine million people visit the website everyday. Super centers in China, like those owned by Wal-Mart and Carefour have 15,000 visitors on average everyday, meaning it takes 600 large supermarkets to match the number of visitors to Taobao.com. At the end of 2006, there were just 600 large foreign-owned retailers in China.
The red hot website had 53 million registered users as at the end of 2007, up 76.7% on 2006, 24.4 percentage points higher than the 53.3% increase last year in China’s online population.
However, for e-commerce, creditability, logistics, security and tax collection remain a problem. Beijing introduced a rule on May 30 2007 requiring vendors to have a license in order to sell their merchandises online. But the rule only applies to small and medium sized firms and is not applicable to big websites like Taobao and eBay.
Taobao is currently diversifying its revenue sources as it looks to stop charging customer-to-customer sellers transaction fees. Much like its rival Sina.com, Taobao is looking to sell advertising space to name brands, and it also plans to sell advertising space on the right column of its search page, in imitation of Google shopping.
It also plans to offer a range of value-added services to help sellers. “If you do business yourself you can earn 100 dollars,” Taobao president Lu Zhaoxi said. “With the help of Taobao’s vast platform and network, you can earn 1,000 dollars. I’m sure you are willing to give me 20 to 30 dollars out of the extra 900 dollars, aren’t you?”
Lu said some of Taobao’s big private vendors had become fully-fledged businesses so were shifting from a customer-to-customer model to a business-to-customer model, and some name brand companies were also looking to sell their goods online. Taobao will broaden its revenue sources and emerge as a platform offering both customer-to-customer and business-to-customer services, he said.
This article originally appeared in Chinese in the China Business News on January 25, 2008. The China Perspective takes no responsibility for the accuracy of the original article
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