China’s online ‘recommerce’ market: Xianyu and Zhuan Zhuan

14/02/2018

Chinese B2C e-commerce is top of mind, but a secondary C2C market is following close behind: recommerce, or the purchase of second-hand goods. The recommerce trend is already quite popular in the United States, where millennial consumers have become accustomed to shopping in thrift stores, purchasing furniture via digital classifieds platform Craigslist, and snagging used designer goods on eBay for a fraction of the price.

Zhuan Zhuan and Xianyu: China’s recommerce giants

Two online recommerce platforms, Zhuan Zhuan and Xianyu, hold 90% of the recommerce market share in China. According to CBNData, the sector was valued at US$60 billion in 2016, a figure three times as large as the ride-sharing sector at that time.

In China, the recommerce industry is about two years old and shares a common origin story with other tech sectors in the country: major investments by China’s two tech rivals, Alibaba and Tencent. Alibaba backed Xianyu in 2015 with a US$15 million investment, and Tencent followed suit in April 2017 with a US$200 million investment in Zhuan Zhuan.

Xianyu, which literally translates to Idle Fish, is Alibaba’s used goods platform where users connect with friends, selling everything from used cars to clothes. According to big data stats provider QuestMobile, Xianyu has 23 million monthly active users (MAU), and 200 million users overall – numbers on par with Alibaba’s online goods platform, Taobao. In 2015, Ebrun reported the company’s value was US$3 billion, a figure that has undoubtedly grown since. The Xianyu mobile app is ranked 118th in China.

Zhuan Zhuan lets users open their own stores to sell and trade second-hand goods. Zhuan Zhuan was incubated by 58.com, and last year’s Tencent injection marked the formation of the ‘Zhuan Zhuan entities’, a joining of related listing channels from the 58.com and Ganji classified platforms. Zhuan Zhuan has 13 million MAU who post over 100 million second-hand items for an average monthly trading volume of RMB 2 billion. As of December 2016, the Zhuan Zhuan app ranked 180th in China.

Xianyu and Zhuan Zhuan Platform Features

In a country with new wealth, such as China, there’s a stigma surrounding the buying and selling of used goods. While to some, buying second-hand means lack of personal income or wealth, many members of the younger generation buy used goods for a better quality to price ratio.

To subvert the stigma of second-hand, Vern Chen, the founder of Xianyu, conceptualized the platform as a space for users to sell and barter ‘idle items’, hence the platform’s name, Idle Fish. In other words, Xianyu sellers aren’t buying used goods, they’re buying goods that simply weren’t being used.

One distinguishing feature of Xianyu is how it deploys social commerce. Users can join virtual communities called ‘fish ponds’ that are based on common interests, tastes, or location. Fish ponds have proven to be a successful user engagement strategy – as of March 2017, the number of fish ponds on Xianyu reached 410,000.

Xianyu is connected to the internet’s largest C2C platform, TaoBao. Users can connect with the TaoBao and Tmall consumer base, as well as take advantage of payment escrowed on Alipay. The platform is commission free.

Zhuan Zhuan has its own form of social consumerism – an ‘acquaintance’ system that lets users connect with their existing WeChat community by importing contacts. In addition to giving sellers a broader customer base, the WeChat integration allows both buyers and sellers to establish trust. Furthermore, both parties can check each other’s credibility through a Sesame credit rating system.

The rise of fashion recommerce

A two-part 2017 report released by Fung Global Retail & Technology highlights the growth of fashion recommerce. Venture capital funds have led to the growth of luxury fashion recommerce platforms in addition to Xianyu and Zhuan Zhuan including Secoo, 91xinshang, Real, and GoShare2.

In line with the greater recommerce trend, fashion recommerce is driven by millennials and Generation Zers, who are more likely to favor price over brand-new packaging. Second-hand luxury fashion transactions reached US$1.3 billion in 2016 and significant growth opportunities exist. The penetration rate of the online luxury fashion market is less than 5% compared to 15% in the United States.

For now, Alibaba’s Xianyu dominates China’s recommerce sector, which doesn’t come as a surprise given Tencent’s lesser e-commerce holdings. But Zhuan Zhuan’s recent VC injection and the social advantage of its WeChat platform make it a strong competitor.

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