Can e-commerce support the future of Xiaohongshu?

Xiaohongshu has been making frequent moves since it started investing in e-commerce. How is Xiaohongshu's e-commerce business developing now? Can e-commerce support Xiaohongshu's future?

The "slow company" Xiaohongshu has been speeding up in the past two years. 2023 is a critical year for Xiaohongshu. According to media reports, Xiaohongshu turned a profit for the first time in 2023, with revenue of US$3.7 billion, an increase of 85% from US$2 billion in 2022, and a net profit of US$500 million. Since 2023, the most important change in Xiaohongshu is that Xiaohongshu has increased its investment in e-commerce, finally running more than 100 million live broadcast rooms, and the organizational structure has been adjusted again and again. For Xiaohongshu, e-commerce is a business that pries open the ceiling. It is not only related to the commercialization of the platform itself, but also opens up monetization space for bloggers on the platform.

Although live streaming will not be the most cost-effective way for native bloggers to monetize at this stage, it is still very tempting to sell 3-4 million in a single live broadcast with 100,000 fans. Xiaohongshu has always wanted to be a unique Internet company, and the same is true for e-commerce. Although the e-commerce business has a far-reaching impact on the company, it was not until Dong Jie became popular that Xiaohongshu really tilted its resources to e-commerce. It is still early, and it is impossible to make a conclusion about Xiaohongshu's buyer e-commerce at this stage, but Xiaohongshu still needs to work hard on e-commerce.

1. Increase investment in e-commerce

After this increase in e-commerce, Xiaohongshu has not yet announced the specific data of its e-commerce business, and only tells the outside world the growth rate of its e-commerce business through the growth rate. Xiaohongshu has publicly stated that from May 2022 to November 2023, the scale of Xiaohongshu's e-commerce buyers and managers has increased by 27 times, the number of dynamic sales merchants has increased by 10 times, and the number of purchasing users has increased by 12 times. A set of data comparison is that during the 618 period last year, Xiaohongshu announced that the average daily number of purchasing users increased by about 4 times year-on-year, and no data was released on both the supply and consumption ends. On the first day of 618 this year, Xiaohongshu disclosed data related to orders, GMV and number of users.

As of June 10, the order volume of Xiaohongshu e-commerce 618 live broadcast room was 5.4 times that of the same period last year, and the store broadcast GMV was 5 times that of the same period last year. Dong Jie and Zhang Xiaohui's popularity has allowed Xiaohongshu to squeeze into the table. However, the outside world is more concerned about how Xiaohongshu e-commerce can expand on a large scale. From bloggers, brands to service providers, many people involved in Xiaohongshu e-commerce have mentioned that the changes in Xiaohongshu are "more people."

But how big the data growth is, the answer they gave is "a steady stream of growth". After Xiaohongshu restarted e-commerce, the first major category it launched was fashion, which has always been Xiaohongshu's advantage. A clothing merchant also told Tech Planet that in Xiaohongshu's entire footwear and clothing category, branded products account for the majority, and there are more first- and second-tier brands. For Xiaohongshu, non-standard products are the difference and advantage of the platform. E-commerce needs a base, and non-standard categories alone cannot allow e-commerce to go long-term.

In fact, from bloggers to merchants, Xiaohongshu has been solving the problem of "quantity" for more than a year. When the concept of buyers was first introduced, Xiaohongshu's native bloggers were not interested in live streaming. Kankan, the founder of Zhaixingge, also admitted that not everyone is suitable for live streaming. Although Zhaixingge has more than 300 bloggers, there may be less than 10 bloggers who are suitable for live streaming. Even the blogger with the best sales data has only 100,000 fans. "I don't think all bloggers and all MCNs are suitable for live streaming. There are still specialties in the profession." Zhaixingge is one of the earliest content MCN agencies specializing in Xiaohongshu, and it is also the only MCN that has received investment from Xiaohongshu. Like Zhaixingge, the agencies that produce native bloggers for Xiaohongshu all started with content, and e-commerce is not their strong point. Xiaohongshu is more about converting native bloggers while introducing bloggers with live streaming potential outside the site.

In the "Focus 30 Xiaohongshu E-commerce Business Monthly List 618 Live Season Special Edition", "Doudou Bendou", "bbgillian Daiwang", "Writer Zhang Meng", "Xiaoxiaoxiaoxiaoxiaoxiaoer", "Zhang Yueer Masani", and "HZIRISXY" are a group of off-site bloggers. After establishing its own characteristics, Xiaohongshu still needs to follow the "old path" of e-commerce.

This year, Xiaohongshu focused on the e-commerce concept of store broadcasting, which is no longer new, during the 618 shopping festival. In fact, in the past year, Xiaohongshu has also entered the industry belt to find merchants. In the middle of last year, Ma Kaiyue, a veteran in the Wenzhou e-commerce circle, organized the Xiaohongshu e-commerce investment promotion meeting for the first time.

In the past, Taobao, JD.com, and Pinduoduo found merchants in the Wenzhou industrial belt through him. In June last year, the popularity of Dong Jie and Zhang Xiaohui also made Luo Jin pay attention to this platform. Luo Jin has been a footwear and clothing agent in Wenzhou for many years, including major foreign brands and domestic second- and third-tier brands. At the beginning of this year, he began to layout Xiaohongshu in the form of a company. Merchants like Luo Jin are not the brand merchants that Xiaohongshu currently wants to dig out. Their purpose of entering Xiaohongshu is more direct, which is to gain traffic and sell goods. But traditional sellers like Luo Jin have also begun to pay attention to Xiaohongshu, which may mean that the value of Xiaohongshu e-commerce is being paid attention to by the traditional e-commerce circle. It also means that from buyers to store broadcasts, and then to industrial belts, Xiaohongshu e-commerce still needs to go the way it should go.

2. “No need to invest” and “cannot invest”

For more merchants operating on Xiaohongshu, the difference of Xiaohongshu e-commerce lies in user value, not KOL. A set of data is that as of September 2023, the proportion of users in first- and second-tier cities on Xiaohongshu reached 50%. The proportion of users born after 1995 reached 50%. These data mean that merchants can obtain high-quality users and sell high-order products.

Luo Jin plans to work on Xiaohongshu because he sees the user value of Xiaohongshu. "As a merchant, we hate vicious price competition," Luo Jin told Tech Planet. "As soon as we sell a single product, a lot of the same product that is cheaper than mine will appear." Before Xiaohongshu, Luo Jin worked on Douyin and Video Account. In his opinion, among all platforms, Xiaohongshu's users are the most sticky and more stable. "Douyin's volatility can be very large, especially for shoes and clothing. If you sell 200,000 today, you may only sell 10,000 tomorrow," Luo Jin said.

At the current stage, the cost of acquiring these high-net-worth users is not high. In the view of "Dian is not Dian" (hereinafter referred to as Dean), Xiaohongshu may be a good choice for merchants who do not have much budget or want natural traffic. Dean is an e-commerce operator of Xiaohongshu and Douyin, and has helped many consumer brands complete the "0 to 1" incubation on Xiaohongshu. The monthly sales of a single store of Luo Jin's brand is between 500,000 and 800,000. Note trailers account for about 30%, and live broadcasts account for 70%.

He told Tech Planet that in the category of sports shoes and clothing, store broadcasts can be considered mid-level in terms of this performance, and this data does not spend too much effort on buying traffic. But for merchants, the other side of "no need to invest in traffic" may be "not being able to invest in it." "Xiaohongshu once sent a waiter to help key merchants solve the problem of investment in traffic, and debug the spotlight platform one-on-one," said a person who has been in contact with Xiaohongshu's e-commerce team. "I thought that the merchants did not master the skills of investment in traffic, but after guidance, the effect was still not obvious." Many merchants in different categories told Tech Planet that even if they paid for investment in traffic, the effect was not obvious, and the traffic in the live broadcast room was not accurate. Kankan told Tech Planet, "It is difficult to build an account on Xiaohongshu with money. Everyone does not use capital to play, but relies more on the content itself to obtain traffic." Based on the logic of planting grass, Xiaohongshu users will click into the live broadcast room to place an order after they are interested in the product after planting grass through the content of the notes. In Xiaohongshu's live broadcast room, you may not be able to directly convert new users who happen to click into the live broadcast room.

Bloggers who sell goods on Xiaohongshu need to continuously post videos previewing the goods 3-7 days in advance before the broadcast to complete the grass-planting stage. This almost never happens on other platforms. "If merchants want to achieve monthly sales of 3-5 million on Xiaohongshu, I think there is a chance," Dean judged, "but if they want to reach the 10 million level, it will be difficult for most merchants at present." In Dean's view, the differentiated advantage of Xiaohongshu e-commerce is user value rather than traffic value. If the brand is relatively mature and already has an e-commerce base on platforms such as Taobao and Douyin, then Xiaohongshu is more suitable as a grass-planting platform. The current Xiaohongshu e-commerce is not suitable for merchants at any stage.

3. Balancing the acceleration of commercialization and content community

The development of e-commerce has always been seen by the outside world as the acceleration of Xiaohongshu's commercialization. And e-commerce is only one aspect. Since 2023, Xiaohongshu's senior management has changed, involving the three major departments of community, transaction (e-commerce), and commercialization. At the end of last year, Xie Yunwei (He Tong), the former head of community operations of Xiaohongshu, left. In 2019, Xie Yunwei came to Xiaohongshu from NetEase. He witnessed and participated in the process of Xiaohongshu's DAU from tens of millions to 100 million.

But at the end of last year, this key figure left. Three months later, the new community operations director Jiang Yuan (Yunfan) took up his post and reported to Xiaohongshu founder and CEO Mao Wenchao (Xingshi). In January this year, Wu Yingbing, the former head of Didi's supply and demand strategy, joined Xiaohongshu. He was previously responsible for part of Didi's e-commerce business; in March, media reported that Ye Heng, the former head of Kuaishou's e-commerce products and who had worked with Wang Jianwei for many years, resigned and joined Xiaohongshu, and will serve as the number one position for Xiaohongshu's e-commerce C-end products.

In April, Zhao Weichen, former secretary of the board and general manager of the corporate development and investor relations department of Yika Technology, was revealed to have joined Xiaohongshu as the head of commercialization of the Internet industry. The new executives took office for one goal - business growth. According to New Vision, after DAU exceeded 100 million, in 2023, Xiaohongshu clarified the development strategy of "sitting one and watching three" in a co-creation meeting, and officially headed for 300 million DAU. People who have contact with the Xiaohongshu team also said that DAU is still one of the growth indicators that Xiaohongshu is most concerned about.

Even though e-commerce is developing, many merchants and service providers of Xiaohongshu e-commerce can feel Xiaohongshu's restraint on the growth of absolute data speed. Although Xiaohongshu e-commerce is pursuing quantity, its management of brand entry is stricter than other platforms, and it focuses on brand. Brands with controversial behaviors cannot bring goods on Xiaohongshu. For example, "New Balance", a controversial domestic shoe brand, cannot set up an account on Xiaohongshu, or even bring goods. "Xiaohongshu still wants to serve people with a tone, and it doesn't want to make e-commerce too popular," Ma Kaiyue told Tech Planet. But some changes have begun to appear. One detail is that Ma Kaiyue told Tech Planet that in some subcategories of outdoor sports, this year, products with a unit price of less than 80 yuan are also welcome to be put on the shelves, while low-customer merchants with a unit price of less than 100 yuan last year were not encouraged to open stores.

In Dean's view, Xiaohongshu is a company that cares very much about the feelings of community users. It is Xiaohongshu's maintenance of the community atmosphere that has allowed its user value to be maintained. According to a research report released by GF Securities in February 2024, 80% of Xiaohongshu's revenue in 2022 came from advertising business, and the rest was mostly e-commerce business; the proportion of advertising revenue in 2023 decreased slightly, but still accounted for nearly 80% of total revenue. E-commerce is undoubtedly the second growth curve, but Xiaohongshu may have to find a balance between the growth of DAU and GMV.