Xiaohongshu closed Little Oasis. What is the reason?

Recently, Xiaohongshu announced the closure of Xiaoluozhi, which sparked heated discussions among netizens. Why did Xiaohongshu shut down Xiaoluozhi? What impact will the loss of Xiaoluozhi have on Xiaohongshu? What impact will it have on its e-commerce development and ordinary consumers? What inspiration can it provide for other e-commerce platforms? This article will discuss them one by one.

Recently, Xiaohongshu announced in its official announcement that it will close its e-commerce platform Xiaoluoshu, which has aroused widespread attention and heated discussion.

Through the announcement, we learned that it was a business adjustment. During the exploration of the small oasis, we were unable to maximize the outdoor needs of users. Based on the above, we decided to cease operations on October 1.

Xiaoluozhou was once the strategic focus of Xiaohongshu and carried Xiaohongshu's ambitions in the field of social e-commerce. However, after several years of development, Xiaohongshu chose to strategically withdraw in the face of the fierce competition in the e-commerce market, and we have to sigh again for Xiaohongshu's bumpy road in e-commerce.

So why did Xiaohongshu shut down Xiaoluozhi? What impact will the loss of Xiaoluozhi have on Xiaohongshu?

Has Xiaohongshu really found its own e-commerce model? What inspiration does it give to traditional e-commerce players such as "Maogoupin" and emerging e-commerce players such as "Kuaishou"? What impact will it have on ordinary consumers?

This article will give you a glimpse of them one by one.

1. Development History of Little Oasis

First, let’s take a look at the origins of the Little Oasis that Xiaohongshu is betting on?

In 2018, Xiaohongshu gradually began to explore the Little Oasis, positioning itself as a high-quality social e-commerce platform, focusing on the young women's market. With "selection, quality, and new arrivals" as its core concept, it provides users with a new shopping experience by recommending and discovering high-quality products and services around the world.

In just two years, because Xiaoluozhou pays more attention to user experience and sociality than traditional e-commerce platforms, it has risen rapidly in a short period of time, attracted a large number of young users, and become an important section of Xiaohongshu.

The development of a small oasis can be divided into three stages:

Exploration period (2018-2019): Mainly attract users through an invitation system. Users need an invitation code to join the platform. It also began to try commercial operations, cooperated with some well-known brands and designers, and launched limited edition products to meet the personalized needs of young users.

Growth stage (2020): Start to vigorously promote, expand product categories and service scope, and become a comprehensive e-commerce platform. Attract more users through online and offline activities, live broadcasts by influencers, etc. At the same time, the "Oasis Coin" system is launched. Users can obtain Oasis Coins by participating in platform activities and sharing products, which can be used to exchange for products or withdraw cash.

The number of notes posted on Xiaohongshu, which took advantage of the camping craze, increased by 271% year-on-year, and the number of note views increased by 170% year-on-year, making it the talk of the town.

Mature stage (2021 to present): Upgrade and focus on building a "quality life circle", which will be officially launched in early 2022 and gradually grow into an important business segment of Xiaohongshu. It strives to promote user consumption through social interaction and forms a positive interaction with other businesses of Xiaohongshu. Users can buy goods on Xiaoluoshu, and at the same time, they can also share their shopping experience, discover new and good things on Xiaohongshu, and create content through live broadcasts and videos.

In 2022, the content related to camping on Xiaohongshu achieved faster growth, with a total of over one million notes, surpassing the traditional leading beauty category! This is also the direct reason for the change in Xiaoluzhou's positioning.

At that time, Xiaoluozhou focused on comprehensive categories such as beauty, skin care products, fragrances, and fashionable home furnishings, which were in line with the initial positioning and the tone of Xiaohongshu. However, as camping and outdoor sports became popular, Xiaoluozhou immediately changed its positioning - turning to outdoor sports scenes, including camping, land surfing, skiing, cycling, etc.

Frequent changes in positioning and chasing hot topics may also lay "mines" for the small oasis. After all, once the popularity subsides, it will be easy to tell who is swimming naked. It is better to focus on an evergreen field and cultivate your own differences.

Unfortunately, Little Oasis did not do so.

2. Why did Xiaohongshu abandon Xiaoluodao?

There are many reasons why Xiaohongshu closed Xiaoluoshi. I think it can be mainly attributed to the following points:

1. Fierce market competition

Currently, the e-commerce market is already in a highly competitive state. Traditional e-commerce platforms such as Taobao, JD.com, and Pinduoduo have a solid position, and short video platforms such as Douyin and Kuaishou are also rising rapidly.

In this context, Xiaohongshu faces huge competitive pressure. In 2022, the GMV of Alibaba, JD.com, Pinduoduo, Douyin, and Kuaishou will be 8.3 trillion, 3.47 trillion, 1.5 trillion, and 0.9 trillion respectively, while Xiaohongshu has not announced its figures, but we can get a glimpse of it from previous data - its GMV in 2020 was less than 7 billion, which is a huge gap compared with the top e-commerce platforms!

To break through, it needs to invest huge resources and energy, but given the size of Xiaohongshu, the results may be disappointing, so it is better to cut losses early.

2. High profit pressure

In the early stages of its development, Xiaohongshu adopted a "content + e-commerce" business model, attracting users through content and then realizing monetization through e-commerce. However, due to the high cost of content production and promotion, Xiaohongshu was in a loss-making state for quite a long time.

Although Xiaohongshu has achieved profitability through advertising and e-commerce in recent years, under the pressure of profitability, Xiaohongshu has to consider closing some business segments with low input-output ratios. Unfortunately, Xiaoluoshu belongs to this type of business.

Through an investigation into the sales of goods on the shelves of Little Oasis, it was found that there were only 9 products in the four main product categories (camping, urban sports, cycling, and skateboarding) with sales of over 1,000, and the prices of the products were not high, only over 100 yuan. The data was extremely embarrassing.

3. Small oasis development encounters obstacles

Xiaoluozhou was once one of Xiaohongshu's key businesses. Although it performed well in terms of quality and user experience, it has not met expectations in terms of user scale and activity.

In addition, Xiaoluoshu also faces many challenges in supply chain, logistics and other aspects. More importantly, it is unable to achieve a closed loop from "planting grass" to consumption. "Order starts from Xiaohongshu, and the transaction is completed on Taobao" has made Xiaohongshu always helping others. These problems have forced Xiaohongshu to consider making strategic adjustments to Xiaoluoshu.

4. Strategic transformation needs

Xiaohongshu has been undergoing a strategic transformation in recent years, from an initial community platform to a comprehensive e-commerce platform and diversified content platform, and in August it placed its bet on the "buyer model".

During this process, Xiaohongshu needs to invest more resources in its core business and businesses with development potential. As a business segment facing greater competitive pressure in the market, Xiaoluozhou will naturally be strategically contracted by Xiaohongshu.

In addition, during its development, Xiaolvzhou has encountered many problems such as infringement, false advertising or inappropriate content, deviations in brand image building, and non-compliance with regulatory compliance.

Therefore, Xiaohongshu decided to close Xiaoluozhou and focus on the goal of integrating the community and e-commerce modules. This move is also to better support the growth of Xiaohongshu buyers and support merchants to operate on the Xiaohongshu platform, ultimately improving Xiaohongshu's profitability and sustainable growth.

3. Xiaohongshu after losing Little Oasis

Xiaohongshu must be feeling very painful to abandon the "child" it has worked so hard to raise, but it has no choice but to do so.

So what impact will the burden reduction have on Xiaohongshu?

1. Adjustment of business model

After closing Little Oasis, Xiaohongshu can devote more energy to its two core businesses of content sharing and e-commerce shopping to make up for the loss of traffic and social interaction caused by the closure of Little Oasis.

More energy will also be devoted to the advertising business, which accounts for 80% of the revenue. After all, in 2022, Xiaohongshu has set a goal of doubling the revenue of its advertising business to 24 billion yuan, in order to further enhance the value of the platform.

2. Improved profitability

As it shifts to core businesses and profitable projects, readjusts its internal structure, and lays off staff, Xiaohongshu's profitability may also improve.

In addition, the loss of this part of Xiaolvzhou's revenue will force Xiaohongshu to monetize through other means, such as brand cooperation and advertising. It can also further improve its revenue-generating capabilities by optimizing operational efficiency and reducing costs.

3. Brand image building

It is undeniable that Xiaoluozhou’s positioning and products have deviated from the impression that Xiaohongshu conveys to the market.

This closure will give Xiaohongshu time and an opportunity to reshape its brand and strengthen compliance operations. Xiaohongshu can further enhance its brand image, set an industry benchmark, and attract business partners and advertisers.

However, it is undeniable that the closure of Little Oasis will result in the loss of some users and the loss of a competitive opportunity in a business sector.

4. Inspiration for other e-commerce platforms

Xiaohongshu's drastic measures and timely stop-loss measures also serve as a warning to other e-commerce platforms.

First of all, in the highly competitive e-commerce market, it is crucial to choose the right business model, strategic positioning and brand image.

Although Xiaohongshu has certain advantages in the field of content e-commerce, it faces huge challenges on comprehensive e-commerce platforms.

Other e-commerce platforms need to choose a business model and strategic positioning that suits them based on their own characteristics and development stage. They also need to clarify their brand positioning and ensure that their products and services are consistent with their brand image.

On this basis, e-commerce platforms can then use diversified marketing methods to enhance brand awareness and reputation, rather than taking the place of the main brand.

Secondly, paying attention to user experience and quality is the eternal theme of e-commerce platforms.

In the early stages, Xiaolvzhou performed well in terms of user experience and quality, which is a point that other e-commerce companies need to learn from.

However, with the rapid expansion of the number of notes, problems such as low-quality products and false advertising have frequently occurred. Therefore, it is fundamental to strengthen the review of product quality and advertising, attach importance to the user's shopping experience, and create an honest, reliable shopping environment and product quality to attract and retain users.

In addition, e-commerce platforms also need to pay attention to supply chain and logistics management.

Supply chain and logistics management are the cornerstones of e-commerce platforms, directly affecting user experience and cost-effectiveness.

Not only did Little Oasis lag behind other players in this regard, but the resulting operating costs were also very high, seriously dragging down business revenue.

Continuously optimizing supply chain and logistics management, improving logistics speed and on-time arrival rate of goods, and enhancing user satisfaction and loyalty are an inevitable and must-do part of e-commerce.

Finally, e-commerce platforms need to continuously undergo strategic transformation and innovation based on market changes and their own development needs.

As the market continues to change and consumer demand continues to upgrade, e-commerce platforms need to continue to innovate and transform to adapt to market changes and meet user needs.

Xiaoluozhou is a platform specially created by Xiaohongshu to expand its outdoor camping business. It has achieved great success in the early stage, thus proving that diversified content and services can attract more users.

New growth points can be discovered by introducing new businesses, expanding new markets, etc. to meet the needs of different users.

5. Impact on Ordinary Consumers

Xiaohongshu’s closure of Little Oasis will also have a certain impact on ordinary consumers.

First of all, for consumers who are accustomed to sharing and shopping on small oases, they need to find new shopping channels or alternative platforms to meet their needs, which may take some time and effort to adapt to new shopping platforms and methods.

Secondly, the closure of Xiaoluozhou by Xiaohongshu may cause some brands or merchants to lose an important sales channel. For these brands or merchants, they need to find new sales channels or platforms to continue selling goods and services. This may lead to a reduction in the supply of some goods or services or an increase in prices.

In addition, the closure of Xiaohongshu's Xiaolvzhou app may also have a certain impact on some partners or suppliers. These partners or suppliers may face problems such as reduced order volume and reduced sales channels. This may cause them to adjust their business models or find new partners to maintain business operations.

The closure of Xiaohongshu's Xiaoluozhou is not only a microcosm of the intensified competition in the e-commerce industry, but also an example of the platform's self-adjustment and development.

As for Xiaohongshu itself, it needs to adjust its business model, rebuild its brand image, improve its supply chain, and deal with possible user loss, and find a more efficient way to transform between commercialization and e-commerce. Whether the next bet on the electronic shopping business model can become the key to overtaking others in the corner still needs time and market testing.

For other e-commerce platforms, this is a case worth learning from and thinking about. It not only urges existing e-commerce players to pay attention to content quality and compliance, and develop diversified content and services, but also reminds them that the development of the Internet industry is full of variables and requires constant adjustment and adaptation to market and regulatory changes.

Author: Huanghe understands operations, WeChat public account: Huanghe understands operations