Vipshop’s “Special Sale Arena”

Vipshop has gained wide recognition and praise from users by continuously optimizing its services and improving user experience. This article will talk about its "special sale world" from the perspective of its business model, hoping it will be helpful to you.

When talking about the e-commerce world, one of the major schools of thought is unavoidable, and that is the special sale model . The simplest form of special sale is "selling at a particularly favorable price."

Vipshop, a website that sells branded products (with more than 500 million registered members), seems to be in a remote corner now compared to its glory in 2015 and 2021. Some say it is gradually declining, while others say it is making a fortune in silence.

Next, let’s start with its business model and talk about its “special sale world”.

Article Directory:

1. Vipshop’s business model

2. What problems does Vipshop solve?

3. Problems Vipshop will face

1. Vipshop’s business model

Vipshop, a company that specializes in special sales, has a business model with three key words: brand discounts + limited-time sales + authentic product guarantee.

Consumers want big brands, but they want them at a cheap price.

Companies want to clear inventory, reduce costs and recover funds, so they are willing to offer lower discounts than other products.

Vipshop plays the role of a "middleman", connecting the two and earning commissions from the brands.

2. What problems does Vipshop solve?

1. For enterprises

Inventory issues have always been a long-standing problem for business operations. From demand forecasting to inventory preparation to supply chain execution, they are all key links in business operations.

Inventory is like walking on a balancing beam. You can’t have too little, but you can’t have too much either.

Too little inventory will create the risk of supply interruption, which will in turn affect the company's revenue and consumer experience.

Excessive inventory (which is also the core problem faced by most companies) will increase storage costs, inventory depreciation, and occupy the company's working capital.

Therefore, special sale platforms have become an important channel for brands to clear inventory and recover funds, especially during the off-season and for slow-moving inventory. This model helps companies save costs and quickly realize cash.

2. For customers

The logic behind brand sales is that it solves the problem of consumers wanting to buy authentic big brands but wanting to do so at a cheap price and not having very high requirements for the style.

Under such demand, a track can be created.

Retail, especially online e-commerce, also needs to consider two core factors: the convenience of returns and the immediacy of logistics.

Clothing is the core track of flash sales business, and its return rate is much higher than other industries. Vipshop, which mainly relies on this category for growth (clothing accounted for 40.32% in 2022), has to face the problem of high return rate.

To solve this problem, Vipshop mainly adopts two approaches:

The first is a professional buyer team of over a thousand people who, through industry experience and big data analysis, can accurately recommend high-quality goods and find the product styles that customers prefer.

Second, take the initiative between you and the brand and keep the risk of returns on the brand side.

For online shoppers, especially flash shoppers, the immediacy of logistics is undoubtedly necessary. This is also one of the important factors in measuring online platforms. For example, JD.com's logistics has become one of its important moats.

In terms of logistics, starting from November 2019, Vipshop terminated its own delivery service and began to cooperate with a third-party SF Express to improve the efficiency of logistics operations and increase consumer satisfaction.

3. For yourself

To a certain extent, as long as big brands have problems clearing their inventory and consumers have the demand to buy genuine products at low prices, Vipshop will have its place.

Under the premise of demand potential difference, Vipshop has the possibility of earning commissions.

3. Problems Vipshop will face

1. Can the traffic continue to grow?

Regarding the total number of active users in a specific period, Vipshop had 43.8 million in Q1 2023, a year-on-year increase of 4.0% from 42.2 million in Q1 2022.

But looking at the overall annual data , Vipshop's number of active users in 2020-2022 was 83.9 million, 93.9 million, and 84.8 million, respectively, with a year-on-year growth rate of -9.7% in 2022.

Although there is room for improvement in the total number of active users compared to the top platforms, mid-tier e-commerce companies are caught in a double squeeze as the Internet traffic dividend has peaked and the top comprehensive platforms are besieging them.

2. Competition for brand discourse power

For Vipshop, there are two major issues that need to be resolved in terms of its relationship with brands:

First, relying on the advantages of the platform, we will continue to attract more competitive brands to settle in.

Secondly, the brand takes the initiative in the returns aspect of consumer services, and the brand is responsible for the returned goods.

As of December 31, 2020, 2021 and 2022, Vipshop has worked with more than 21,000, 25,000 and 27,000 brand partners, respectively.

In its partnerships with brands, Vipshop typically has the right to return unsold merchandise within a certain period of time after a sales event ends.

3. Inventory issues are undoubtedly a fundamental problem

Vipshop adopts the consignment model, but it is mainly based on the advantageous category of clothing, so there is basically no need to worry about inventory pressure.

However, in the case of certain sporting goods, beauty products and cross-border products, there is no right to return unsold goods to the brand.

For these non-returnable products, there will be a heavier inventory risk, which also puts higher demands on Vipshop's buyer team. Control on the front end will facilitate back-end execution to achieve faster inventory turnover.

Otherwise, it will lead to inventory accumulation, inventory impairment, and high fulfillment/contract costs, which may be detrimental to working capital.

As Vipshop expands its business beyond clothing, it will certainly need to address the inventory risks that come with it.

4. Competition

As a mid-level vertical e-commerce company, Vipshop will also face competition from leading comprehensive e-commerce companies such as Taobao, JD.com, and Pinduoduo. However, they still have a certain gap in terms of bargaining, warehousing and logistics, and back-end customer service .

In addition, Vipshop's expansion into areas beyond apparel has also put its advantages to the test.

IV. Conclusion

As long as big brands have the demand to clear their inventory and consumers have the demand to buy genuine products at low prices, the special sale model will exist for a long time.

Vertical e-commerce, whether vertical product categories or vertical models, will be squeezed out by leading comprehensive e-commerce companies under the influence of economies of scale.

Past business history has undoubtedly proved this point. Many companies have disappeared in the dust of history, while many companies are still treading on thin ice. Even if they go public, their peak is as soon as they go public.

Author: Zang Feng; WeChat public account: Strategist Zang Feng