The Indian e-commerce battle, till now largely limited to the homegrown Flipkart and its American rival Amazon, has some new entrants: Chinese retail brands.
Several e-commerce firms from the communist giant are taking the sector by storm, led by Hangzhou-based fashion e-tailer Club Factory, which entered India in 2016 and has grown by leaps and bounds since then.
As of November 2018, Club Factory’s app was installed on 12.18% of all Indian smartphones, according to Delhi-based data analytics firm Kalagato, which surveyed around 1.5 million smartphone users in the country.
In the fashion e-commerce segment, the popularity of the Club Factory app was second only to Myntra, a homegrown fashion e-tailer owned by Flipkart, which has been around since 2007—almost a decade before the Chinese brand debuted in India. Club Factory’s app has dwarfed popular Indian brands like Jabong and Limeroad, and even billionaire Mukesh Ambani-owned Ajio in terms of the number of smartphones it is installed on.
Companies like Club Factory and Shein (another Chinese online fashion retailer) are winning “because they have found the right combination of price, variety, and trendy designs,” Kartik Hosanagar, a professor of technology and digital business at University of Pennsylvania’s Wharton School, told Quartz.
“Club Factory started off as a data analytics platform for manufacturers. Through that, it built relationships with thousands of manufacturers. Now it has aggregated over 100,000 suppliers and this allows the company to offer a great variety to consumers,” he added. “It offers them at a very reasonable price. This makes the app relevant beyond tier-1 cities in India. Finally, the company has a pulse on what’s trendy, especially in Asia.”
The online fashion e-commerce market in India is expected to cross a massive $150 billion by 2022 and China’s fast fashion websites are waiting to seize it. Besides Club Factory, AliExpress, ROMWE, and JollyChic were some of the top 10 best performing cross-border e-commerce Chinese apps in India last year.
“India is one of the main markets of focus for China’s cross-border e-commerce players due to consumer demand for cheap products and the potential for high economic growth,” explained Anindya Ghose the Heinz Riehl professor of business at New York University.
And the focus is showing results for Club Factory on several parameters:
Largest user base: India is Club Factory’s largest market, accounting for 40 million of its total 70 million users. The app lists over a million products across eight categories and adds 10,000 new products every day. It has 500 employees in India and processes 25,000 orders daily—well above the 10,000 order its Chinese competitors Shein and AliExpress fulfill.
“The main reason why Indian customers like it (Club Factory) is due to the very high quality of its AI and machine learning-powered recommender systems that learn user preferences very quickly and offer highly curated offers targeted at individuals,” said Ghose. “Plus they offer cash on delivery too.”
Usage: Among India’s free shopping apps on the Google PlayStore, Club Factory posts an impressive 8th rank when measuring usage—a combination of current instals and daily active users—according to data from web analytics platform SimilarWeb. And Club Factory isn’t the lone Chinese player to taste success in the Indian market. In the Apple App Store leaderboard, Zaful, Shein, and Club Factory rank 10th, 11th, and 14th, respectively.
Market share: Club Factory holds over 31% of the market share among fashion e-commerce apps, running neck-and-neck with Myntra which, data shows, has a hold over 33%, according to Kalagato’s data. That’s despite Myntra having raised over $340 million compared to Club Factory’s backers pouring in less than a third of the amount at $100 million.
“Myntra and Jabong’s heavy investment in marketing and brand building has made it easier for new players to enter the market and target buyers who are already comfortable shopping online,” said Aman Kumar, chief business officer at Kalagato. “The quantum or value of orders (for the Chinese players) may not be nearly the same as larger fashion e-commerce firms, but that the size of their audience engagement is similar is impressive.”
Established platforms engage with more urban buyers while the likes of Shein and Club Factory are finding a foothold in smaller towns, Kumar added.
Chinese fashion brands have also cracked the code to reach young Indian shoppers through non-traditional marketing tools.
They are tapping new customers via Instagram and Facebook advertising as well as through Indian social media influencers on YouTube. For instance, shy styles, who has 676,000 subscribers on Youtube, and The Quirky Miss, with 210,000, posted videos of Club Factory hauls and even of visits to its offline store in Delhi.
The company has received over 30,000 user-generated-content videos on YouTube of users unboxing their parcels and sharing shopping experience.
Then, sometime in mid-2018, Club Factory went big on marketing, roping in Bollywood star Ranveer Singh and Miss World 2018 Manushi Chhillar for a campaign.
Going forward, such brands “would gain prominence if their fulfillment is on track and quality of products is very good,” said Vidhya Shankar, executive director at advisory firm Grant Thornton. Club Factory has brought shipment timelines down to under 12 days on average compared to the few weeks rival Chinese apps take to deliver. And even as a survey of 200 customers cited unreliable sizing as a major concern, 60% of the respondents said the quality of the apparel on the site was “decent.”
However, this stunning growth could soon hit a wall.
“Chinese apps always have problem of trust. Any policy change can impact their business,” said Yugal Joshi, vice-president at Texas-based consultancy Everest Group. “The government had already cracked down on the way these products are being shipped given it is a cross-border transaction.” Though these apps “still have a strong runway to work on,” they will “see a plateau and then decline,” Joshi said.
Under current Indian customs rules, personal gifts priced at under Rs5,000 are exempt from duties—a provision the Chinese have been exploiting, Indian seller-portals complain. The customs department found red flags such as multiple “gift” deliveries being made to the same address and heavy 15kg parcels with declared value of a mere Rs3,000 being brought in. So, the government is considering cracking down on the practice by tracking the source country and consignor-consignee details, besides limiting the number of such orders.