HANGZHOU, China, Aug. 14, 2018 /PRNewswire/ -- Recently, NetEase,
Inc. (NASDAQ: NTES) released second quarter 2018 financial results.
The Company's net revenues for its two e-commerce businesses --
NetEase Yanxuan and NetEase Kaola (a cross-border platform) --
stood at US$660 million, a 75.2%
year-on-year increase, which is a significant increase from the
previous quarter; while the gross profit margin for its e-commerce
business increased to 10.1%. NetEase's e-commerce business
platforms have again demonstrated the Company's ability to
introduce exciting new online offerings and rapidly improving
margins.
An ODM Model That Directly Connects Manufactures and
Consumers
As one of NetEase's two primary businesses within its e-commerce
segment, NetEase Yanxuan has become very popular after it was
officially launched in April 2016,
mainly through word-of-mouth effect. NetEase Yanxuan features
products with a high cost-performance ratio by partnering directly
with big manufacturers, improving upstream supply chain, and
offering more affordable yet quality products. In addition, through
careful selection, NetEase Yanxuan has devoted special attention to
the aesthetics and style of each item; it also boasts simplicity
and environmentally friendly materials. As a result, the quality
and service of consumer shopping have been greatly improved, and
consumers' decision-making time has been considerably
shortened.
In China, there are two
incumbent e-commerce models: Taobao's C2C mode and JD.com's B2C
mode. C2C offers a wide range of products and the price is
relatively inexpensive, but problems arising from this model are
also evident: such as products with inconsistent quality and high
choice cost. The B2C model, represented by JD.com, is welcomed by
consumers due to its incomparable convenience, supported by
self-built logistics, however, the branded goods sold via this
model carry less competitive pricing because of the intermediaries
involved. In contrast, NetEase's Yanxuan business model sells
products under its own brand name while these products are
designed or improved by ODMs (Original Design Manufacturer). These
components help to ensure the best of all world for our consumers:
consistent high quality products at competitive price.
Additionally, since the design patents used by
Yanxuan-contracted ODMs belong to the manufacturers, they are able
to sell their products to multiple brands. Therefore, NetEase
Yanxuan is not involved in any potential theft of intellectual
property and the Yanxuan Model is rapidly becoming regarded as the
third mode of China's
e-commerce.
Being an Industry-leader, Yanxuan Model Is to Be
Copied
In the past two years, NetEase Yanxuan has expanded its
portfolio covering 10 categories from the original home textiles
and home products to kitchenware, toiletries, luggage & travel
gear, baby & maternity, food and other products; SKUs
(Stock Keeping Units) have also
grown from 30 items to more than 10,000. In April of this year,
NetEase Yanxuan officially announced the "Good Life 2.0" program.
The program is designed to improve supply chain integration, assist
in product system upgrading and support better quality of life for
our consumers with the opening of 100 Yanxuan HOME stores.
Li Yong, director of the Internet
Economics Research Office of National Academy of Economic Strategy,
CASS, said that the "Yanxuan business model actually provides
consumers with 'refined information', which is a way to help
consumers filter products and reduce the cost of choosing
products."
Jing Daily, a renowned financial
media outlet, published an article in
which many Chinese factories
welcomed the NetEase Yanxuan model with open arms. Due to
the rising labor costs in China,
many global luxury brands moved their production out of
China, which has brought pressure
to Chinese manufacturers. The Yanxuan model creates new orders and
demands for these factories to utilize their spare production
capacities and move up the value chain. According to Forbes' 2018
China's Most Innovative Enterprise List. NetEase Yanxuan was ranked
top 50, well ahead of its retail peers.
The highly appraised business model and its rapid expansion was
witnessed by the industry. Many of the industry peers were eager to
roll out their own version of Yanxuan, including e-commerce giants
such as Alibaba (Taobao Xinxuan) and JD.com (Jingzao).
Riding the Trend of China's
Consumption Upgrading
In fact, the Yanxuan Model is created against the backdrop of
China's consumption upgrade. There
is a major shift in demand for high-end, personalized and
diversified products, backed by the increasing population of middle
-and high-income consumers. The consumption upgrade has triggered
an escalation of consumer groups and consumption structure, which
has led to an upgrade of products and services in the direction of
"quality, taste, and individuality."
The wave of consumption upgrades and its positive stimulus to
the entire economy and society have also received government
attention. At China's "two
sessions (the NPC and CPPCC)" meetings this year, the Report on the
Work of the Government clearly stated that: "We will strengthen the
fundamental role of consumption in driving economic growth. We will
promote consumption upgrading and develop new forms and models of
consumption." In response to a reporter's question, one officer of
the National Development and Reform Commission of PRC said that
promoting consumption is to focus on the direction of consumption
upgrading and strive to increase the supply of high-quality
products and services.
Driven by these trends, NetEase Yanxuan removes the
intermediaries and traditional sales models. Instead, NetEase
Yanxuan sets the prices on high quality goods, thus providing users
with excellent value for their money with stellar products. In
addition, in order to fundamentally guarantee product quality,
Yanxuan's procurement department inspects every production area of
raw materials in-person, and is deeply involved in the
manufacturing process when selecting raw materials, designing
products and sampling. These processes that promise high quality
are just what consumption upgrading calls for.
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SOURCE NetEase Yanxuan