Photo Credit: Roderick Eime/Flickr.com

According to eMarketer, there is an increasing trend of cross-border e-commerce in China. In 2016, 181.2 million buyers are estimated to purchase goods from abroad worth $85.76 billion. By 2020, nearly 291.8 million e-commerce buyers will be making purchases from abroad, either directly or through third party apps. Total spending on cross border e-commerce is estimated to grow to $157.7 billion by the year 2020. Billion Dollar Unicorn Club’s new member Xiaohongshu is facilitating in delivering these high growth forecasts.

Xiaohongshu’s Offerings

Shanghai-based Xiaohongshu was founded by Miranda Qu and Charlwin Mao in 2013. The name Xiaohongshu translates to Little Red Book. The company was set up to connect local Chinese consumers with international merchants. The app initially began with the objective of helping Chinese people travelling abroad share their shopping experiences online before morphing into a social commerce site. Soon after the app was launched in January 2014, it became very popular. Statistics revealed that 17% of the total daily visitors were opening it six or seven times a day. The founders also realized that several visitors on the app did not have any travel plans to go abroad and were actually using it to purchase products with the help of their relatives living or studying abroad.

Within six months of the launch of the app, the company decided to move to sourcing and utilized an e-commerce free-trade zone to build a warehouse. It soon started selling cosmetics, mostly from Asia, and nutrition products from Australia, and is now evaluating the option of selling fashion products, mostly from Europe.

Xiaohongshu relies on the word-of-mouth marketing approach. As of March 2016, the app had seen over 15 million downloads. Its blog site has a following of 200,000 bloggers who post their findings. These blogs help its five million monthly users identify the products they wish to purchase. To help with the sourcing of the products, it has nearly 50,000 people spread globally. It also has a dedicated team of more than 20 employees that works with various government agencies to facilitate the sourcing of these products. According to market reports, the app delivers conversion rates between 8%-20% — which is considered the highest rate attainable within the industry. The app has also been integrated with other mobile apps including WeChat and Weibo to help with the socializing of its products.

Xiaohongshu’s Financials

Xiaohongshu does not disclose its detailed financials. It is venture funded with nearly $120 million raised from investors including GGV Capital, Zhen Fund, and Tencent. In March this year, it raised $100 million from Tencent Holdings Ltd. at a valuation of $1 billion.

Despite the rosy future, the cross border e-commerce industry is also dealing with several regulatory issues. Earlier this year, the country was dealing with an escalating counterfeit scandal on infant formula, especially within e-commerce channels. The scandal helped accelerate restrictions on cross-border e-commerce and the government increased import duties and added nearly 1,100 items that were forbidden to be imported into the country. The list includes products such as food and drinks, children’s toys, diapers, and cosmetics. The implementation of the new rules has hurt players like Xiaohongshu who have most of their goods on the list. But the company is hopeful that it will still be able to make a mark by ensuring it focuses on product quality and user experience.