Last time, I wrote an article about how far Chinese e-commerce is from Costco, and I received some feedback. Today, I want to take the topic of offline Costco in detail and see who has the opportunity.
Costco's membership fee, which currently accounts for half of the profits. At its peak, 70% of the profit came from membership fees. Then, many companies and models in our country that follow Costco believe that they should first charge membership fees and then sell goods. This thinking is completely wrong. Costco's membership fee, if you talk about the core role, is two points:
Lock in demand. Since the goods sold by Costco are "required consumption", for members, they have to come to buy every once in a while. In other words, the average monthly and annual shopping frequency of each member is basically fixed. It is not affected by economic cycles and other factors. And these users, because they paid the membership fee in advance, are equivalent to "expressing" the approximate shopping needs of the next year to Costco. For the individual needs of each member, the company does not have a way to advance **, but it can "extract" the greatest common divisor of each category and product from all the members' needs: for example, milk, find 2-3 SKUs, and find products with 90 points in the budget. In this way, although not 100% of the products are personalized customization needs, by finding out the greatest common divisor of members for categories and products, Costco's purchased goods and private brands can meet the needs of members to the greatest extent. There are a total of 3,000 SKUs, and every member who goes to Costco, in each category, almost buys the same product.
Charging membership fees in advance reduces the gross profit margin of products. Membership fees are the profit center of Costco, and when they become profits, the gross profit margin of goods can be set very low. Only a gross margin of more than 10% is required. "Buy more, s**e more", the more you buy, the more you can take advantage of Costco. In other words, Costco's profits, through the membership fee front, can better operate the goods. This is something that many companies that learn from costco can't do. Or if you charge a membership fee, you can't do it on a large scale;Secondly, membership fees cannot be the center of profits either.
Therefore, Costco's membership fees and low gross profit margin are logically two sides of the same coin and cannot be split separately.
I used to know the difference between JD.com, Pinduoduo and other companies compared to Costco.
JD.com: It's the easiest way to do costco in terms of mode. Because half of the revenue comes from self-employment, and has a complete warehousing, procurement and sales and last-mile fulfillment. However, JD.com's biggest problem is the mutual struggle between its own brand and its own and platform 3P business. And JD.com's current revenue volume, it is difficult to suddenly turn to Costco.
Pinduoduo: Although the model is a pure platform e-commerce, the company's thinking does think a lot about Costco. The most typical is the pan-white label category: few merchants, few SKUs, and **low. Commodities and ** are simpler, rougher, and extreme. It's just that to achieve this result, Pinduoduo is to let the merchants on the platform participate and complete. What the platform needs to do is to refine the user needs - feed the needs back to B - and let B transform the SKU. Compared with Costco, Pinduoduo is more digital. In addition, Pinduoduo does not charge membership fees.
talked about Pinduoduo and JD.com, and for the topic of online costco, I also want to focus on Ali's 1688. I think 1688 may become a digital costco in the future. Costco is the ultimate ** chain of 3000 SKUs, and the core competitiveness of 1688 is precisely the ** chain.
As a BU of Ali, 1688 is not remarkable. In fact, no one has paid attention to the cards in the hands of 1688, and even Alibaba Group has not fully recognized the value of 1688 before. Why do you say that?
1688 has the deepest and most complete supply of goods and manufacturing in the country. If China is the world's manufacturing factory, 1688 is the largest digital supply gathering center for Chinese manufacturing. I didn't look at the detailed data, domestic factories, the penetration rate of 1688 should be very high. Yiwu and the Canton Fair, compared with 1688, are only counted as a slice and subset of the line. **Douyin e-commerce, Pinduoduo, JD.com, sellers on these large platforms all have supply from 1688, but each one has a different proportion.
In the past, Ali didn't find or pay enough attention to the 1688 card. Looking back at the development of the past few years, in the years when Pinduoduo was soaring, Ali did not realize the strategic value of 1688. At that time, Ali followed up the sinking market, but only "copied" the "surface" of Pinduoduo: the people and goods in the sinking market did not make great changes in the needs of users, commodities and the transformation of the ** chain. Only "copied" Pinduoduo's "skin", not "copied" to the "core".
But today, Ali has rediscovered 1688 as one of the first strategic innovation businesses of Alibaba Group, ranking among the group's "four little dragons" (1688, Xianyu, DingTalk, and Quark). What changes have taken place in the current situation of e-commerce and users?1688 Why did the chances get bigger?
Connectivity is easier, resulting in spillover of user demand. Let's take an example: on Xiaohongshu, there is a lot of discussion about 1688 every day. These contents are mainly planting grass and shopping sharing on 1688. In the GMV of 1688, the contribution from the C-side has reached 3%. This complements the popularity on Xiaohongshu.
Why do users discuss 1688 in Xiaohongshu?
I think the first is the highly developed mobile Internet in China. For example, Xiaohongshu, foreign is ins. Xiaohongshu's current DAU is already 300 million. With such a large amount of traffic and the leading mobile Internet, it has become easier to connect users with content and goods. The connection has never been so tight and fast. And business revolutions often happen at the junction.
Secondly, it is due to the fact that China is a global manufacturing center. 1688 such applications and goods, the United States, Europe, Southeast Asia, are not available. There is only e-commerce ** in foreign countries, and there are very few wholesale**. China, on the other hand, has both mobile Internet products and 1688 factories and manufacturing industries. So, you will see that on Xiaohongshu, many people discuss 1688, and **1688, place orders on 1688.
This chain looks complicated and cumbersome, but in the face of "saving money", it has become so simple and smooth.
Since 1688 has such a good card in his hand, and the market has also dealt a corresponding "good card", why didn't Ali realize it for a long time?There are complex internal and external reasons behind this. The first is that you don't have enough understanding of the business, and from the user side to the supply side, it's more about "traffic thinking": even if your business is doing poorly, you can still bring in a lot of users every day.
The second is that there is not enough organizational synergy, such as SHEIN. At the beginning of cross-border, almost all of SHEIN's ** merchants were from 1688. But 1688 and Ali's multiple cross-border and overseas departments don't seem to realize that this is a big opportunity. The interaction and transmission of information between the BU and the BU is not smooth. And when these humble companies suddenly emerged, the group realized that these opportunities turned out to be huge. Moreover, his own advantages turned out to be greater than those of these startups, but he didn't make any effort to do it at all.
Now, the 1688 card is recognizable by the group. How should this card be played?
As mentioned above, although Pinduoduo is not Costco, it is "very costco" in concept, that is: transforming demand and supply, less SKU, and low.
If 1688 wants to fight a lot, how to break it?
Restructuring of pallets and supplies. I don't know exactly how many merchants there are on 1688. But after reading the public reports, 1688 has made a lot of trade-offs in the past two years, and one of them is to cut off the seller who cannot trace the source of the goods. This strategy is useful because the source of the goods cannot be traced, indicating that the seller is likely to be fraudulent or other problems.
Why reorganize the pallets?Because as the largest online B2B, 1688's goods must have the most and most complete advantages. But the downside is also this. The more and more complete, the corresponding is "chaos" and "miscellaneous". This is not friendly to the buyer who is purchasing the goods. Whether it is B or C, purchasing goods on the platform will be slow to make decisions. Because you have a lot of goods, it is difficult to quickly pick out the goods you want. For a long time, 1688 did not classify the pallets in layers, at least not enough to do enough, not enough detailed, and did not select the goods.
Costco only has more than 3,000 SKUs, although it can't ask 1688 to be so extreme, but there are a large number of existing SKUs and merchants, and there is a lot of space for "de-impurity and purification".
The capacity of the goods is 1, and the others are 0 in the back. As mentioned above, on Xiaohongshu, there are many users who will place orders at 1688. The most fundamental reason why this can form an event and continue is that 1688's goods are extremely competitive. Moreover, this competitiveness is extremely strong. Let's ask, which is the second largest wholesale company in China?I really don't know about this. Therefore, 1688 has almost a monopoly market share in the track of commodity wholesale.
And the competitiveness of goods is the "1" of 1688. The competitiveness of goods here includes all the elements of goods: design, quality, etc. Even, the competitiveness of 1688's goods exceeds that of C-class e-commerce platforms. Just because 1688 is a wholesale, it is not a pure to C application, and in terms of scale, it cannot be compared with a C-class platform.
Now that you have the competitiveness of the goods, how to amplify both 1 and 0?
Subtraction of goods helps C and B gain insight into demand and goods. Let's first think about a question: for 1688, is it the same for small B to purchase and C to place an order?Formally, it's definitely different. Because B places an order, it is a purchase, in order to redistribute the goods;c Place an order, ordinary users are for their own use. But back to the commodity, if a product satisfies both B and C at the same time, it must be that the commodity meets the needs of two groups at the same time: B buys it and sells it very well, and C buys it and likes it very much.
The needs of these two groups can ultimately be understood as one demand: that is, to streamline a large number of commodities and goods, and finally turn them into goods that C and B want to buy. I magnify the ability of this 1 of the product. With 1, the way of selling has also become simpler: for example, ordinary users can buy it, can they have free shipping?
Transform the supply side based on demand and data. If there is almost no innovation in the supply, all the goods are equivalent to being "thrown" in front of the users at once. It is also very difficult for users to choose. In other words, you need to have a certain amount of search ability to make the shopping experience better. If the services and experience provided by the demand side are not fundamentally different from Pinduoduo, then it means that both ends are homogeneous, and even if you spend money, you can only smash the surface data, and you can't smash the competitive advantage and moat.
And 1688, the current position and the cards in hand, are already at a good time. The only thing that is missing is how to gradually transform the existing transaction data into supply and SKUs. For example, pillows, Pinduoduo sells pillows, JD.com sells pillows, and ** also sells pillows, but on 1688, all the supplies of these platforms are available. 1688 needs to target its own people, understand the needs of these people, find out the greatest common divisor, and then feedback to the sellers on the platform. Is it a five-star hotel pillow or a Muji pillow?
The core is to find an 80% greatest common divisor in the needs of the crowd. And, the most important thing is that this kind of goods and SKUs must be differentiated from Pinduoduo, rather than a complete sinking market and sinking goods.
The essence of membership stores is not to charge membership fees, but to control the demand and supply at both ends, so that they can be accurately matched, and then make the middle ** chain to the extreme, which is the essence of Costco. This essence is to be learned in 1688, but the pattern is not necessarily the same.
If 1688 wants to become a digital Costco, it also needs to converge the SKU, and at the same time, restore the demand scene through demand insight, and converge the SKU according to the scene and even consumer sentiment, which is what 1688 has more advantages and Costco can't do. These needs may be mass-merchandising, cyclical, scene-based, or even customized. Eventually, 1688 may be able to converge to 3,000 SKUs, but it will be a different 3,000 SKUs for everyone.
To do this, in addition to needing 1688 to be in awe when strengthening the ** chain, it is also necessary to have an open mind and build an ecosystem to integrate your ability into other people's businesses. In addition, more importantly, we must learn to use AI capabilities to make goods understand users and people, and build digital capabilities with deterministic performance, so as to truly strengthen the ** chain.
Wu Yongming, CEO of Alibaba Group, in addition to talking about the direction of the business, also specifically mentioned AI, which generally means that in the future, Alibaba needs to embed AI capabilities into all business links of the group. I couldn't agree more. Whether it is ** or 1688, it is necessary to apply AI and machine learning Xi to business. For example, the understanding and learning Xi of user needs, and product recommendation. If one day, whether it is B or C, open 1688 and can complete the order within 30 seconds, then 1688 will be truly subverted.