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China’s e-commerce merchants eschew livestreaming as costs eat into profits

Written by Jiaxing Li Published on   3 mins read

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To be featured on top livestreams, merchants must pay hefty fees to multi-channel networks.

Livestream e-commerce is thriving in China. In 2020, over RMB 900 billion (USD 141.7 billion) worth of goods were sold through livestreams in the country, double the amount in 2019, according to a report by 36Kr Research. Since the pandemic, the livestreaming industry in China has also received a major boost.

Able to generate millions of viewers, livestreams can catapult unknown brands into fame overnight and rake in huge sales volumes. But the format can also be a double-edged sword for some entrepreneurs.

One of them is Yi Zihan, who started her organic food brand, Songxianxian, in Hangzhou in 2011, mainly serving a small number of regular customers. To promote the business and reach more shoppers, she decided to turn to livestreaming in late 2020.

Last April, through a multi-channel network (MCN), Yi engaged top influencer Viya, who is known as the “queen of livestreaming” in China, to promote Songxianxian’s products. MCNs are agencies that connect online influencers with brands, manage livestream talent as well as negotiate deals with merchants. Overnight, Songxianxian generated RMB 1.6 million (USD 250,000) in sales. In 2021, over 90% of Songxianxian’s sales were made on e-commerce platforms like Taobao and Douyin. Over that year, one-fifth of total sales were generated through livestreams by Viya.

Yi went on to ink deals with over ten MCNs that promised to secure slots for her products on various popular livestreams, including shows by livestreamer Zhu Chenhui, also known online as Xueli Cherie. “We [merchants] must work with these agencies because it’s impossible to contact the streamers directly,” Yi told KrASIA.

MCNs typically charge brands an upfront fee of between RMB 80,000 and RMB 100,000 (USD 12,600–15,800) to secure a slot on a livestream session. On top of this, they collect a 10–20% commission fee from the total sales. To attract more viewers, MCNs also ask merchants to offer their products at reduced prices.

People flock to livestream shows and buy whatever influencers sell because they know the prices are low, co-founder and director of business association ChinaEU, Claudia Vernotti, told KrASIA. “And prices are only low during the live shows,” she said.

Kelly Wu, who frequently tunes in to livestreams, said what attracts her most to livestream shopping is the low prices. “You have to snap up the limited bargains. That’s the most attractive and exciting thing about e-commerce livestreams,” said the 23-year-old college student who lives in Beijing.

However, selling at bargain prices through livestream e-commerce can also negatively impact a merchant’s profitability. In spite of last year’s record sales, Yi’s business was in the red. “They [MCNs] always ask us to offer the lowest possible price so they can sell out more easily,” she said.

In a report on livestream e-commerce released in December 2021, researchers of Soochow Securities wrote, “For merchants, the biggest cost of doing livestreams is actually the discounts that they provide to streamers.”

Yi added that livestream sales targets did not materialize as promised by MCNs. “Every MCN tells me that they can secure sales revenue between RMB 300,000 and RMB 400,000 (USD 47,300–63,100), which is three to four times the upfront fee,” Yi said. “But fewer than half of them could deliver what they promised.” During one livestream slot that cost RMB 100,000 (USD 15,800), only 20 items were sold.

“Being reliant on one single sales channel is dangerous. All I was thinking about then was how to boost sales,” Yi said.

Other small business owners in China share the same sentiment. In a WeChat group set up by Yi, fellow entrepreneurs post messages about their experiences of using livestream platforms, including its risks of working with MCNs.

“It’s time to rethink our sales channels and advertising strategies,” one merchant said in the group chat, adding that some of them have even started their own livestreams on Taobao, Kuaishou, and Douyin.

Yi said that 2021’s year-end offline sales for her business were “unexpectedly good,” and she has decided to focus on conventional sales channels such as supermarkets in 2022. “More customers now recognize the Songxianxian brand,” she said. “Unless the livestreams are on a commission-only basis, I won’t use them anymore.”

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