Platform clearing

    Since 2019, the issue of executive power has gradually exploded. Zhiyu adopts a proprietary mode, where the platform uniformly collects goods from suppliers. Later, Zhiyu's products begin to generate a large number of returns and slow moving sales.

    "Jolly Chic, AjMall, and Awok all closed down later. The three companies had one thing in common: a low-cost supply chain, low product value, and unreliable quality," Yang Gongmin said. "In this case, early users formed a very poor brand impression."

    Yang Gongmin recalled that at the end of 2017, Zhiyu began to enter a stage of sluggish growth, and the overall sales began to decline, "Costs continue to rise, eating into the company's cash flow every day. Whether it's Awok or AjMall, there are problems with each company's internal operations. When you constantly dump cheap goods, you will have a savage growth in the early stages, but after a certain period of time, after the user has been educated a few times, your repurchase rate will decline."

    A person familiar with the matter disclosed that Zhi Yu actually missed a good transition point. "The team from Shein once went to Li Haiyan's office for advice." At that time, Shein was a small company for Shi Yu, and Shi Yu had studied and judged internally whether to deepen the supply chain, "he said.

    "Zhiyu has always adopted a sweeping model, with a very poor management of quality control and stores." In the early stage of Zhiyu's barbaric development, there was no competition in the market. In the later stage, we will definitely compete for the cost effectiveness and quality of products, which is what Shein did well, "the person familiar with the matter added. After the sales volume decreased, the CEO considered the transformation issue and established a complete internal process to implement it. However, after final analysis, he felt that the link was too long to choose this direction.

    Zhiyu finally chose another transformation method, shifting from proprietary e-commerce to open platform, which means becoming a platform based service company similar to Taobao and Amazon. The ownership, sales, and flow of goods belong to the seller, and the platform profit model has been transformed into a commission model.

    While transforming into an open platform, the executive has also had to increase investment. Zeng Haipeng said that as a platform based service provider, most of the energy should be invested in infrastructure construction, such as warehousing and logistics, payment, and even related to the payment cycle of accounts, as well as helping merchants solve cross-border transportation, customs clearance, delivery efficiency, and other issues

      "It involves too many things, too detailed." Zeng Haipeng sighed.

      In 2019, China has formed a complete e-commerce infrastructure. In many cities, express delivery every other day and the next day has become the norm. Alipay and WeChat payment have replaced cash transactions in a large area. There is a complete service process for returning goods. In China, Europe and the United States, e-commerce services that have become normalized are even more coveted in the Middle East.

     Taking payment as an example, the proportion of COD (payment on delivery) is still quite high. Moreover, unlike China's single market, Middle Eastern countries are fragmented, with significant differences in national conditions. Each country needs to apply for separate logistics and payment licenses, and the business environment varies greatly.

    Even in a country, the difficulty of logistics and payment construction is beyond imagination.

    In the 1970s, with the development of the oil economy, the Middle East began to enter urbanization, which also led to extremely difficult logistics construction in the Middle East. "Saudi Arabia does not have a postal code system, and address positioning is chaotic. Each e-commerce platform has its own set of address libraries, which requires re adaptation in cooperation with logistics. The other is COD, which has a particularly high rejection rate in the Middle East and remains a difficult point until now."

     Li Mei believes that it is a very dangerous thing to implement the self-built terminal delivery by the emperor. After 2019, Zhiyu's orders declined significantly. At the same time, Zhiyu's logistics could not obtain external orders, and a very large warehouse was built, resulting in an extreme waste of resources.

    The consequences of early dumping of cheap goods quickly engulfed the executive.

    Before successfully transitioning to an open platform, CEO trapped a cash flow crisis until it came to an end. "After the company entered a cash flow crisis, it prolonged the settlement cycle, leading to a run on suppliers," Yang Gongmin said. In 2021, a large number of suppliers collectively "came to collect debts", many of whom were caught in financial difficulties due to the issue of payment collection.

Return to the Middle East

    On December 14, 2021, Ajmall was officially shut down, and one month later, it was officially closed down. Domestic attention to the Middle East market began to calm down.

    Founders who were once attracted by the hot market began to leave in droves. When it came to whether the founders of the year were still doing business in the Middle East, Gao Qi said, "Many people have abandoned this market. Some executives initially took some money, but eventually found it impossible to do so, so they returned the money to the investors and stopped doing it."

     The Middle East e-commerce has formed a pattern of two giants, and with the end of the platform melee, domestic awareness of the Middle East e-commerce ecology has also begun to become clear.

      Shein has become the biggest winner among those cross-border e-commerce platforms, and has been at the forefront of e-commerce platforms in the Middle East since 2016. In 2022, Shein also expanded the men's wear category in the Middle East.

   After the entry of Amazon and Noon, the Chinese platform quickly failed, and some practitioners began to reflect that the advantage of China's cross-border shipping lies in the supply chain, rather than platform capabilities. Shein, who is deeply involved in the supply chain, has a stable foothold in the Middle East.

    As a representative of small and medium-sized platforms, Gao Qi of Mumshop said that at that time, the quality of goods and services provided by Chinese platforms in the Middle East was actually relatively poor. "At that time, the unit price for customers in the Middle East was relatively high, and the logistics time was slow. Shipping from China required 10-12 items to be included in the package. If you wanted to buy an item, you would need to make an additional payment, which is very inhuman," Gao Qi said. "Moreover, the labor costs, air transportation costs, and the loss of the path all led users to pay the bill, resulting in too expensive commodity prices, and some of these products are not shipped correctly."

    During the barbaric growth period, long logistics time, high return rates, unsalable goods, inflated prices, and incorrect delivery were common phenomena at that time. At that time, the platforms had not yet established an optimal business path. At the same time, Amazon and Noon respectively entered the battlefield with rich e-commerce experience and huge financing and localization experience. The Chinese platforms had to leave. With its focus on products and supply chain, Shein has established a stable foothold in the Middle East with localized products and good brand reputation.

     Over the past few years, the basic ecology of e-commerce in the Middle East has been developed, and the popularity of the Middle East market has begun to pick up.

    Taking logistics as an example, Li Mei introduced that in 2017, packages from China to the Middle East could take up to half a month, and now they can be delivered to customers within a week.

   While Amazon and Noon are already giants, platform products are mainly standard products, with few SKUs, and there is a large amount of blank market space.

   Since this year, the heat in the Middle East has risen again. According to the news, TikTok will open its own e-commerce business in the Middle East this year and has started attracting investment; Temu will also open the Middle East site, and a new pattern is brewing.

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