BEIJING, China — He may not be a household name like Jack Ma of Alibaba but David Zhao is arguably more faithful to fashion. As the entrepreneur behind Shangpin, Zhao admits that Alibaba’s Tmall probably is his biggest competitor in China’s online market, but unlike Tmall, which sells everything from dog food to handbags to convertible cars, Shangpin is focused exclusively on selling fashion.
Late last year, Zhao hit the headlines when he inked a deal with Arcadia Group chairman Phillip Green, who had been cautiously shortlisting options for Topshop’s official China e-tail partner. Aiming to hit an affordable-meets-luxury sweet spot, Shangpin’s merchandise mix is composed of brands as varied as Lanvin, Diesel, MCM and Juicy Couture. For some, Shangpin creates an “e-flagship” on its site, which is controlled by the brand but supported by Shangpin marketing and logistics. For non-flagship deals, Shangpin buys and sells inventory in a conventional wholesale model, reaching end consumers via its main website.
The idea for Shangpin dates back to an epiphany Zhao had in 2001 while visiting an Amazon warehouse in the US where he was studying computer science. Having seen first-hand how exciting online retail was, he vowed that he would one day create an e-tailer of his own in China and spent the next decade working in senior management roles at companies like Hewlett-Packard and Move before dipping his toes in the water. His first entrepreneurial success came six years before Shangpin when he founded VanSky Technology, an e-commerce outsourcing business that provided services for the then nascent Chinese credit card service industry for shopping malls. The VIP customers from the banks that VanSky served later became the first group of core users of Shangpin.com when it launched in early 2010.
Even though it still does a roaring trade, Zhao abandoned his original business model (flash sales) a few years ago and will soon shut down his discount sub-site Shangpin Aolai. Shao remains confident that Chinese customers will continue to demand higher quality fashion as they mature and become increasingly discerning. In the short time since moving upmarket, he has gained the trust of several major global fashion brands and persuaded them to let Shangpin sell their wares at full price in the all-important China market.
Which foreign e-tailer does Shangpin most closely resemble?
It’s rather like Shopbop in that it relies mostly on buyers and sells mostly mid-range luxury goods and designer brands. But compared to Shopbop’s pricing in the American market, I prefer to call Shangpin a higher-end company, somewhere between Shopbop and Net-a-Porter. Our target clientele is made up of both fashionistas and the middle class consumer.
What was the start-up environment in China like when Shangpin launched?
It really was difficult for e-tail merchants to win the trust of the brands back then. This created great difficulties in terms of supply chain logistics. Secondly, consumers found it difficult to tell apart authentic and fake goods, and whether the platform they were using was authorised. Both ends of the chain lacked confidence in start-ups. So it took a leap of faith. But the fact is that both sides required such an online platform for the sale of affordable luxury goods. The entire Chinese market at the time was low-end, mass market and the majority of transactions were unauthorised. Shangpin saw the future of the business.
How did you overcome this lack of trust?
We take cooperation with each brand case by case. Some brands authorise us to sell but we can’t [directly] because we’re obliged to buy from dealers in Europe. In these cases, the products have to come from the brand’s European distributors, which means we can be sure we’re selling the authentic product. E-tail has levelled the playing field.
For instance, Topshop doesn’t do wholesale or agency, so we worked in exclusive partnerships with them. But Burberry, on the other hand, uses a great number of wholesalers and distributors, which means there are huge price differences. So we then find the largest price gaps globally and choose the product with the best value. In the future we’ll continue to keep in touch with our brands and get the authorisation from them as much as possible.
How are you dealing with the growing number of Chinese who prefer to shop outside the country?
Because Chinese overseas shoppers have access to some brands at a cheaper price abroad than in China, some of these same brands have begun to give us authorisation at a lower price. It’s our responsibility to provide products at a better price to consumers. As long as a brand has a diversified sales layout, we should adapt to it.
But at the same time, our message to brands is that as cross-border e-tail and national governments begin to levy individual taxes, brands will be faced with a serious issue. If they can find a way to resolve the price discrepancy between markets — which e-tail allows everyone to see easily — then we’re more than happy to work with them on it. This is our long-term strategy and philosophy.
How did you make your first successful investor pitch?
I laid out my vision for e-tail, followed by an in-depth explanation of every step of the process along with my unique insights and showed my very obvious passion. But I also kept repeating one clear line to my investors: “My mission in life is to create a great e-tailer.” The real key to it is that you have to convince yourself before you can convince others, right?
During the early days, did you model the company on any international e-tailers?
No one company in particular, but we did look at many foreign websites including Net-a-Porter, Shopbop, Yoox, even Gilt and Amazon. Fashion doesn’t have a well-established tradition in China so I asked my team to devote all their efforts to taking the best from each of these international business models and then be creative in line with the local Chinese environment and culture.
There was a period when the online luxury space in China was bleak and many companies went bust. How did Shangpin survive?
I remember that in those days many e-tailers would start spending profusely as soon as they received their investors’ money. They failed to realise that the key to [good] online business is product procurement, supply chain management and brand building. We didn’t spend so much on marketing at the time. Had we done so, we wouldn’t have made it either. We relied mainly on word of mouth to gain new users.
What success metrics can you share?
We haven’t become a listed company yet so the release of specific figures would require authorisation by the board of governors. What I can say is that we have grown at 100 percent every year with gross profit at around 20 to 25 percent. We have 5 million registered users. And, in 2014, sales conducted on mobile handsets grew from 30 percent to 70 percent.
How did you convince Topshop to choose Shangpin over Tmall or another e-tailer?
As far as I know, there are many e-tailers in China who would love to be able to work with Topshop. Shangpin stands apart because, first, we have a highly professional team and I think it was the most professional e-tail team they had seen in China. Secondly, Shangpin’s unique positioning was what Topshop needed; they didn’t want to put their products in a huge, complicated low-end mass market platform. Thirdly, we have a cohort of loyal consumers and a team who are highly adept at online branding. When we made our pitch to Topshop, we presented Shangpin less as just a platform and more like a brand partner, helping Topshop with their marketing, co-branding and social media in China. We worked hard to coach the market.
Alibaba (which runs Tmall) and Tencent (which partly owns JD.com) are trying to develop more self-contained retail systems. How has Shangpin carved out a path to success for itself between these two giants?
I once gave a speech about how, in the past, ‘B.A.T’ (Baidu, Alibaba, Tencent) had a monopoly. Most consumers used to be with Baidu or Alibaba [at some point] but mobile phones have had a decentralising effect. Everyone wants to expand their own closed-off realm, but developments in mobile phone technology have pushed society to become more open. Tencent and Alibaba have put up barriers between each other, but I think this is a short-term trend. I believe that the market and the government will never accept a monopoly by one giant and with the development of mobile payment technology, the world will always continue marching towards a more diverse playing field.
Where do you see Shangpin in 3 to 5 years? Are you considering an IPO?
We will think about getting listed, but that’s not part of our short-term agenda, which is focused on developing this year’s mobile strategy. But we will create China’s largest fashion blogging platform, incorporated into our mobile shopping app with an Instagram setup. We’ll launch that platform in or around April. Our medium-term goal is to continue bringing in more brands and working closely with them, to continue creating a quality service for our customers, and, in the long-term, we hope we can become China’s largest vertical e-tail brand in the fashion industry.