China’s Xiaohongshu is carving out a niche in an increasingly crowded e-commerce market

Chinese social media platform Xiaohongshu, an Instagram-style app where young consumers share lifestyle tips, is trying to become a new force in the country’s crowded e-commerce market, drawing attention and revenue from established players such as Alibaba Group Holding and ByteDance’s short-video app Douyin.

Xiaohongshu, a platform also known as Red with 300 million monthly active users, held a two-day summit last Wednesday and Thursday in the Chinese e-commerce hub of Hangzhou, Alibaba’s hometown, to encourage online retailers, brands and influencers to open stores on its platform. Alibaba owns the South China Morning Post.

Braving the city’s scorching heat, the venue was bustling with merchants showcasing everything from durable goods like custom-designed sofas, clothing, and home appliances to consumer goods like snacks and soft drinks. Influencers also flocked to the event, looking for collaborations.

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“Last year, the number of merchants with monthly sales of more than 5 million yuan on Xiaohongshu increased 3.5 times, and the number of buying users increased 4.3 times,” Yin Shi, head of Xiaohongshu’s e-commerce department, said at the summit. As part of the move, Xiaohongshu will move its e-commerce division from its Shanghai headquarters to Hangzhou, the capital of Zhejiang province, known as a powerhouse for influencers.

Xiaohongshu’s popularity among young Chinese consumers could make it a powerful player in China’s online shopping industry. Founded in 2013 by Stanford graduate Mao Wenchao and Qu Fang, a former employee of German media conglomerate Bertelsmann, Xiaohongshu began as a cross-border shopping guide with a single PDF document. It has gradually evolved into an online community where users find life advice, travel tips, fashion inspiration and even job listings. Xiaohongshu’s homepage is a two-column tapestry of content that users can scroll through, and anyone who clicks on a live stream or short video can quickly scroll up and down to find new content, much like Douyin, China’s version of TikTok.

As its fortunes have grown, the social media platform has been trying to turn user attention into revenue by leveraging its brand of “lifestyle e-commerce.” Since last year, influencers like Chinese actress Dong Jie, Hong Kong star Teresa Cheung Xiaohui and Taiwanese singer Annie Yi Nengjing have led the way in live-streaming e-commerce.

“Xiaohongshu has a lot of users who pursue a high quality of life, mostly women, who are very loyal to the platform,” said Dean Yang, co-founder of Hangzhou-based perfume brand Emonster. “These users are exactly our target audience.”

Even though Xiaohongshu has fewer than 40,000 followers, several Emonster products have sold nearly 10,000 units each. A promotion from a top live streamer can generate hundreds of thousands of yuan in gross merchandise value — although top live streamers often charge a commission of around 30 percent.

The number of users making purchases via live streaming has increased 6.3 times over the past year, according to Xiaohongshu, with the average transaction value remaining above 500 yuan ($69). Eno, who sells artifacts aimed at a younger audience, tried Douyin but gave up after realizing that users were not being targeted. Xiaohongshu consumers have proven to be more sophisticated and less price-sensitive. She said the average price on Xiaohongshu is 4,000 yuan, five times higher than on other platforms.

Xiaohongshu’s e-commerce business is still in its infancy. The company posted a net profit of $500 million last year on revenue of $3.7 billion, mostly from advertising, according to a Financial Times report in March. By comparison, e-commerce giant Alibaba reported 927.5 billion yuan in revenue in 2023.

Backed by big investors like Alibaba and Tencent Holdings, the platform’s valuation peaked at $20 billion in 2021. Its private market valuation has since fallen to about $17 billion amid a general decline in Chinese tech stock valuations. Plans for an initial public offering remain on hold.

Xiaohongshu is still a relatively small player on the market, but it has managed to carve out a unique position for itself.

“Different platforms attract different user demographics,” Zhou Qi, a fashion editor turned brand owner and live streamer, said in an interview after the summit. “Only the right platform, combined with the right products, hosts and users, can achieve harmony.”

This article originally appeared in the South China Morning Post (SCMP), the most authoritative daily covering China and Asia for more than a century. For more SCMP articles, visit the SCMP app or the SCMP Facebook page and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.