Turning ‘Made in China’ Into A Premium Brand:China's Internet Giant NetEase Has An Ambitious Plan For Its Private Label

June 6,2017

For today’s consumers, smooth-operating online and offline channels, through which any brand is accessible, abound. With scarcity reduced and the sense of mystery dispelled, consumers’ demands are turning to rationality. When purchasing high-priced luxury brands, and especially their basic items, Chinese consumers secretly say to themselves, ‘so that’s it?’, when they come across ‘Made in China’ labels.

Whether Chinese or foreign, consumers are starting to value cost-effectiveness more and more. As a result of this trend, new Internet brands are putting more emphasis on shortening the supply chain and lowering the markup rate in an attempt to overturn the pricing structures of traditional brands. For instance, Gwyneth Paltrow, one of three Hollywood actresses famous for founding Internet start-ups, has recently released her own affordable luxury brand, claiming that only five designs will be released in a given period of time. The brand uses the same fabrics as those supplied by Italian companies to Azzedine Alaia, Proenza Schouler, Vetements and Dries Van Noten,and sells direct from its own website at just one-third of the price of other luxury brands.

In the field of consumer goods, Chinese manufacturers have already become world class in terms of production, technology, personnel and raw materials. However, the traditional business model of working with renowned overseas brands as simple processing factories is becoming difficult to maintain. How manufacturers can upgrade their role is their most common question. To this end, NetEase, the Chinese Internet giant, has created a new e-commerce brand: NetEase Yanxuan (‘strict selection’). Along with manufacturers, the brand is striving to create new development opportunities for the Chinese manufacturing industry through the Original Design Manufacturer (ODM) business model, while also satisfying consumers’ increasing selective demands.

The ODM Model and Chinese Manufacturers

From an interview with CEO Weijun Zhang of Orient Befit in Zhejiang, one of Yanxuan’s manufacturers, we have learnt that NetEase Yanxuan has strict control over the selection of partners, the manufacturing process and product quality testing. When selecting a partner, Yanxuan’s departments of purchasing, quality testing and commerce consider issues from multiple perspectives, including scale, quality testing, equipment and technology. They even demand that suppliers submit previously manufactured products for inspection. All products sold on Yanxuan have to have a BV, SGS, ITS or another credible international quality inspection authority’s certification. In addition, Yanxuan traces products throughout the production process from beginning to end, and conducts unscheduled sample testing after the products have been moved to the warehouse.

This stable, long-term cooperation with manufacturers and thorough quality controls have resulted in Yanxuan’s reputation for ‘strictness’, and have allowed the brand to offer a 30-day return policy. Data collected by NetEase Yanxuan have provided supporting evidence of the huge potential for the ODM model in the e-commerce environment: as of August, Yanxuan had 23 million registered users, an average monthly revenue of 50 million RMB and a 50% triple-repurchase rate.

There’s an interesting feature on Yanxuan’s website, called Zhenxuanjia (‘Screening Experts’). It is a crowdsourcing platform that invites users, the media, opinion leaders and experts to select products, test them, and give feedback and share their experience. This interaction with users even before the products hit the shelves is a genuinely engaging marketing move in the e-commerce industry. Naturally, NetEase has created quite a few star products through this platform.

Exploring NetEase’s Suppliers

Orient Befit’s CEO Weijun Zhang spoke frankly to us: ‘If you go to buy socks from the outlets of some international brands, you will see our name when you flip the tag over’. The international brands he is referring to include Polo, CK and New Balance. For 26 years, Orient Befit has been supplying these established foreign brands. Back in 2009, the company positioned itself as the ‘expert in sports socks’. From structure design and concept design, to review and testing,patent protection and systematic research, Orient Befit has independently developed 10 ranges of products, including running, football, basketball, golf and outdoor socks, making Orient Befit the pioneer of the classification of sports socks, and thus subverting the traditional industry.

(Image above: Orient Befit’s yarn warehouse)

Over the last year, many traditional chain stores have closed down, but the sales of Amazon and other e-commerce giants have surged. The reduction in retail channels has forced purchasers to place even greater pressure on suppliers. Weijun Zhang suggests: ‘From product development to placing the order for manufacturing, and shipping to store sales, the price of a pair of sports socks costing 2 USD to produce multiplies. Traditional sales completely rely on sales outlets, and through the addition of layers of premiums the final sales price of the product may end up being as much as 10 times its cost.

In searching for an upgrade for their position in the industry, the decision to work with NetEase Yanxuan was summed up by Weijun Zhang: ‘A product category on Yanxuan is able to save a manufacturer’. NetEase’s good faith has moved many outstanding manufacturers: NetEase makes a 30% to 70% down-payment when placing its order, with each order stating a minimum of three years of cooperation. This allows the factory to grow with NetEase Yanxuan, and instils confidence that the factory will maintain its manufacturing ability, thereby building mutual trust.

Weijun Zhang revealed that when cooperating with a traditional big brand, each order would take at least 120 days from design to sale. In comparison, NetEase Yanxuan’s initial orders are not particularly big. They ask the supplier to produce prototypes while adjusting the product design, and plan subsequent orders based on the feedback from its users. This has solved the problem of stock backlogs to a large extent. With many of the mid-chain links gone, the manufacturing cycle can be shortened to 30 days.

Compared to traditional e-commerce platforms, Yanxuan has a natural advantage in being supported by NetEase, which has 19 years of Internet development experience. With the big savings it makes on directing online traffic and promotion, Yanxuan is able to focus on selecting products and improving their quality. The quality of Chinese manufacturing is a topic that’s frequently discussed and even called into question, but here it is key to the success of the ODM model.

However, NetEase Yanxuan’s current products are limited in numbers and are mostly basics, which is no doubt a challenge for the ODM model. As a new independent e-commerce brand holding fast to Chinese manufacturers, and which wants to build a household consumption brand online, there is a constant need for Yanxuan to look for more good suppliers and set up sustainable, long-lasting cooperation, while strengthening its ability in product development. We look forward to seeing what its bright future holds.


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