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Fashion Victims

Wholesale markets are taking a hit from livestream sales. Vendors and market bosses are scrambling to stay competitive, while others say they need to embrace the inevitable online future

By Xie Ying , Meng Qian Updated Mar.1

A woman sells clothes at Hangzhou Sijiqing Clothing Market, Hangzhou, capital of Zhejiang Province, April 11, 2023. On March 6, 2023, the market banned livestream sales (Photo by IC)

It was 6pm, time for the Hangzhou Sijiqing Clothing Market in southeastern Zhejiang Province to close for the day. But the lights of one of the stores, named after its owner Dabai, glimmered through the cracks in the door and the closed curtains.  

Dabai’s staff listened intently to their boss, who urged them to attract customers by posting to their personal accounts on popular online social media sites like Douyin (TikTok), Kuaishou and Xiaohongshu. “Even if you attract only one customer, you are contributing,” Dabai said.  

Sijiqing Market, established in 1989, is China’s leading wholesale clothing market. Dabai opened his store in 2019, but the Covid-19 pandemic came before he could profit from it. To survive, he registered an account on Douyin to attract attention. He told NewsChina that everyone at the market, including the management and other store owners, is trying hard to grab sales in every possible way.  

While Dabai stops short of livestream sales, in March 2023, market management decided to get tough in a bid to prevent sales from moving completely online. It banned stores from livestreaming on site, and set tiers of punishments: first is a written warning, followed by confiscation of livestreaming equipment and fines of 20,000 yuan (US$2,794) and doubled fines for a third offense.  

The ban proved extremely controversial. Opponents criticized the market for swimming against the tide of the internet era, while supporters, including Dabai, believe the ban is protecting the offline market, which has more than 20,000 stores and stalls, as well as downstream clothing retailers.  

“The ban on livestream sales is to protect the whole industry,” Wang Jiahui, general manager of the Zhejiang Jiabao Commercial Group, which engages in the clothing industry and other sectors, told NewsChina. She said that Jiabao Group’s subsidiary Changqing Clothing Wholesale Market and its design center have also banned livestream sales.  

Nevertheless, whether livestreaming is a boon or a curse, depending on what side of the debate you fall, it has brought tremendous challenges to the industry.  

Caught in the Middle 
“One, two, three... Show the [purchase] link,” shouted clothes wholesaler Zhou Yang as his model, also a livestream vendor, twirled around in the livestreaming room, showing off the winter coat on sale. Zhou told NewsChina he has sold more than 1,000 coats since July 2023. Because of top sellers like the coat, Zhou’s livestreaming revenue has reached over 2 million yuan (US$300,000) on average each month, nearly as much as he earned in a year at Sijiqing Market.  

Zhou shifted to livestreaming in 2020. It was tough at first, with low sales and his old customers who ran brick-and-mortar clothes shops questioning his decision.  

“They got upset when they found I was doing livestreaming sales. They told me they’d no longer do business with me if I continued,” he said.  

The traditional model saw wholesalers like Zhou sell exclusively to retailers. Now livestreaming wholesalers have completely upended the market. Customers can connect directly to wholesalers or even producers.  

Retailers are losing customers and being undercut by the new livestreamers, who offer goods for around the wholesale price or even lower.  

“Although I’ve lost my old customers, I’ve never thought of going back,” Zhou said. “Livestreaming is a new opportunity of the information age and everybody should try it,” he added, revealing that 95 percent of his revenue now comes through livestreaming.  

According to a livestreaming report published in 2020 by Alibaba-owned Taobao, China’s leading C2C platform, livestreaming sales of women’s apparel attract the greatest number of viewers. Data from industrial analyzer chanmofang.com showed that in the first six months of 2023, clothing sales on Douyin increased by 63 percent year-on-year.  

“I didn’t think of shifting to livestreaming sales until the offline wholesale business was heavily hit by the pandemic... It helped me survive the hard times,” Jiang Zucai, another livestreaming seller who used to have a store at Sijiqing Market, told NewsChina.  

Jiang said her livestreams get around 1,000 daily viewers and her sales volume is growing. “They get really favorable prices, since the middleman costs are cut out,” she said. “Although livestreaming sales have impacted the business of our old retail customers, we have to do it. It’s just the way the business is going,” she added.  

‘Upturned Industry’ 
Some wholesalers still refuse to shift to livestreaming.  

“Our target customers are retailers. If we shift to livestreaming sales, it means we will have thrown away all our previous efforts and started stealing business from our old customers,” Pan Feng, a Sijiqing Market wholesaler, told NewsChina.  

“No matter how popular livestreaming sales are, we won’t touch it,” Dabai said, stressing that he backs Sijiqing Market’s livestreaming ban.  

At first, Dabai tried supplying his clothes to livestreamers, only to find that he did not profit as much as he expected despite the high sales volume. This is primarily due to the low pricing, which is one of the greatest advantages livestreaming has in attracting customers from offline stores. Worse still, given that livestreaming sales see a high rate of impulse buying, the refund rate was as much as 70 percent.  

“The pandemic encouraged the brutal growth of livestreaming sales, but I think it’s a lose-lose situation. It’s a vicious cycle where people are using price wars to weaken and even obliterate the advantages of offline sales and mislead customers that all products should be sold as cheaply as that,” he said. “When you cut out all the middlemen, the whole industry will be upturned,” he added.  

Other wholesalers at Sijiqing Market who spoke to NewsChina on condition of anonymity said that many livestreaming sellers visit stores to learn about the popular designs, then place direct orders with manufacturers to undercut the wholesalers.  

“In previous years, a retailer might buy products worth several million yuan, but now it’s down to the tens of thousands. It’s much harder to sell more expensive products, because livestreamers don’t sell them,” one of the wholesalers said.  

“These livestreamers mostly sell last season’s designs or ones that sell poorly. Original designers or manufacturers won’t sell their own designs as cheap as that through livestreaming,” Guo Furong, vice president of Yifa Commercial Group, told NewsChina. Owning nine wholesale clothing markets, Yifa Group makes its own designs, and will never sell through livestreaming, Guo said. 

Zhang Li, who used to sell silk clothes at Sijiqing Market, told NewsChina that he was “forced” to do livestreaming sales, or he would have gone bankrupt.  

“We found some livestream sellers bought samples from an offline market to show in their livestreams but then sold copycats made from low-quality materials so they could bring the price down,” he said.  

Although Zhang now engages in livestreaming sales, he complained about the thin profits due to low prices, the cut livestreaming platforms take and the cost of attracting customers. “Our profits get gobbled up by the leading livestream sellers,” he said.  

Priced Out 
Zhang’s complaints have merit. Li Jiaqi, China’s leading livestream seller, found himself in hot water over prices in late November 2023. After a high-profile social media spat saw him accused of clapping back at a buyer who complained he was selling make-up for extortionate prices, staff from e-commerce platform and Taobao rival JD.com accused Li of allegedly signing exclusive lowest-price agreements with manufacturers to prevent other channels and sellers from undercutting him.  

Previous reports had already accused Li, who has 82 million followers on Taobao and 40 million on Douyin, of allegedly leveraging his reach to force those whose products he sells to push down their prices, greatly reducing profits for manufacturers and owners of brick-and-mortar stores who have more overhead, such as store rent.  

According to Ying Zhongdi, executive director of the Hangzhou E-business Institute and an associate professor at the Communication University of Zhejiang, offline markets and livestream sales are naturally contradictory.  

“If wholesalers all start livestreaming, they’ll capture the offline retail store business and force them to close. The whole commercial model would be destroyed,” he said. “As a well-known wholesale market, Sijiqing has become a giant through its huge customer base, though this is offline. If all the stores start online sales, then customers will naturally shift to e-commerce platforms, which is of course not acceptable to the market,” he added.  

The market has in reality been losing customers since the rise of e-commerce platforms in the early 2000s. Some Sijiqing vendors told NewsChina that their retail customers used to come to the market daily at dawn, but now, few visit the wholesale market so early and so frequently.  
“Sometimes I call my retail customers, only to be told they’ve closed their [offline] stores,” one wholesaler, who did not reveal his name, told NewsChina.  

According to a report on China’s commodity trading markets by the National Academy of Economic Strategy, Chinese Academy of Social Sciences (CASS), by the end of 2021, the number of commodity markets in China, mainly wholesale markets with an annual transaction volume of over 100 million yuan (US$13.9m), had dropped by 1,441 to 3,753, 27.74 percent less than that at their peak in 2012. The number of stores in the markets had decreased by nearly 21 percent, with an annual decrease of more than 3 percent between 2017 and 2020.  

Wholesale markets like Sijiqing cannot prevent storeowners from turning to livestreaming, where it is easy for people to see clothes modeled from the comfort of home.  

“Compared to traditional e-commerce, livestream sales support strong visibility and high engagement, and are backed by big data,” Ying Zhongdi told NewsChina. “That is why each link of the industrial chain, including brands, manufacturers, wholesalers and retailers, are all willing participants.”  

“There’s a big risk that wholesale markets are going to be marginalized,” said Cheng Weixiong, founder of Shanghai Liangqi Brand Management. “Livestreaming sales are dialed in directly to what consumers want. The traditional model, in which brands go through wholesalers who sell to retailers, means prices are higher. Livestreaming vendors sell more cheaply, and customers will follow them,” he said.  

You Wuyang, director of the Hangzhou Xijiang New Retailing Institute, estimates that e-commerce already accounts for half of the total annual clothing sales, half of which is from livestream sales. He said the rate will rise to 80 percent in the future.  

“Livestream sales are just an upgrade from offline stores. Customers get an experience similar to being in a store, so their efficiency is very high and I think they will develop even faster,” he said.  

“The circulation of the manufacturing industry will definitely undergo profound changes,” Li Xiaopeng, director of the journalism department at Hangzhou City University, told NewsChina. “New media technology is transforming the social structure and livestreaming sales is an inevitable trend... We can’t resist it. The more we resist, the harder it is to survive,” he said.  

Designers and Innovation 
According to Wang Xuefeng, deputy director of circulation and consumption research at the National Academy of Economic Strategy, CASS, even by 2012, wholesale markets were no longer expanding.  

“Commodity trading markets are now in a late period of saturation and elimination and entering a new phase of innovation and high-quality development,” he said. “China’s commodity trading is characterized by small producers and big markets which work to effectively reduce circulation costs and raise efficiency. So as long as the fundamental conditions for the markets to exist don’t change radically, they won’t disappear and will continue to develop by optimization and upgrading,” he added.  

Yifa Group’s Guo Furong decided that training innovative designers and upping quality would give them an edge. Yifa Clothes Market is the first in China to keep records of original designs, and has an area dedicated to selling designer clothes.  

“We now focus on original designs and the quality of the clothes. I think this will bring us long-term benefits and make our development sustainable,” Guo said.  

As a wholesale market, Yifa is concentrating on better serving the sellers and managing the market, Guo said. Sijiqing Market now allows stores to bring in models to show their new clothes on site.  

Data from Zhejiang provincial government shows that despite a drop in the number of offline commodity markets in Zhejiang since 2013, their transaction volumes did not fall in the same period, but actually increased. In the first three quarters of 2023, commodity markets in Zhejiang reached a total transaction volume of 1.65 trillion yuan (US$230.5b), a growth of 8.49 percent year-on-year.  

But consumption researcher Wang Xuefeng believes markets should embrace the internet rather than ban it.  

“Banning is not the best solution. Markets should cater to and serve different sellers,” he said. 

Professor Ying Zhongdi agrees. “Livestream sales are a new growth point. If the offline economy can leverage it properly, it will help them fly high once again,” he said.  

Although they refuse to do livestreaming, both Dabai and Jiang Zucai use their own online platforms to promote products, targeting existing customers. This way, they can better serve their customers while not stealing business from them.  

Despite the ban on livestreaming sales, Jiabao Group is helping stores in the market to use online tools like WeChat and short-video platforms to promote products and improve their service.  

“We hope that offline and online commerce will have more benign integration. We can’t just replace one leg with another leg. When can we walk with both legs?” general manager Wang Jiahui said.  

The offline economy has long been trying hard to narrow the gap with ecommerce while maintaining their advantages. There has been some effect. Media reported that during this year’s annual November 11 shopping promotion, primarily an online event first pushed by Alibaba’s Tmall and Taobao, brick-and-mortar stores also offered coupons and discounts. This appeals to consumers who are reluctant to buy online.  

“I’d rather buy clothes for my daughter in real stores where I can feel the materials myself,” Gao Rui, mother to a 3-year-old daughter in Beijing, told NewsChina. “I used to buy some from livestreaming channels on Douyin, only to find that the materials of some clothes seemed different from what I saw, and some even smelled really bad,” she continued.  

“I do believe in the adage ‘you get what you pay for,’” she added.  

“Livestream sales often offer a low price, but it does come at the cost of your time, because they go on and on about a product before they give their final offer. It’s quite noisy and timewasting. And worse, such an environment often generates impulse buying,” Chen Lina, a 42-year-old resident of Hangzhou, told NewsChina.  

“The only advantage of online shopping for me is the convenient return and refund system,” she said.  

On October 30, Hangzhou government issued a draft bill on the management of livestream sales, which will include rules on livestreamers’ ages, price competition and marketing. It will forbid livestream sellers from demanding low price agreements with manufacturers or exclusive agreements relating to monopoly, price fraud or dumping.  

The draft is expected to increase protection for offline sellers as well and promote what Wang Jiahui said is the “benign integration” of offline and online sales.  

Online and offline sales should not be “decoupled,” Cheng Weixiong said.  

“Those who generate online sales should share their skills with offline sellers, and those focusing on offline sales should look to develop their online selling, so as to integrate all pipelines,” he said. “This will benefit both offline and online sellers – it’s a win-win,” he added. 

Twenty-two wholesalers prepare for their grand openings at Hangzhou Sijiqing Market, March 1, 2020 (Photo by VCG)

A shopper (right) tries on a down coat at Hangzhou Sijiqing Market, January 4, 2023. The clothes were promoted in sales ahead of the Lunar New Year (Photo by VCG)