China’s relentless e-commerce price war leaves sellers struggling to make ends meet

Chinese e-commerce sellers are struggling to survive as sales growth slows, pricing pressure increases and shopping platforms compete with increasingly aggressive policies to attract increasingly price-conscious customers.

The once-thriving e-commerce industry, punctuated by galas and celebrities, is now feeling the brunt of a struggling economy that has left consumers strapped for cash.
While extreme discounts, influencer-led sales campaigns and generous return policies have done much to enrich the industry, the very practices that sellers must adhere to are now harming the ones the industry is built on.

“The boom period of e-commerce is over,” said Lu Zhenwang, a Shanghai-based e-commerce operator who sells everyday items for small merchants. “This year, the competition is fierce and I don’t think many sellers will survive another three years.”

Profit margins are squeezed on big platforms like Alibaba and JD.com, but also on the thousands of small businesses that joined the decade-long e-commerce boom that began around 2013.
The boom has meant that e-commerce now accounts for 27% of retail trade, with 12 trillion yuan ($1.65 trillion) worth of goods sold each year.

But as the economy slows, so too is e-commerce, with the double-digit growth of recent years set to be replaced by single-digit growth, according to Euromonitor data.

One result is that enthusiasm for participating in sales festivals is waning noticeably, Lu said, with the biggest one – Singles Day, centred on Nov. 11 – a “risky” proposition.

“You have no idea how many products you’ll be able to sell, but you have to build inventory for that,” he said. “It’s almost impossible to see explosive growth at a sales event.”

Buyer Protection

As the impact of the slowdown begins to be felt, vendors are raising their voices against the side effects of business gimmicks.

At the online shopping event “618” – which emerged from the creation of JD.com on June 18 – the owner of women’s clothing brand Inman called on authorities to curb platforms’ “return protection” policies that force sellers to bear return costs.

Such policies were launched on PDD’s low-cost platform Pinduoduo in 2021 and proved so popular that others followed suit – at huge cost to sellers, sellers told Reuters.

“The return rate on e-commerce platforms is 60%,” Fang Jianhua, founder of Inman, wrote on social media. Before such policies, it was around 30%, he said.

Fang said major platforms, which sellers rely on, should not use “consumer-first” policies that put a greater burden on businesses, many of which must sell below cost to maintain high positions in search results amid multiple discount events.

E-commerce operator Lu said return protection policies had led to an increase in return rates in categories such as clothing.

Although clothing return rates have always been relatively high, they have increased since the requirement for buyers to pay postage when returning goods was removed, sellers said.

“For every three pieces of clothing you sell, at least two pieces will be returned to you, and you will pay the round-trip courier fee,” Lu said.

Pinduoduo, JD.com and Alibaba’s Taobao and Tmall did not respond to requests for comment.

Sell ​​at Lost

Davy Huang, business development director at e-commerce consultancy Azoya, said consumers had increased the frequency with which they returned impulse purchases, making life harder for smaller retailers who do not have enough cash to cover the costs.

“But I think return rates are only a fraction of the challenges these companies face,” he said. “They also face high traffic acquisition costs and high costs to partner with influencers and live streamers.”

Retailers are also feeling the impact of factories selling directly to consumers at factory prices. As a result, some sellers on Pinduoduo have been operating at a loss for the past two years, said He-Ling Shi, an economics professor at Monash University in Melbourne.

“They don’t have much hope that the prices will eventually be enough to cover their costs, but they have to do it (continue selling through Pinduoduo), otherwise they have to close their factories,” Shi said.

Lu said the operating environment is poor because the surge in e-commerce has created what is known in Chinese as the “neijuan” effect: working harder for lower returns.

“There is no sales growth because there are no new customers and people’s average income is not increasing like it was ten years ago,” Lu said. “There is only competition between platforms, between sellers. This is the new normal for the e-commerce industry in China.”