One year later, NetEase Yanxuan faces a new problem: how to provide a better life at a lower price and more stably?

It has been exactly one year since NetEase Yanxuan was launched.

Earlier this year, Ding Lei announced at NetEase's latest financial report conference that NetEase Yanxuan's goal for 2017 is to achieve a GMV of 7 billion yuan, which is a pretty good result for an e-commerce rookie.

In 2016, NetEase's "mail, e-commerce and other businesses" achieved a net income of RMB 8.046 billion (US$1.159 billion), more than double that of 2015. More importantly, RMB 8 billion is equivalent to the total annual revenue of NetEase four years ago, in 2012. Part of this was contributed by NetEase Yanxuan.

The reason why NetEase has always been "obsessed" with e-commerce is that Ding Lei has always hoped to have a new business model that can better stick to NetEase's 900 million users on this platform. Whether it is NetEase Kaola or NetEase Yanxuan, their ultimate mission is to help the entire NetEase Group better utilize these more than 900 million users. If possible, NetEase Kaola and NetEase Yanxuan will even become the next "cash cow" to bring user and revenue growth after NetEase Games.

Ding Lei has paid a lot of attention to NetEase Yanxuan, and reading the comments behind Yanxuan products has become one of his daily tasks. Liu Xiaogang, vice president of NetEase, told reporters that since starting Yanxuan, "Ding always goes to learn in detail about the characteristics of each supplier's factory, what processes are good, and even traces the entire upstream and downstream to learn more details."

This attention gave Yanxuan a lot of strategic support in its initial start-up, especially in terms of funding. Liu Xiaogang said that if a new e-commerce platform wants to do ODM, the first problem it faces is the risks in procurement and supply chain. Whether it is insufficient supply caused by factory holidays or price fluctuations in the international raw material market, it is difficult to survive these stages without sufficient funds.

Of course, while bringing financial support, this attention also brings corresponding, higher expectations. At the earnings conference, Ding Lei also set a GMV expectation of 20 billion yuan for Yanxuan in 2018. Since its launch, this e-commerce platform, which mainly operates in the ODM mode, has been working hard to prove to the outside world that the slogan "a good life is not that expensive" is not just a slogan.

Now, there is a new question that needs to be answered: how to maintain stable efficiency and quality while doubling GMV?

1. 30 million users in half a year, 60 million yuan in monthly turnover

On April 6, 2016, NetEase Yanxuan was officially launched, and it has been exactly one year since then.

36Kr has reported that NetEase Yanxuan was incubated in the mailbox department. Most of the initial product team members of NetEase Yanxuan came from traditional industries with supply chain backgrounds and mastered the resources of traditional manufacturing supply chains. By chance, they found that the ex-factory price of a well-known Japanese towel made in China was only a dozen yuan, so they found the factory to customize some towels and sold them to NetEase internal employees at a price close to the ex-factory price.

The towels in this internal test were sold out within one day and achieved a single-day sales of 300,000 yuan. Later, the Yanxuan team began research and testing, and finally incubated this product.

Just looking at the luggage sold on the Yanxuan platform, it took the entire team about three to four months from project establishment to final online sales. First, the buyer team conducted research on luggage, including the current types of luggage, prices and market share of different types, and finally concluded that PC luggage has the highest market share.

But they also found that the price of good quality PC trolley cases on the market was in the four figures, so Yanxuan decided to operate this product by itself. From the materials of the trolley case body, universal wheels, locks on the case, trolleys and other parts, they found several top raw material suppliers in the industry to purchase.

It took more than a month to integrate all the raw materials, followed by more than a week of proofing and testing, including drop resistance, pressure resistance, smoothness of roller skating, etc., before it was finally delivered to the factory for production.

Yanxuan did not adopt Taobao's platform model to enrich the number of SKUs, but used the ODM model, with manufacturers and suppliers designing and producing, and then NetEase purchased and sold on the platform. The Yanxuan team participated in the customization of product functions, design, and various requirements, and then the supplier made the corresponding product.

In this way, the selection of suppliers is particularly important, and the products they produce and manufacture have become one of the core selling points of Yanxuan. "Only when the suppliers are good can the platform develop healthily and stably. Some platforms sell fake goods. In fact, the reason is that the supplier's owner is under financial pressure and traffic pressure, so he sells fake goods in the end," said Ding Lei.

At the end of March this year, Ding Lei live-streamed the spring tea picking on Yanxuan, but the supplier behind this had actually been signed a long time ago. "The Longjing tea we selected this year has been prohibited from using pesticides and chemical fertilizers for several years. Only organic fertilizers can be used, and no pesticides are applied," Ding Lei told reporters. "But in other places, such as Longjing tea, there is last year's residual tea in it. In fact, this kind of mutual harm is hurting consumers and the brand. For example, when eating small walnuts in Lin'an, it is very likely that 10% of them are small walnuts produced last year and sold mixed."

From home textiles and home furnishings to kitchen and bathroom, cleaning, luggage, maternal and child care, food and other products, Yanxuan has developed nine categories so far, and the SKU has increased from more than 30 in the trial operation to more than 5,000. As of Q3 2016, Yanxuan has achieved 30 million users in half a year and a monthly turnover of 60 million yuan. In 2017, Yanxuan also plans to add some new categories and expand the number of SKUs for young students and other groups.

2. Better life, lower prices, more stable quality

Yanxuan plans to achieve a GMV of 7 billion yuan in 2017, and by 2018 this figure is planned to reach 20 billion yuan, nearly tripling.

Judging from the current number of Yanxuan’s SKUs, although there are already more than 5,000 SKUs and 9 major categories, achieving a GMV of 20 billion yuan means adding more product choices and increasing the scale of the entire platform.

From the perspective of personnel, Yanxuan has grown from a start-up team of less than 10 people to more than 300 team members. After one year of operation, a series of processes such as personnel structure, number, product standard construction, and supplier resources have basically stabilized.

In order to improve efficiency and enrich product categories, Yanxuan hopes to first optimize and improve management. According to 36Kr reporters, Yanxuan is currently reclassifying product categories in the background. For example, there are 9 major categories presented at the consumer terminal, but children's clothing, underwear, clothing, and other fabric products will be classified into the same category in the backend.

The logic behind this is that the suppliers and raw materials involved in these products are often similar. Re-dividing the backend management mechanism based on the similarity of the upstream can ensure that work is not repeated and improve management efficiency. Each large category in the backend can give birth to many small categories, but the materials, raw materials, yarns, printing and dyeing methods and processes in the backend are similar, so unified management can be achieved when controlling quality.

3. The rise of ODM and the competitors behind it

In the same month when Yanxuan completed its first year, Xiaomi quietly launched a new platform "Mijia Youpin".

This platform is similar to Yanxuan. In addition to selling digital products under Xiaomi's ecological chain Mijia, you can also see a series of daily necessities such as ceramic knives, memory pillows, mattresses, lazy sofas, etc.

Unlike Yanxuan, Xiaomi does not adopt the ODM approach, but invests in some ecological chain companies to ensure that the quality and style of the products are highly consistent with Xiaomi. Compared with Yanxuan, Xiaomi's model is heavier. In addition, Xiaomi also plans to open 1,000 offline Mi Home stores within 3-5 years to achieve omni-channel sales of these products.

Yanxuan is also considering offline channels, but it is not in the form of store sales yet, but focuses more on offline experience.

But it is undeniable that more and more Internet companies have seen the potential of this new type of ODM in future retail. Through the group's brand endorsement, they are deeply involved in the upstream supply chain, providing traditional manufacturers with design styles that are more in line with current consumer needs, and helping these manufacturers to upgrade themselves.

Interestingly, five years ago, Vancl had gone through a similar path, and even Dangdang had launched Dangdang Premium. But the end result was that the entire business struggled due to rapid expansion and severe inventory squeeze.

The revival of this wave shows that participants are more rational than before and have learned to estimate inventory more reasonably. Take Xiaomi as an example. When deciding to launch a product, it generally prepares about 60% of the expected stock. Once it finds that it is hot-selling, it will increase production, which can effectively avoid inventory risks.

The entry of more and more competitors has also put forward new requirements for Yanxuan: how to make its own competitiveness in the context of suppliers, raw materials, and product selection being extremely similar, and the products themselves not having too high technical content.

Yanxuan's answer is design. From the end of this year to now, Yanxuan has increased the number of its design team members to 70 to 80 people. These people are mainly responsible for the outer packaging design of Yanxuan products. According to consumer needs and Yanxuan's own style, they provide different design solutions such as Japanese, Nordic, neo-classical, and neo-Chinese styles, and then entrust suppliers to produce them.

In addition, Yanxuan is also trying to attract more exclusive suppliers. In order to ensure stable cooperation between suppliers and itself, Ding Lei said at the recent Yanxuan Supplier Conference that each cooperation with suppliers will last for three to five years, and will not give suppliers financial difficulties. In addition, all cooperative suppliers will be paid interest on deposits according to the bank's regular interest rate.

"Beyond your expectations, with a little surprise, safe, secure, and reliable" is the standard for NetEase Yanxuan's product selection as defined by Ding Lei. He is not interested in platforms like Taobao where anyone can open a store. "I would rather sell imported cross-border products than control the problem of counterfeit goods. I will also use my own financial advantage to find supply chains and sell strictly selected products one by one."

In this way, NetEase Yanxuan was born and successfully passed its first year. Although Yanxuan told 36Kr that it is not considering profit and profitability at present, as the Yanxuan model is gradually verified by the market, more and more competitors will join the industry. This year, if Yanxuan wants to achieve a GMV of 7 billion yuan, it depends on whether the threshold of Yanxuan is high enough.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.