Second-hand e-commerce market analysis: Xianyu VS Zhuanzhuan

The e-commerce war has entered the second half, and the incremental market is gradually turning to the stock market.

According to iMedia Consulting's forecast, the number of online second-hand transaction users in China will exceed 180 million in 2020. The "User Observation Report under the Second-Hand Economy" also shows that the current users of online second-hand trading channels are mainly young people aged 18 to 34. Ninety percent of users trade at least once a month, and 24% of users trade second-hand mobile phones once a quarter on average.

Under this premise, the second-hand e-commerce market has burst out with huge potential. Adhering to a business logic that is completely different from that of primary e-commerce, domestic second-hand e-commerce has formed a "three-legged" pattern after years of development. Xianyu , Aihuishou and Zhuan Zhuan, as the most well-known brands in this track, have been widely recognized among consumers.

This article will use three typical companies as representatives to unveil the trillion-dollar market prospects of "second-hand goods".

1. Definition of second-hand e-commerce and major players

With the trend of domestic consumption upgrading, consumers' attempts at new and unique digital products and the renewal cycle of light luxury products are becoming shorter and shorter, and the stock and variety of second-hand products are gradually growing in scale.

The second-hand e-commerce referred to here is an e-commerce platform that focuses on the trading of idle goods. The main forms of transactions include second-hand sales, second-hand replacement, and second-hand recycling, but do not include large items such as second-hand cars and second-hand houses. From the perspective of classification, there are five types of players in second-hand e-commerce:

1. Second-hand comprehensive category, including Xianyu, Zhuanzhuan, Xianwushuo, Pangqiu, etc.
2. Second-hand electronic products, such as Zhaoliangji, Aihuishou, Huishoubao, etc.
3. Second-hand fashion category, including Huafener, Hongbulin, etc.;
4. Second-hand luxury goods, such as Zhier, Xinshang, Fat Tiger, etc.
5. Second-hand books, such as Kongfuzi.com, Dianshu.com, Manyoujing, etc.

From the perspective of market structure, second-hand e-commerce has initially formed a market structure of "three giants + multiple oligarchs". The three giants are Xianyu, Aihuishou and Zhuan Zhuan. In addition, there are also oligarchs in multiple vertical directions. For example, the second-hand luxury goods platform Redbulin and the second-hand book platform Kongfuzi.com are both at the top in their respective fields.

At the same time, second-hand e-commerce is also attracting more and more players' attention. Internet giants such as Alibaba, JD.com and 58.com have joined the competition and injected new gameplay and a lot of funds into the second-hand e-commerce track. The reasons may be the following three:

First of all: the scale of the second-hand market has become mature and has huge potential. Xianyu and Aihuishou, which entered the market earlier, have both run smoothly and achieved profitability. The huge market demand is one of the reasons why the giants are reluctant to give up.

Secondly: the second-hand market is still a huge traffic pool. In 2019, the scale of second-hand e-commerce users in my country was 144 million, and it is expected to exceed 180 million in 2020. After selling their second-hand goods, most of these hundreds of millions of consumers need to buy new products that better suit their needs, which means they are destined to become paying users of e-commerce platforms.

Once both new and old products can be traded on the same platform, this will greatly increase user stickiness. On the other hand, some larger goods may need to be picked up and transported by buyers themselves, which is also a major means for Internet giants to achieve community, localization, and life-orientedness.

Finally: second-hand channels can help stores clear inventory. A key reason why e-commerce giants such as Alibaba and JD.com pay attention to second-hand e-commerce is that they can digest some goods with damaged outer packaging but not affecting secondary sales through second-hand channels, thereby realizing the internal circulation of resources and maximizing benefits.

At present, domestic second-hand e-commerce is still in the growth stage, with an overall penetration rate of less than 8%, which is still lower than the global penetration rate of about 20%. This means that second-hand store platforms still have a lot of room for development in the future. On the other hand, with the improvement of the credit reporting system and quality assessment standards for second-hand goods, as well as the popularization of third-party payments, second-hand e-commerce is expected to maintain rapid growth in the next few years.

2. Second-hand e-commerce transaction scale data

After the "buy, buy, buy" craze brought about by the rise of e-commerce in first- and second-tier cities, a large number of unused items in people's homes are in urgent need of a place to realize secondary value, and consumer demand has also shifted from "upgrade" to "diversification"; in third- and fourth-tier cities, with the growth of income and the explosion of consumer demand, consumer groups represented by "small town youth" have begun to pursue cost-effective quality life.

In this context, the value of second-hand e-commerce stock has been highlighted. Coupled with the growing demand for secondary resales of goods due to consumers' irrational consumption behavior during e-commerce shopping festivals, the scale of domestic second-hand e-commerce transactions has increased significantly.

Data from Analysys International shows that the transaction scale of the domestic second-hand e-commerce market developed rapidly from 2015 to 2019. In 2019, the transaction scale of China's second-hand e-commerce was 259.69 billion yuan, a year-on-year increase of 53.2%. Although the growth rate may decline in 2020, the overall transaction scale may still be close to 350 billion yuan.

In terms of user scale, the scale of second-hand e-commerce users in China increased year by year from 2015 to 2019. By 2019, the scale of second-hand e-commerce users reached 144 million, a year-on-year increase of 34.6%. The growth rate is expected to be around 30% in 2020, when the user scale will exceed 180 million.

In terms of consumption capacity, more than half of second-hand e-commerce users are in the middle to high consumption level, among which the middle to high consumption group accounts for 48.2%, the high consumption group accounts for 8.6%, and the middle consumption group accounts for 22.9%, ranking second in the largest proportion.

Currently, users of online second-hand e-commerce channels are mainly young people aged 18 to 34. Ninety percent of users trade at least once a month, and 24% of users trade second-hand mobile phones once a quarter on average.

There are currently three second-hand e-commerce "unicorns" recognized by the industry, namely Xianyu (valued at US$3 billion in 2015), Aihuishou (valued at US$2.5 billion), and Zhuanzhuan (valued at US$1.8 billion after merging with Zhaoliangji). In terms of geographical distribution, the three second-hand e-commerce companies are located in Hangzhou, Shanghai and Beijing respectively.

In terms of capital, the second-hand e-commerce sector has cooled down slightly in recent years. From 2015 to 2019, the number and amount of financing in my country's second-hand market showed a fluctuating trend.

The number of financings has been decreasing year by year. In 2015, there were 62 investment events, while in the first 11 months of 2020, there were only 14. The fluctuations in the amount of financing are quite obvious, with 2016 and 2020 being the low points in 11 months, with total financing amounts of 4.288 billion and 3.536 billion respectively.

3. Business analysis of Xianyu vs. Aihuishou vs. Zhuanzhuan

Xianyu, Aihuishou, and Zhuan Zhuan are known as the "three strongest" in second-hand transactions, and the competition among the three will continue for a long time in the future. The mainstream models of second-hand e-commerce platforms can be divided into three types: C2C, C2B, and C2B2C. Under the pattern of three major players, Xianyu, Aihuishou, and Zhuan Zhuan have different "characteristics".

1. Xianyu “loves socializing”

On June 28, 2014, "Xianyu" was born in the tea room of Alibaba's Xixi Park. Six years later, the GMV of this "Xianyu" exceeded 200 billion yuan, a year-on-year increase of 100%, and the number of online sellers exceeded 30 million every day.

In order to make "idle items move", Xianyu focuses on cultivating social attributes. Since Xianyu is inherently a strong C2C platform, sellers can post their idle goods like posting on WeChat Moments, and users with needs can see them and interact with them to facilitate transactions.

Subsequently, the interactive community is materialized into a "fish pond" where users can share and promote ideas with each other, thus stimulating transactions during the social process.

According to the data disclosed in the Xianyu Media Classroom, currently about 1 million people post their idle personal items on Xianyu every day, with the number exceeding 2 million items, and the cumulative number of idle items posted has exceeded 1.4 billion.

2. Aihuishou focuses on both online and offline

As we all know, the 3C field is the "fat meat" in second-hand transactions and is relatively easier to standardize. Since its establishment, Aihuishou has been mainly engaged in 3C digital business and has been deeply involved in this field for a long time, but there is still a gap in size compared to Xianyu and it is currently in the second tier of second-hand e-commerce.

In June 2019, Aihuishou merged with Paipai, a subsidiary of JD.com, further consolidating its position and advantages in the 3C field.

In September this year, Aihuishou announced that it would replace "Aihuishou" with "Everything New" as its new group brand, and its business would expand vertically from 3C to all product categories. After covering all product categories, not only can it gain more growth, but it can also better grasp the resource advantages brought by JD.com. In the future, Aihuishou will have the momentum to advance into the first echelon.

It is worth noting that one of the major features of Aihuishou is the layout of its offline stores.

According to public data, Aihuishou has currently established more than 700 stores in dozens of cities across the country, with an online to offline traffic ratio of 4:6. By integrating with JD.com, mobile phone manufacturers, and store scenarios, it has solved the trust black hole problem to the greatest extent.

Judging from the current trend, the integration of online and offline has become a major trend in the e-commerce sector, and second-hand e-commerce is no exception.

Aihuishou is the first platform in the second-hand e-commerce sector to vigorously develop offline stores. As the online dividends disappear, the offline market will become another territory for second-hand e-commerce companies to compete for. Aihuishou has been deeply involved in the offline market for a long time and has certain first-mover advantages, and may be more successful in future market competition.

3. Carrying the weight

When Zhuan Zhuan was first established, it focused on second-hand transactions of all categories, which is somewhat similar to Xianyu.

The focus is on covering multiple categories such as mobile phones, digital products, computers, books, clothing, shoes and hats, home appliances, and maternal and child products. However, after Zhuan Zhuan strategically merged with the second-hand mobile phone B2C trading platform Zhaoliangji, Zhuan Zhuan seemed to be intentionally leaning towards the second-hand mobile phone vertical segment.

Zhuan Zhuan has undergone many transformations since its development. At the beginning, Zhuan Zhuan competed with Xianyu for traffic in all C2C categories. However, Xianyu, backed by Alibaba, was too powerful and adopted a light asset model, so Zhuan Zhuan gradually fell behind in the competition.

Zhuanzhuan then switched to the C2B2C model. C2B2C requires the platform to provide identification services, directly intervene in the transaction process between users, and establish back-end quality inspection and operational capabilities.

However, most second-hand goods are non-standard products, and the platform needs to establish an accurate evaluation system for each category and each type of product, which requires a lot of manpower and material resources, which invisibly increases the operating costs of Zhuanzhuan.

Perhaps due to cost reasons, Zhuan Zhuan’s performance in the C2B2C field was not satisfactory. Zhuan Zhuan then opened up a variety of business models including C2C, B2C, B2B, C2B, and C2B2C to improve its industrial chain and user ecology, but with little success.

After Zhuan Zhuan merged with Zhao Liangji this year, its valuation reached US$1.8 billion, which is approximately RMB 11.7 billion.

However, according to the "2019 China Second-hand E-commerce Market Data Report", Zhuanzhuan's valuation at the time was 20 billion yuan, and Zhaoliangji's valuation was 1 billion yuan, and the two added up to about 21 billion yuan. It should have been a "merger" where 1+1 was greater than 2, but the result was a valuation that was almost "cut in half". Some media called this phenomenon "it is difficult to move forward under a heavy burden."

In addition, the three companies differ in the sources of idle goods, trading methods and transaction guarantees.

But whether it is the social development of Xianyu, the brand upgrade of Aihuishou, or the specialization of Zhuanzhuan, they all indicate one problem - the development of the second-hand e-commerce track is becoming more and more sophisticated, each platform has a clear "label" and the head effect is becoming more and more obvious.

4. Discussion on the Value of Second-hand E-commerce

In China's e-commerce sector, the two giants Alibaba and JD.com each have their own value.

Alibaba entered the e-commerce market early and did the integration work of the first batch of decentralized platforms, and later improved the payment system and credit rating; JD.com worked on improving quality and efficiency, spent a lot of time on optimizing the industrial chain, and built its own warehousing and logistics system.

If we use it as an analogy, Xianyu actually did something similar to what Taobao did in its early days.

First, Xianyu allowed many consumers to truly come into contact with second-hand e-commerce, which can be regarded as the first wave of popularization. Second, Xianyu has explored the C2C model and verified its feasibility, and with the help of the power of Alibaba, it has solved the most critical trust issue in second-hand transactions.

Like JD.com, Aihuishou has also done work to improve quality and increase efficiency. Regarding the appearance inspection of second-hand mobile phones, the appearance inspection equipment independently developed by Aihuishou can automatically detect scratches, bumps, etc. on the outer frame and back panel of the mobile phone within 57 seconds, effectively reducing the labor cost of quality inspection and improving the accuracy of quality inspection.

Regarding the functional testing of second-hand mobile phones, Aihuishou uses laser positioning, image processing, machine learning and other technologies to automatically identify mobile phone models and conduct automatic quality inspections in about 2 minutes, completing quality inspection tasks for mobile phone related functions with an accuracy rate of over 99%.

Replacing "human inspection" with "machine inspection" is a very rare thing in a non-standard product market. The construction of a standardized recycling system is beneficial to the entire industry.

Zhuan Zhuan was born out of the "58.com Second-hand Channel". It was originally an attempt to reuse local idle second-hand resources. It is highly consistent with the current social principles of energy conservation and environmental protection, and making the best use of resources. It can be regarded as a pioneer in the concept of environmental protection.

Therefore, the value of second-hand e-commerce is not only reflected in transaction volume, number of users and activity, but also its transformation and promotion of the entire e-commerce supply chain, which makes it deserve a place in the entire history of the Internet.

Some media drew on the concept of "flower pot effect" in psychology to evaluate the above three second-hand e-commerce companies, saying that a flower pot is a semi-artificial, semi-natural microhabitat.

It has three characteristics: first, it has great spatial limitations; second, because of the artificial creation of very suitable environmental conditions, crops and flowers can grow well after human intervention, but they will quickly wither once they leave human care.

The second-hand e-commerce industry also follows this principle. In the second-hand market, the platform’s own resources and advantages are the nutrients in the flowerpot, traffic acquisition is manual intervention, and the traffic pattern determines whether it is in danger of withering.

From the current perspective, among the three major platforms, Xianyu is backed by Alibaba and has the fish pond community culture; Aihuishou is backed by JD.com and has online and offline scene capabilities; Zhuanzhuan is more "moderate", it does not have the second-hand ecological advantages itself (lack of life nutrients), and is backed by WeChat Jiugongge and 58 Group (with artificial intervention and cultivation), but the defects of the traffic purchasing model limit its self-growth ability (without careful care).

Although the entire second-hand market capacity can reach trillions of yuan and its development potential is huge, after nearly ten years of development, various second-hand e-commerce platforms have established very high barriers, and in the future resources will increasingly move towards leading brands.

But this does not mean that latecomers have no chance. New players need to ensure good quality and service, find their own niche and advantages, and build core competitiveness. It is still possible to find development opportunities between the giants.

Author: Fitz

Source: Xiaguang Society