Cross border e-commerce for Cruelty free Beauty brands

This is a top line overview of how cross-border e-commerce operates in China. It is of particular interest to cruelty-free beauty brands globally as this route does not involve going through an extensive product registration process and therefore not subject to animal testing.

Before we go into the details just a few facts about the cross border e-commerce market

• Cross-border imports was 1.5 trillion RMB in 2017 across all categories*
• 67% of Chinese who purchase online made at least 1 cross-border e-commerce transaction in 2017*
• Main users of this channel are young females, many with children as they are driven by desire for quality and safety
• Cosmetics is the no1 category purchased through cross border ecommerce in value

So now into the nitty gritty of how cross border e-commerce works for international brands

There are 3 key areas I am addressing below:

1. What is cross border e-commerce (CBEC)

2. What are the ways to ship cross border ecommerce into China

3. What are the best platforms to partner with in China to sell your products

The definition of Cross Border E-commerce (CBEC)

Cross-border e-commerce is where the end customer in China buys goods from overseas. Meaning brands can ship products directly to Chinese consumers by using this special type of customs clearance regulation which is completely different from the general trade route. China’s CBEC pilot zones and their special customs clearance gateways enable them to do this. International brands can ship goods from their home countries or from Hong Kong or even in bonded warehouses in China’s free trade zones.

The three routes to ship your products using CBEC

1. DDU – this is where duty is not paid in advance by the seller. The products are shipped using the Universal postal shipping – usual national postal services in most markets eg: Royal Mail in the UK. There must be small, personal packages – max 1000RMB value and no more than 6 SKUs. About 5-10% of parcels are checked at customs and the consumer will need to pay the postal tax.

2. DDP – Business commercial shipping – it requires merchants to declare that it is B2C shipments and give order, payment and delivery details to Chinese customers. With this the tax is prepaid by the seller it varies from 11% to 25% depending if your product is deemed luxury skincare or not which is calculated on the price per ml. Max value of each order is 5000 RMB and each individual has an annual quota of 26k RMB.

3. Bonded warehouse – the main advantage of this route is faster fulfillment, cutting down shipping and customs clearance but of course there is more of a risk associated with stock holding. Taxes and restrictions are the same as with DDP.

Best platforms to launch Cross border E-commerce business in China?

There is no one size fits all solution to this. You can opt for doing standalone ecommerce on your own website or go to China’s premier social networking app – We Chat and launch a mini programme shop or opt for the large established marketplaces like Tmall global, JD worldwide, Koala or Xiaohongshu.

Tmall, JD and some of the other marketplaces have minimum requirements in terms of sales but they are looking for niche brands that have great traction in their home market so if this is your goal get on their radar in your home country, they all have representative offices in major markets so that is a good way in.

Xiaohongshu (RED) is an increasingly popular site – it was originally set up for people to talk about the products people bought whilst overseas that were unavailable in China and it has grown from there. The audience is predominantly women in their 20s and early 30s with a strong interest in fashion and beauty. This platform now has 150m active monthly users and hundreds of brands sell cross border through the Xiaohongshu shop section.

Some of the factors to take into consideration when defining your platform choice are:

• Cost of operating: most have monthly fees and also commission
• Operating model: are you as the brand in charge of the shipping or will the platform take care of this? Is it drop ship or stock holding in their warehouse?
• Do you need a local partner? Some platforms like Tmall and JD insist on you work with one of their approved trade partners (TPs).
• Traffic to your store: how will you drive traffic – don’t expect Tmall to drive traffic to your flagship, you will need to participate in seasonal promotions and marketing campaigns.
• Multi level approach: customers need to have multiple touch points with your brand so you may need a strategy across different platforms

Another consideration is that China is a massive market with huge opportunity but it is also a unique market with it’s own platforms, social media channels, processes and government systems so any launch into China needs to be carefully planned and managed. Finding a circle of trusted partners is key and also having an open mind to the ways of working and the time it may take to see a positive return on investment is key.

*Westin Report on Research Report On Chinese Consumer Cross-Border Purchasing Behavior 2018