Original link: https://www.latepost.com/news/dj_detail?id=1687
Taote is the last new project incubated by Ali Group before its split. It will launch an independent application in 2020 and compete for the low-price market with endless resources. With this round of Ali’s spin-off and reorganization, Taote also has a new positioning.
Many managers of Taote are in charge of various businesses in the newly established Taobao Tmall Group. The former head of Taote and Ali partner Wang Hai (nickname: Qigong) is mainly in charge of the small and medium-sized enterprise development center and promotes the product richness of Taobao. Earlier, his subordinate Zhang Sheng (flower name: Zou Yan) also brought some Taote employees into Taobao, responsible for “price power”.
In the newly launched channel “Taobao Good Price” on the Taobao app, a considerable part of the products come from the factories that Taote cooperates with. Search for paper towels, umbrellas, mattresses and other categories on Taobao, and these products will be listed in the top three sales. A total of more than 1,000 products have won the sales champion of Taobao.
Factory goods are the starting point of Taote, promoted by the Taofactory team. However, in the past three years, in order to start an independent shopping application, Taote has launched direct procurement of fresh products, introduced branded products, and recruited platform merchants. Now, the center of Taote has returned to the factory, and the most important channel is Taobao.
Since June last year, the progress of Taote in Ali’s financial report is mainly about Taofactory. In the first quarter of this year, the total turnover of direct-sale products of Taofactory increased by 26% year-on-year. Taofactory is also one of the few teams in Ali that has increased its personnel by a large proportion. The number of employees in various industrial belts will increase by 10 times, and there is no upper limit on money and resources.
Retail competition is all going to factories. Netease Yanxuan and other models customize products from factories to drive down prices. In the United States, where the retail industry is more mature, Amazon, Sam’s, and Costco all have a large number of private label products. They strictly control product specifications and brands, and take a commission from sales, while factories are only responsible for production.
Taofactory uses a way that Taobao is more accustomed to to go deep into the supply chain. It does not do its own brand, but provides services in several key links, making it easier for factories to sell goods and profit from services.
After the epidemic, some consumption returned to offline, and the growth of the overall e-commerce market slowed down. At the same time, Taobao, JD.com, Douyin, and Pinduoduo are all platforms with over one trillion GMV, and brand merchants have multiple choices. The traffic competition among e-commerce platforms is coming to an end, while the supply chain competition has just begun.
Different factory, similar situation
China has the most factories and the most abundant production capacity in the world. If all the products are for domestic consumption, each of the 1.4 billion people can use 30 pairs of socks, 10 pairs of shoes, 16 pieces of clothing and 10 kilograms of paper per year.
Cheap enough and abundant enough, factory goods should have been the first choice of consumers. But the actual situation is more complicated than arithmetic problems. Huge production capacity and cheap enough prices are based on large quantities of orders, and most factories are only used to wholesale and foreign trade business, not capable of selling goods directly to consumers.
Changes in the environment make them have to start looking for changes. In the past, every region in China had a regional distribution center, such as Linyi and Tianjin in the north, Yiwu and Guangzhou in the south, and factories only had to compete with factories in the area covered by the nearest distribution center. But after the unified market of e-commerce, each factory’s opponents come from all over the country, and the competition becomes more brutal.
The downturn in overseas consumption has significantly affected foreign trade. Taking exports to the US as an example, according to data from the General Administration of Customs of China, total merchandise exports in the first quarter of this year fell by 17% year-on-year. As of March, it has been declining for eight consecutive months.
Zhang Bo, the factory director of Jinye, caught up with such an environment. He is from Baoding, Hebei. The factory at home has been producing paper towels since 2000. From a family workshop, he has gradually established a factory with complete production lines. Over the past ten years, his father’s generation expanded their business territory to Harbin in the north, Baotou in the west, Henan in the south, and penetrated into every district and county in Henan Province.
After graduating from university, Zhang Bo worked in his own factory for four years as a machine repairer and in charge of some sales. In 2017, after getting familiar with the business and technology, he took over the factory. Still continuing the previous model of finding agents in wholesale markets and supermarkets and supplying hotels and restaurants, he doubled the sales scale two years later.
But the competition has become increasingly fierce. Most of the factory papermaking in Baoding only involves the second half, that is, the processing of roll paper raw materials, which only needs to be cut, set the number of layers, add some printing, and finally pack it. With the improvement of machine automation and lower barriers to entry into this industry, Baoding’s paper production capacity has far exceeded market demand. Zhang Bo described the local competition as “hot is not enough to describe this situation.”
Seize the most important opportunity in China and establish a large-scale factory during the period of rising consumer demand. Most of the older generation of Chinese factory managers have similar experiences. It is also similar that most people miss the opportunities online. As export becomes difficult, the younger generation who are willing to take over the factory must find a new way out.
Cheng Xing’s factory director, Wang Yihao, is in a similar situation. He took over the umbrella factory from his father in 2019. The umbrella business at home used to be able to sell nearly 100 million yuan a year offline, but as consumption shifted to online, business growth slowed down.
Wang Yihao has lofty ideals, and plans to develop an umbrella brand after taking over the factory. He invited designers and recruited sales staff, but the most distressing thing was that he couldn’t hire good operation talents. Some people enter the company with a good growth case, and after a month or two, there is no change in any data; there are also employees who vow to be optimistic about a certain product, and if they want to come to the budget for launch, they will bear all the losses in the end. After changing 10 unreliable operators, Wang Yihao gave up his dream of opening an online store.
Zhang Bo has the same distress, and also considers the issue of cost. He tried to start an online business in 2016. In addition to being equipped with operating personnel, he also needed customer service. He paid tens of thousands of wages a month, but the turnover of the store was still unable to grow. In the end, he could not make ends meet and had to close it.
Missing the era when e-commerce was the easiest to grow, the “second generation of factories” didn’t have much hope when they saw this new channel. In 2019, when Amoy Factory found Zhang Bo, at first he just felt that there was one more channel to sell goods; when Wang Yihao settled in Amoy Factory’s direct-sale store in 2020, his focus was still on brand business.
But the hosting model of the platform makes it easier for them to sell goods online. Taofactory has regular communication between the ground troops and the factory manager about product plans. The factory does not need to operate itself. It only needs a few employees to prepare and put the goods on the shelves, and the platform will sell them on its behalf. They don’t even need to ask for customer service, because Taofactory Direct Store has its own official customer service.
In the umbrella industry, only March to September is the peak sales season of the year, and the other half of the year is closed, so it is difficult to accumulate data. Wang Yihao feels that the predictive guidance given to them by Amoy Factory during the stocking period has at least given him a sense of security.
Ali already has a service factory platform 1688. Many Taobao Douyin products come from 1688, and some consumers will go shopping. However, 1688 mainly connects with factories and wholesalers. It does not optimize for one or two pieces of consumer demand, and it will not help factories make popular models.
Amoy Factory will give the factory some guidance on packaging and styles. Zhang Bo remembers that their first hot item appeared after Taofactory suggested changing the packaging to pink.
Most of the shipments do not need to be handled by themselves. The products that are sold well by the factory will enter the warehouse of Taofactory, and the platform will be responsible for the delivery. The sales of umbrellas are related to the weather. In the rainy season, the storage scale needs to be expanded, but in the dry season, it will be vacant, and the utilization rate of the warehouse is not high. However, due to the circulation of a variety of seasonal products, the production warehouse of Amoy Factory has a high utilization rate and the average cost can be reduced. Paper towels are a necessity. During the epidemic period, due to the blockage of logistics caused by the lockdown of various places, sales will often be affected. Taobao factory will transfer the goods to areas with smooth logistics according to the specific situation. This is also a resource that is difficult for a factory to coordinate.
More importantly, this channel has brought in a large number of orders. In the past three years, as the first batch of direct-operated factories to settle in, Zhang Bo’s business has continued to expand, increasing from one factory building to three factory buildings, and sales have increased by 10 times. After Wang Yihao shifted his focus to Amoy Factory after 2021, this channel brought him 300,000 orders every month, making it the largest proportion of all his sales channels.
Deterministic large-scale orders reduce costs. Zhang Bo’s offline customers have diverse needs, and equipment needs to be frequently changed in specifications, which wastes time and wastes raw materials. In the end, none of the employees, factories, customers, and consumers benefit from it. On the other hand, online orders are large in size, with few types of specifications, and there is no intermediate link between agents. Products of the same specification and quality are about 10% cheaper than offline prices. Umbrellas are also similar. One foot of cloth can make 450 umbrellas. If it is lower than this amount, waste will be generated and costs will increase.
In 2022, after the trusteeship model has been continuously verified by the first batch of factories with simple decisions and low unit prices, Taofactory decided to make higher-priced categories. Home textiles are one of them.
In July last year, Baoshikang Home Textiles, located in Nantong, Jiangsu, settled in the direct-sale store of Taofactory, becoming the fastest single factory with sales exceeding 100 million.
The factory is managed by two cousins. In 2012, his elder brother Xue Jincai came to Nantong to open a stall, and sold goods from various home textile factories. After the channels were stabilized, he began to build quilt, mattress and pillow factories. The older generation of the Xue family made a living by running a weaving factory. Because of the advantages of raw materials, the scale of the home visit factory quickly expanded in the hands of Xue Jincai.
Baoshikang Home Textile has seized the most important opportunity of e-commerce in the form of wholesale. From 2016 to 2019, as the source behind Taobao’s home visit stores, the factory’s business has grown along with Taobao, and it has become the top 5 factories in Nantong’s low-price positioning.
Out of the consideration of not competing with customers for business, coupled with the large number of orders, they never thought of retailing online by themselves. However, after 2018, the proportion of e-commerce personalized recommendations is getting higher and higher, and the needs of consumers have become more diversified. For the first time, their popular fashion model has been impacted, and business has been shunted by small factories. By 2022, the epidemic has hit foreign trade orders, and many fabrics and finished products have become a backlog of inventory.
Clearing inventory was the motivation for Baoshikang at the beginning, but on Double 11 that year, at the suggestion of Amoy Factory, they made a “soybean fiber quilt” – which is softer, more breathable and more cost-effective than cotton quilts. high. Finally, relying on this explosive product, their total turnover on the day of Double 11 took the lead to break through 10 million.
For the same reasons as other factory managers, they stayed and made the Taofactory Direct Store a channel with the largest proportion of business in less than a year.
Baoshikang’s commodity prices are set extremely low, with a gross profit margin of only 4%, but their production lines are designed for mass production. As long as they can produce thousands of pieces at a time, the average product price will be higher than the ex-factory price of other factories. 3 to 4 yuan cheaper.
What Xue Jincai thinks is that as long as the factory can start work, the number can be made positive, and the continuous accumulation is a bigger number.
E-commerce platforms learn to open their own stores
The Taofactory directly-operated store was first called “Tiantian Special Sale Factory Store”. It was originally a store jointly opened by Taobao’s daily special sale team and 1688’s supply center.
In 2019, Lian Wenzhao (nickname: Kanshan) was in charge of the operation of this innovative business. He described the shape of the entire business as evolving like building blocks. At the very beginning, we have to screen factories. 1688 has sufficient information. They can see where the factory is, who the boss is, who they do business with, and the price range of the products. After one or two thousand factories with strong production capacity, an invitation will be sent to them.
But the factory only has experience in wholesale and custom large orders, and does not understand online retail. Their team then took over the needs of hosting operations, specifically helping them register, release products, and even teach them how to sign up for promotional activities.
Gradually, Amoy Factory can also tell the factory manager the consumption trends and selling points under the big data, and guide them to make minor adjustments, such as packaging, specifications, functions, etc.
The factory managers are unwilling to spend money to recruit customer service, because sales and consulting have peaks and valleys, and when the peaks are met, there will be troughs when the customer service personnel are idle, which increases the cost. Amoy factory also takes care of customer service.
Ali originally had its own customer service center, which was set up in a remote poverty-stricken area, with low labor costs and employment problems. The group also has “school, enterprise, government, enterprise cloud customer service”, some of these customer service are full-time mothers, and some are college students from second or third schools. They are like deliverymen taking orders, they can be more flexible and flexible, and the cost is not high.
Lian Wenzhao said that when the building blocks were put together halfway, he was not quite sure what he put together, but at a certain moment, “suddenly found that it was that thing.”
In 2020, Nicholas from Amazon joined Taote, and his arrival brought the supply chain of Taofactory into a new stage. He first formulated supply chain standards for different categories, that is, to determine at what point in time, at what cost composition, what kind of performance method, what kind of packaging materials, what kind of delivery and service a commodity should be, from production delivered to consumers.
He also led the formation of a quality control team and established factory standards and commodity standards. One group of people will be responsible for inspection in Hangzhou, and the other group will flow to various factories across the country for quality inspection. In the first year, they covered 500 types of commodities, and now the supply chain solutions and quality control system have covered 3,500 categories.
In terms of warehousing, the supply chain team also entrusts Cainiao to set up a warehouse at the origin, which is usually only a few kilometers away from the factory. The origin warehouse is rented on the second floor of the courier company. The upstairs is packaged and the downstairs is shipped, which can extend the working time. In the past, the express delivery stopped at 8 o’clock. Some merchants will send orders after 6 o’clock the next day. goods, but they can extend the delivery time to 10 pm, more orders can be shipped within the same day, and the timeliness is faster. By aggregating orders from factories in multiple industrial belts, storage costs can also be negotiated lower.
In 2021, the supply chain team will work with Cainiao to innovate the “combined single warehouse”. By cooperating with the “N Yuan N Pieces” marketing campaign of Amoy Factory, multiple items from the same user can be sent in one package, saving the cost of packaging materials and transportation.
Combining orders and sending sounds simple, but it is a test for sorting and delivery. In the past, the pickers only needed to move in the same picking bay, but now they have to move in multiple areas, resulting in lower efficiency and higher error rates.
At the beginning, they equipped each picker with a PDA (Personal Digital Assistant) to plan their picking path. Later, in order to save costs, they developed software that can be used directly on mobile phones to plan action routes for pickers.
In the second half of last year, they also tried to introduce robot picking. Not only the error rate is reduced, but also more than 5 products can be sorted at one time. At present, less than 500 to 1,000 orders can be processed at one time, and the sorting can be completed in ten minutes.
The traditional mode of cooperation between platforms or channels and factories is to place orders directly, but in order to ensure competitiveness, more investment will be made in other links.
Take Costco as an example. More than 70% of its profits come from membership fees, and what attracts members is its extremely cost-effective products. The average product price of its own brand Kirkland is 20% cheaper than products of the same category. For this reason, it must strictly control costs in all links, including research and selection, product design, packaging, transportation, warehousing and so on. This requires more heavy investment in various links, such as the construction of logistics network, investment in warehouses, and so on. At present, Costco has 24 logistics centers around the world, and its own store ratio is as high as 80%.
SHEIN has moved the store online, but it has also gone deep into commodity production, researching fabrics, designing styles, and placing orders in small batches at a fast pace. By 2020, the SHEIN product R&D team alone will exceed 800 people.
In contrast, the model of Amoy Factory is lighter. It entrusts the design, development and manufacturing of products to the factory, and what it does is some broader selling point guidelines, such as telling the factory when to emphasize the loose version, when to focus on “not pilling”, when consumers prefer Breathable clothing is required. Lian Wenzhao believes that, to some extent, Amoy Factory is even like a consulting service company.
Although Amoy Factory sells products for the factory, it does not earn the price difference, and there is no payment period for purchases. Its commercialization method is to take a certain percentage of sales as a commission based on the industry the factory is in and the services it chooses. Therefore, since its establishment, Amoy Factory has been profitable.
Ali is used to platform-based operations. Taobao, Tmall, including the original Cainiao are all matchmaking models, and light operations are their genes. Taofactory is an innovative business, and it is not realistic to operate with more assets. It is accustomed to handing over different business links to different partners. For example, express delivery has four links and one delivery, and warehousing lets Cainiao lease it on its behalf.
Amoy Factory positions itself as a company that sells services. It solves a series of problems such as product selection, marketing, logistics, customer service, and warehousing in the e-commerce process for the factory, but instead of relying on one-to-one services, it forms a complete set of products such as data planning, marketing packages, service hosting, and supply chain. system.
These products are the source of its competitiveness, and they are also paid software that can be sold to the factory. Lian Wenzhao emphasized, “Tao Factory is a technology-driven company.”
Taofactory currently has two teams that directly contact the factory. The first one is the ground forces where the industry is located. They will complete business negotiations with factories and merchants and introduce corresponding activities and services. After the merchants settle in, they will help each other to plan their products together. The second is the purchasing teams of various industries. They are responsible for selling the products on the shelves and reminding merchants to stock up and replenish in time.
In three years, Tao Factory believes that this service model has been polished to a certain extent, and now it is time for more factories and consumers to verify it.
From Taote’s small experimental field to a bigger Taobao
After the epidemic, consumer data did not rebound as expected. In the first quarter of this year, the deposits of Chinese residents increased by another 9.9 trillion yuan; according to the latest quarterly financial report of Ali, people’s online consumption has not yet fully recovered.
Price becomes the key factor in buying things. In March of this year, Taobao decided on a low-price strategy, and the cost-effective goods represented by Taofactory had a greater traffic entrance. On May 20, after the launch of “Taobao Good Price”, the behind-the-scenes kills and the supply of N yuan and N pieces all came from Taobao factory.
The pace must pick up. Lian Wenzhao said that he reached a consensus with the boss and expanded the Tao factory very quickly. “I pointed it out, and that’s what happened when he slapped his thigh.”
Money and people were approved quickly. The ground troops in the industrial belt are now dozens of people, and it is estimated that they can be expanded by 10 times. The number of new products on the market is planned to be tripled this year; the number of new merchants will increase to the sum of the past four years.
Amoy factory is expected to expand in two directions in the future. The first is to develop into different categories, and the second is to develop into different price segments, “from the original single point to a chessboard-like structure.”
The product capability created by Taofactory from marketing to logistics is essentially a solution, and every industry and every category is different.
In the past few years, Taot was mainly working on an independent low-price shopping application, and did not concentrate all resources on Taofactory. Therefore, factory solutions are limited to some categories with simple consumption decisions, such as masks, stationery, and even dried mangoes-only need to achieve the ultimate cost performance can be sold.
There are still many industries that have not got the hang of it, such as glass products. Lian Wenzhao didn’t have enough confidence in the glass products on Amoy Factory, because he hadn’t solved the problem of transportation for this product. How thick the packaging material should be, and whether the packaging should be adjusted for long-distance delivery and short-distance delivery, these questions have not yet been answered.
Like toys. He has not yet found a good factory, nor has he studied how to sell it to users in a better way. Similar to sneakers, there is a complex decision-making mechanism behind it, but he does not yet know how to influence consumer purchases.
There are also other categories that have many factors that affect consumers’ orders, such as mobile phone cases, clothing, and bags. Consumers pursue differentiation and are willing to pay for it. Among these commodities, not only the price affects the impulse to buy, but also more subtle considerations, such as a balance between materials, appearance, and price.
Recently, their team found a new solution for custom mobile phone cases: providing a printing machine for the factory’s warehouse. The factory is only responsible for the production of white film mobile phone cases. If there is a customized order, it only needs to add a final printing. Although the accuracy is not enough, you can buy 3 for 9 yuan.
There are more than 50 million factories in China. Excluding industrial products and only wholesale factories, they calculated that the ceiling of Xiatao factories can absorb 6 million factories. Lian Wenzhao believes that there will be more categories worthy of white labeling in the future, but he also admits that there are certain categories that Amoy Factory will not be able to set foot in, such as digital products that pay more attention to brands, such as women’s bags where consumption decisions are extremely complicated. “I admit that there are some chessboards that don’t stand, but one of my opportunities is that the overall consumer environment is more cost-effective.”
To expand commodities, industries, and factories, it takes time and more people. Taofactory is currently in urgent need of people who understand products and the supply chain of specific categories. Different from retail channel brands like Sam and Costco, they want to be a retail service brand and a supply chain brand.
Under this positioning, the shippers behind it, two kinds of factories will be gradually replaced – one is able to go to Tmall to open a store; the other is insisting on only doing OEM and OEM, and does not want to face retail factories . Amoy factory thinks that its ideal partner is the one in between, a factory that wants to do retail but has no ability.
In addition to category expansion, Amoy Factory also wants to make cost-effective products with higher prices. But how to grade different white-label products is also a new proposition that it will solve in the future.
In the first quarter of this year, Pinduoduo’s revenue and profits continued to soar; JD.com also raised “low prices” as the most important strategy for JD Retail in the next three years after Liu Qiangdong’s return; at the same time, the sales ratio of Douyin Mall is increasing. , price becomes the most important factor in this business.
In front of Taotian Group is a more urgent and fiercely competitive future. The M2C model established by Amoy Factory in the past three years is one of the main weapons it chooses to participate in price competition.
After three years of practice, Taofactory has grown from Taote’s “small experimental field” to being enlarged into Taobao’s price power channel. In the future, it will be an important supply behind the two clients. In the past, Taobao wanted to satisfy the low-price market through its independent business Taote, and went around in circles. This task was returned to Taobao through Taofactory.
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