The Kaola marketplace operated by news portal NetEase produces more than $1 billion in sales in 2016.

A growing number of Chinese online shoppers are buying products from foreign brands from the same company that provides them with news.

The Kaola.com online shopping portal, which is based on the Chinese pronunciation of koala, from NetEase Inc., has become one of the fastest-growing websites where Chinese consumers can buy overseas goods. The site takes advantage of the Chinese government’s relaxed cross-border e-commerce policies that apply to consumers buying goods for personal use from retailers and brands in other countries.

Zhang Lei, CEO Kaola.com

Zhang Lei, CEO, Kaola.com

NetEase reported that sales from email, e-commerce and other businesses topped $1.16 billion in 2016. Kaola.com CEO Zhang Lei says e-commerce accounted for the largest share of that revenue, though she did not provide the exact breakdown. “Also we increased our sales very, very fast in the past several years,” she says.

To learn more about Kaola, Internet Retailer last week interviewed Zhang Lei. Here is an edited version of that conversation.

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Internet Retailer: Tell us about NetEase’s Kaola.com.

Zhang Lei: We have been thinking about e-commerce for a long time. NetEase has 800 million users and we know online retail is a good way to monetize these users.

Kaola’s Goal is to sell select, high-quality overseas goods to 150 million middle-class Chinese consumers through a direct-to-consumer e-commerce site. The government has also relaxed its trade policy [regarding online purchases from abroad]. All these factors led us to the decision to launch Kaola in 2014.

Internet Retailer: What is the difference between what you sell and what consumers can find on Alibaba’s marketplaces and JD.com?

Zhang Lei: First of all, we focus on high-end products. The biggest group of Chinese internet users are in their 30s, which is a golden time for retailers since they have the greatest spending power. The company that best serves these consumers in the next decade will become the king of the market.

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Also, while other players mainly sell through marketplaces, our strategy focuses on selling featured products directly to shoppers. This business model enables consumers to purchase products at better prices and to save time in making their selection.

We also are unique because NetEase has operated its news portal 163.com for about 20 years. Our news portal and other online businesses offer us a convenient and effective channel for marketing overseas products in China.

Internet Retailer: Why is Kaola growing so fast?

Zhang Lei: Our strategy is to address the pain points, both of consumers and of overseas brands or e-retailers.

One way we do that is by greatly reducing delivery time. Before, Chinese consumers often waited 15 days to 20 days after placing their orders from an overseas e-retailer [to receive delivery]. Now, our shipping only takes one to three days because we operate warehouses in several free-trade zones and in different overseas locations. (China has created free-trade zones in several cities where imported goods can be stored without going through customs, then sent through an expedited customs process when ordered by an online shopper). In 2018, we will start to use an automated warehouse covering 250,000 square meters (about 2.7 million square feet) to increase our logistics advantage.

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We also have sped up the payment process. In China, a large e-retailer often pays brands two or three months after the goods are sold. Knowing overseas companies want to reduce risk and improve their cash flow, we settle on the goods within seven days after our warehouses receive the products. We can do this because of our vast cash reserves: NetEase holds about 40 billion yuan ($5.79 billion) in cash.

Internet Retailer: How many brands do you sell now?

Zhang Lei: More than 3,000 brands, mainly from Japan, South Korea, Australia and the United States. There are many Japanese brands on our site currently.
Internet Retailer: How are U.S. brands selling?

Zhang Lei: U.S. brands entered China’s market very early, and many of them already operated their business before the rise of cross-border e-commerce. In contrast, beauty brands from South Korea and healthy food brands from Australia are more active in cross-border e-commerce as their categories face tighter regulations in China. (Goods purchased through cross-border e-commerce rules don’t have to meet the same regulations as those imported into China for sale in stores). In Australia, several companies focused on selling via cross-border e-commerce have doubled their business, while the performance of companies only focused on the domestic market is often sluggish.

Internet Retailer: Do you allow brands or retailers to operate a store on Kaola.com and sell directly into China?

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Zhang Lei: Yes. We have a marketplace section and we also recommend e-commerce service providers to those brands to support their digital operations in China.

Internet Retailer: How about small brands or companies? Can they be successful in China?

Zhang Lei: We also pay attention to promoting small and niche brands. Propolinse, a Japanese mouthwash brand, recently rocketed up its sales in China via our site. Now is a very good time for second-tier overseas brands to enter China because consumers have started to seek distinct and personalized products. I believe those small but unique brands will shine in China.

Internet Retailer: What is the best way for a brand to market when they just sell online in China?

Zhang Lei: I suggest brands shouldn’t spend on ads in the first three months. Instead, you need to first spend time studying Chinese consumers. For example, Chinese consumers, like other East Asian consumers, are used to purchasing facial masks with a sheet, while most Western brands only offer mask products that consumers rub on the face.

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After that, you can create several product listings and test the market response, using low-cost direct shipping to avoid maintaining a large inventory.

Once you know which SKUs are your popular products, you can participate in sales events such as Singles’ Day (an online shopping sales that takes place every Nov. 11) to test them in a campaign with more traffic. You can also increase your sales by spending on ads via other channels, such as shopping guide websites and live videos.

 

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