Unravel the complexities of the ecommerce universe as we sit down with Stefan Wenzel, veteran leader from eBay Germany, Otto Netherlands, and McLaren Automotive. This episode holds a wealth of insights, from understanding Otto's metamorphosis into a leading marketplace to examining the undercurrents that differentiate established goliaths like Amazon and eBay from emerging powerhouses Temu and SHEIN. Stefan's seasoned perspective guides us through the convoluted terrain of marketplace dynamics, acquisition strategies, and customer experience nuances that only a true expert can decode.
The swift ascent of SHEIN and Temu in western markets is dissected, revealing how these juggernauts are attempting to overcome the classic chicken-and-egg marketplace conundrum through futuristic logistical and manufacturing strategies. Oh, and ads. Lots of ads.
Unravel the complexities of the ecommerce universe as we sit down with Stefan Wenzel, veteran leader from eBay Germany, Otto Netherlands, and McLaren Automotive. This episode holds a wealth of insights, from understanding Otto's metamorphosis into a leading marketplace to examining the undercurrents that differentiate established goliaths like Amazon and eBay from emerging powerhouses Temu and SHEIN. Stefan's seasoned perspective guides us through the convoluted terrain of marketplace dynamics, acquisition strategies, and customer experience nuances that only a true expert can decode.
The swift ascent of SHEIN and Temu in western markets is dissected, revealing how these juggernauts are attempting to overcome the classic chicken-and-egg marketplace conundrum through futuristic logistical and manufacturing strategies. Oh, and ads. Lots of ads.
Welcome to Growing Ecommerce. I'm your host, mike Ryan of Smarter Ecommerce, also known as Mech. Today I'm joined by Stefan Wenzel. He is co-CEO of OnQuality Group, which connects brands with marketplaces. His resume includes Managing Director at eBay Germany. Managing Director at Otto Netherlands by the way, otto group clears 16 billion euros in revenue across 100 companies worldwide. He ran e-commerce and direct to consumer at the legendary racing and automotive manufacturer McLaren.
Speaker 1:We talk about all that, but today, for better or worse, we take specific aim at HEMU and HSHIN. These companies are, if I may say so, loud but mysterious. So if you want to understand what's really going on at HSHIN and HEMU, how they really operate, keep listening. We discuss their acquisition models, their logistics and the user experience, and I learned a ton from Stefan. Remember, if you enjoy this podcast, please leave a review and share it with a friend, a coworker or on social media. We really appreciate it. All right, there's a lot here. Let's get into it. So, stefan, thanks so much for joining me this morning. Thanks for the invite, mike. Nice, absolutely. Why don't you go to start here? Tell us about yourself. What are your skills? What seems interesting? Sure.
Speaker 2:So, yeah, I'm in the digital commerce space for literally 25 years, which means I at least from a German perspective started pretty much straight from the get-go. So overall seasoned general manager, if you will, in digital and commerce. Before I joined the digital space, I've been with the German Air Force for eight years. I've been an officer at the Air Force, which is an interesting start, but then, ever since digital and commerce is the field, and always with pretty broad end-to-end scope, but nevertheless with a passion for go-to markers. So the front of the house is where my main passion is, but I've always been responsible for end-to-end e-commerce and slash multi-channel, omnichannel businesses.
Speaker 1:Yeah, I mean there's just kind of a really, really impressive list of companies on your resume. You've been at McLaren Auto, eBay, Tom Taylor and, by the way, hold on real quick.
Speaker 2:What was your role at eBay, again by the way I started to be responsible for the fashion vertical on for eBay Germany, coupled with being the management director of Brands for Friends, which back then was Germany's largest flash sales shopping club company, which eBay acquired. And then my role was to run this as an MD, but also look after the fashion vertical on eBayde and seek synergies between the two businesses. And then afterwards I was asked to lead the entire German business.
Speaker 1:So VP Germany Okay, and I just think it's such an interesting blend here because, mclaren, I'd love to hear what exactly was going on there. I think it was more on the merchant-heist side, right yeah?
Speaker 1:I didn't fit in the car, so and also let me just frame that quick for some of our internet, because in Germany it needs no introduction. But I don't know, I think a fair kind of short cut, mental shortcut to this for people being to call it the Amazon of Germany, maybe. Oh, okay, now I want to hear your take on that because I see you smiling.
Speaker 2:I'm sure the communications department loves to hear that. Yeah, I mean Auto. The Auto Group is a huge retail and services and even finance company. I mean our own logistics solution on financing and debt collecting activities, but also omni-channel, multi-channel retail powerhouse, if you will. Total of I don't know what is it our 20 odd companies spread around the globe, a lot of retail brands, credit and barrel free-man's. I mean they're companies part of the group that are not visibly associated, but it's a huge group of companies within the. I mean historically from the mail order, distant selling space but grew into being obviously focusing on e-commerce. Slash multi-channel, omni-channel, if you will. Yeah.
Speaker 1:Yeah, I mean here he described it like that. I think the mental shortcut is a bit lazy Saw side with Auto's comms department on this one. But I mean, I think there are quite a few businesses in Germany that grew out of that mail order branch into e-commerce. I think that was like a pass for a few of the large companies.
Speaker 2:Yeah, I mean Germany was historically a very strong mail order, I mean back into the 18s some something, yeah, I mean 1800 something, the first mail order catalog was launched down here. I mean it's what we liked, at least for a long period of time. And of course, some said or think that mail order is somewhat, you know, kind of a groundwork that was easy to apply to e-commerce, which in fact is not true. I mean, there are similarities because you ship parcels but that's about it, Everything before the parcel goes out of the warehouse.
Speaker 2:I think there was a huge difference and that's why Auto is more or less the only incumbent of that mail order era, at least in Germany, that made it through I mean all others when bust were removed from the market because they just didn't manage the transition, because e-commerce in fact is a lot different to what the you know, paper based mail order colleagues actually did. But yeah, they seem to manage, have managed the transition. And Autode, which is, you know, just one brand out of the Auto groups, you know group of companies, Autode is the number three, I think, in the German market with regards to their marketplaces business. They even evolved from a retail concept into being a marketplace which most of the large ones did or are doing, and they, I think, are now number three marketplace in Germany, behind Amazon and eBay.
Speaker 1:Yeah, and maybe it's that kind of marketplace side that gets I don't know for what just marketplaces are so in right now. But yeah, so that's quite interesting because you've got the retail marketplace side and that consumer to consumer marketplace with eBay and a couple of brands. So maybe you could just walk us through some highlights and low lights from that career.
Speaker 2:Yeah, I mean when I joined e-commerce space in 1999, I mean, everything was new to most of the players. And back then I had the first assignment, which was way larger than I should have taken. I mean that was literally well punching above my weight. And I was assigned to kickoff, launch and scale the direct to consumer e-commerce channel for a fashion brand called Maxx. And I mean, if you have a chance, you know, young at young at age, to be responsible for the introduction of such a complete new business model within an existing brand I mean that was Maxx back then was kind of a second, you know, to Esprit fashion. So mid market, mid segment, you know fashion brand double digit growth, I mean the heydays, I think it was close to a billion in top line. So it was substantial for, you know, for a single brand, mono label brand, if you will, and to be asked to set something like this up at a point in time where this was really innovative or new to everybody, I mean it was great. And this was where, basically, you started to learn. You know the hard way and you know by, just you know running into, you know real life experience, no theory involved, zero customers, bring your own pen and we kicked this off out of an offsite, you know office here in Hamburg. Later on migrated the team to the headquarters in Amsterdam through responsibility to be, you know, head of you know all home shopping D2C, b2b across Europe. It's great.
Speaker 2:Moved on to McLaren. I mean what a prime brand, what an experience to be asked to build up and scale their D2C merchandise business. I had the pleasure to kick off the Lewis Hamilton fan club. I mean. I joined in winter 2006. It was prior to his very first season. We had lunch together, he was the apprentice and a couple of months later he was kicking, kicking the back of then reigning world champion, fernando Alonso. I mean, it was all blood, sweat, tears, the magic, I mean to be in that, you know, to be asked to do something like this in such a period of time for McLaren where they were really gaining momentum and we were able to leverage this whole, let's say, drive.
Speaker 2:Then, commercially, I mean fantastic, fantastic. I had no interest in Formula 1. I'm not a petrolhead by any stretch, but brand is kind of always what intrigued me? I mean I'm a label kid myself. I loved brands, I mean since I mean for as much, for as long as I can think I was always fascinated by brands, loved to engage with brands and and I mean that started to be somewhat a golden thread in my career and McLaren definitely a showcase for an ever-evolving brand, because imagine they're changing title sponsors every other year and then the brand somewhat changes entirely, but not fully. It's like I mean to see this unfold back then with the title sponsor being Vodafone. They just came out of the West Cigarettes era and moved into Vodafone. I mean from silver black into a Vodafone bright orange. I mean to see the transformation of a brand and then see it kick in also commercially being applied and then leveraged is always fascinating.
Speaker 2:And the last example in terms of intriguing experience, or great experience in fact, was with the auto group, a small subsidiary in the Netherlands struggling in the transition from mail order to e-commerce. So I got asked I mean they asked me whether you know I would be willing to help to turn this around. And and of course, very difficult. I mean culturally difficult, from catalog to pure online. Commercially difficult.
Speaker 2:I mean auto as a brand in the Netherlands. I mean even the name is a challenge, right, and the image of Germans outside Germany isn't the strongest as you may imagine. So I mean a lot of good reasons why that wasn't a walk in the park, but we managed to do that and just changed the way, you know, the company went to market, the way we operated the business, the way we added traction small subsidiary in the you know in offsite somewhere in the Netherlands with a strong headquarters in Hamburg I mean all that, also political stuff we managed to work through and get more traction. I mean, looking back, this is all great, but every assignment had, of course, great learnings and upsides in it, but not only upsides. I mean obviously it's always a bag full of challenges that comes with it as well.
Speaker 1:Yeah, I mean thanks for sharing those stories. I love hearing about these, this kind of brand evolution and McLaren and because, yeah, you know, you're just in the end it's I don't want to say tinkering with the brand, but it introduces this kind of friction and maybe a burden to the mental availability that a brand should kind of have. And then that recognition I just, you know, I thought I was someone who was, who is more on the brand agnostic side. That's what I thought. And then when I moved here to Europe, I realized that that wasn't true at all, because I suddenly felt like a cat without whiskers or something Like. I had this sixth sense that I wasn't aware of. You have this whole mental vocabulary of brands and you know it's hard for me to go and buy products and I just was missing this whole frame of reference and I gained a lot of respect for the power and importance of brands when I moved here and so, yeah, I can imagine that poses challenge on such a dynamic brand like McLaren.
Speaker 2:Yeah, absolutely. But to your point, I think, on average, companies underestimate the importance of being a brand and some wouldn't even call themselves a brand. I mean, especially in retail, I think, at least from a German perspective, I would say the majority of retailers wouldn't look at themselves as a brand, because they call themselves retailer and they sell other people's brands and you know brands is what they do. We do retail, and I think that's a huge misconception because at the end of the day, the brands that a retailer is selling is content, if you will, and of course they have their own brand image, and you know, and then hopefully they have a strong halo. But if they de-list you, if they decide to not sell to you anymore, what's left? If you are just a table at a location or an online shop with product lists that are all of a sudden empty, that's not good. So I would urge everybody to really understand that brand meaning and the power of meaning and relevance in consumer minds. That this is not just very healthy from you know, an SEO, organic traffic point of view, retention point of view, but it is literally, I think, the life insurance and you know the recipe for independence from, ultimately, you know, single brands or single suppliers. It makes you independent from third parties and that's no different to, you know, between a retailer and a brand. Retailers should think a lot more like brands do.
Speaker 2:Yeah, and McLaren was just, you know, a fascinating to see and you know, I remember, you know, walking through this building and I mean it's worth checking out on YouTube McLaren Technology Center. I mean a building, you know, designed by Sir Norman Foster. I mean that whole experience of that so-called office which at the same time, is the home base of the F1 team and later on, also the the in quotation marks factory. I mean it looks more like I don't know surgery, I mean like a hospital, but I mean that the factory for the prestige road cars, the high end sports cars that they started to build back then.
Speaker 2:I mean to see this and the attitude that came with it and the way this was also important for the identification of the people, for the you know, self-esteem. I mean it did so many things on so many levels. And then you enter a building I don't know over here, even from brands, and you just see the headquarters and you just know it's not a brand. I mean this is, show me the office. Show me the way you put yourself together. You know behind the curtain and I have a good sense of whether you are a brand or whether you're just faking a brand to the consumers.
Speaker 1:Yeah, point points well taken. And particularly, yeah, you're right about retailers. A lot of them, they just don't have that interest. It's hard, it's hard work building a brand. You're not going to see that immediate return and I think a lot of retailers do get sucked into just these, these very immediate feedback loops that you see with performance marketing channels.
Speaker 1:And you know it all comes back to that point where you said independence, because you end up you know there's the yeah, how your relationship is with your vendors and the kind of situations you can find yourself in there, because you know vendors are going to have expectations of you, what kind of volume you're doing stuff like that and this will affect you or price you and what's going to affect your margin and so on. But also on that channel side, there are retailers that are 80% of their revenue is dependent on performance marketing and it's because they don't have a brand and they evaporate into nothing without that paid acquisition and, by the way, I'm somebody who works in paid acquisition. But I just think. I think we need to think sometimes a little bigger than that I mean there's nothing wrong with paid acquisition.
Speaker 2:In fact, I mean it's inevitable that you need to pay to acquire new customers, but you need to understand that the value lies within the existing customers because you want, you know, a digression of marketing costs in consecutive orders. So I mean the first order, the acquisition order, is what you pay for and then, ideally, you know, you create a long relationship and you foster, you know, purchasing behavior on the back of this initial acquisition. That drives your margin and hence the lifetime, and you know the contribution margin from that lifetime relationship that you have with the acquired customer. But that's the theory and everybody will agree to this. But the reality tends to be a lot different because, as you say, just don't understand how to get this, you know, existing customer game to work. Neither do they have I mean most likely they neither have a clear data model nor the tools and the understanding what CRM actually is. They think one too many newsletters is CRM. I mean newsletters are even a synonym for CRM and some of the companies, which is hilarious. But that's where, of course, a huge lever is.
Speaker 2:With regards to profitability, I mean you know acquiring traffic through paid traffic for acquisition is, I would say you should be, you know, minimizing this to the degree possible and just make sure that the cohorts you bring into the company are healthy and big enough to get that CRM flywheel in motion. It's a form of art. And, of course, organic traffic and you know, purchase reap rates. That all gets triggered and supported by great experiences, by relevancy. You know, by doing a good job towards your consumer, acquisition is relatively easy. You just need a budget. But CRM is means you have to be able to deliver meaning and relevance. It's a lot harder, but that's where I think success and failure ultimately is determined.
Speaker 1:Perfectly stated, and I'm going to use this as a lightly awkward transition to well, because I'm curious on the back of everything you just said, there's a company that, for better or worse, has occupied a lot of attention lately, also from both of us. That company is Emu, or Emu as we say in the German speaking area. But yeah, I mean, as we're recording this, the Super Bowl just happened and actually I think we'll get a quick turnaround on this episode. But the Super Bowl just happened and and Timu had, I think, like five ads at the Super Bowl. They're spending estimates from Goldman Sachs and JP Morgan, the first lately but they're probably spending on the order of three billion US dollars just in the US, not globally, and that's on. Yeah, mostly meta ads, google ads, and I'm just, I'm just bewildered by this strange company. So maybe you could tell us what's going on with Timu. How do you see what's happening to you?
Speaker 2:Yeah, indeed, I mean at least within our bubble and I think more and more even outside our bubble. This is, this is a hot topic and it kind of started with Sheehan and we can discuss this in a moment. But I mean Sheehan is another, let's say, chinese originated playbook under the headline of consumer to manufacturer, if you will. I mean that's kind of how this started to emerge. But Timu is Shanghai Bay subsidiary of PDD. Pdd is more known for their biggest asset, pinduudu, which is obviously a huge success 30 ish billion in US dollar revenue in China, 140 billion in, you know, market cap. I mean it's a strong playbook. They outperform now, in terms of market value, even Alibaba. So it's a serious parent company. And that parent company, pdd, kicked in or kicked off Timu as a non-Chinese offering. Then they started in the US in 2022, and then continued their expansion into Europe only in April of last year, so April 2023, they went outside, then the US and ever since, I mean, this is this is a playbook that unfolds rapidly and all the numbers that you see and you never know what's true. I mean obviously everybody's estimating. So I think everything that you read, you have to take it, you know, with a grain of salt, but generally speaking, I mean three to five billion in advertising spend is mind blowing.
Speaker 2:They have an adoption. I think there was a data point, I think even in your report, I'm not sure but 20% of US, you know citizens placed an order only in September. 20% they just had a study a couple of weeks ago in Germany that 26% of all Germans have tried Timu over the last six months. They have traffic on the level of Walmart by now. So it's 500-ish million per month on traffic. Hundreds of millions of or nearly 100 million of active app users, which is three digit, four digit growth. I mean, whatever you look at, it's like Jesus.
Speaker 2:This is really really crazy in terms of I mean, imagine, from early 23 until today, you know 25, 26% of adoption or at least one time usage in a large, you know market like Germany. They are number four already in the German marketplaces seen. So Amazon, ebay, auto, and then number four is already Timu after such a short period of time, huge investment in marketing, but not only that. I mean obviously they do a lot of things slightly different to what, you know, the Amazons and and the e-bass of the of this world did so far, although the comparison isn't right. We'll talk about, maybe wish and and other you know more comparable playbooks, but this is absolutely a player. Sheen and Timu are at least two players that came along over the last one to two years Sheen slightly longer in the market 2008 they launched, but both entered the stage big time, are fighting each other, throwing big buckets of of advertising dollars around, but they also break patterns of Retail as we knew it or e-commerce as we knew it, which is, of course, something everybody should look at.
Speaker 1:Yeah, that's it. That's a great overview and intro and intro to to this company and it's it really is astonishing. I mean because they it's like they just turned on a switch. You know the brand didn't exist if you can call it a brand the company didn't exist and Like, say what you will about, about sheen, they like to remind people that they've been around for something like ten years and then they got into this scaling mode and kind of redefining Fast fashion. We can maybe talk about that in a minute again with this, as you mentioned, c to M model, but but team, yeah, okay, it's, it's, it's on the back of PDD, but but it's, it's just mind-blowing some market entry like nothing I'm aware of. In my, in my limited knowledge of Commercial history, I've never really seen or heard of something like this. It's because you know, there's not like a zero to 60 or zero to 100 kilometers per hour. It's more like a rocket, like everyone says. Oh, it's taking off like a rocket. This is really it. It's just it's a vertical ascent, it's insane, yeah.
Speaker 2:I mean the. I mean see the M is more associated to sheen and I'll explain a moment what why that is. I mean Timu started as a marketplace from the get-go and different to sheen, who started with focus on fashion. Timu, out of the gate, basically Started as a multi category playbook, not as broad as Amazon, but but relatively broad, so is this is multi category play. I mean and, and, and. The key Success, or one of the key success factors definitely, is that I mean any.
Speaker 2:Any marketplace Needs liquidity, both on the demand and the supply and the supply side, for So-called network effects to kick in. And the network effect means that from a user point of view or all that you know, the the law of physics are, the more usage there is, the more sorry. The more users there are, the more value usage gets. So that's kind of, you know, a self multiplying Mechanism, that that if a network is successful, that is the underlying, let's say, a law of physics, that that is this that is applied. Now, how do you get this? This is the chicken and egg problem. So typically a marketplace either has customers or suppliers, and if you lack one of the two, then it is difficult. Now, what they did is because of their huge presence in China through Pinduodoo, which I mean, just to get a sense for scale, around 730 million active buyers they already had or have on the Pinduodoo site. So if you, if you facilitate supply for 700, nearly 750 million Active buyers in China, you do have the according supply base. Now what they did is they entered that supply base or the leverage part of that supply base For Timu. So from a network effect point of view, they had a head start by making sure that they already have a very vibrant and and liquid supply base and Through that they started to give access to very small, small and medium-sized suppliers that Alibaba and and the likes Navigated for. So those SMB suppliers Attracted through the Pinduodoo, let's say, momentum, they now got access to international business outside China as well.
Speaker 2:So and the deal is use you, you manufacturer, you yeah, you seller, you sell to our consumers at wholesale value. So you basically provide the same, the same prices that normally a reseller would get. So you tell to end consumers at wholesale price, and Timu Takes care of the whole logistics After the supplier did send it the first mile. So it within China they have a warehouse where they basically collect those Orders from the factories and then they do the whole logistics trick. You know, they combine volumes, they do the shipping into, you know, the various countries. By the way, they start to open logistics in countries like the US and Europe and regions like Europe as well. Yeah, but that's, I think, a major trick and a huge difference to everybody else Leveraging Pinduodoo supplier base, smb suppliers getting access to international buyers.
Speaker 2:The deal is, you see, you sell, our sell at wholesale price, which makes the pricing super aggressive and attractive to end consumers in, you know, internationally. And how does that work? How does the economics work? Well, because Timu takes care of the logistics after the first mile, so they take over after the first stop and then they optimize everything else and that gives give us international Buyers, so people in the US, people in Europe, consumers, access to Ridiculous pricing. I mean, if you check out the website, the or the app, I mean sometimes you think there must be an error. So I mean, is price level is Half or a third of what? Even Chinese cellars on Amazon, you know, sell it for and and, and this is all possible Because of what I, what I just explained. So this is, at least I think, one of the key levers that people tend to oversee.
Speaker 1:Yeah, I like that comparison to kind of the physics of this, because I always think of marketplaces as kind of like a fusion reaction when you know you need a lot of Heat and pressure to to generate that, that fusion. But then you know, and this is critical mass, once you've got that critical mass, though, ridiculous amount of energy is released and and then it really is this kind of engineering challenge or physics challenge. And you know they've got this kind of glowing hot core that they're taking out of China and just Dropping into this ocean of demand over here and and and then they're just trying to concentrate that with all this Advertising pressure to stimulate that demand. It's, it's just so fascinating. I wasn't aware of this. You know, you always hear about kind of like the last mile challenge or and People caring for the last mile and logistics, but that's quite interesting that you know there's this first mile thing and then they, they follow all the way through. I just want, I just want to call a couple of observations that I Find it again fascinating about this company like, for one thing, a behavior that I think to me it just somehow exemplifies what they're about. They've got these slower windows because they're shipping this stuff from, from China that, as you said, they're starting to build up some local, some local kind of capacity, but this stuff is basically coming from China and I think a typical delivery is like I think they're talking about seven to fourteen days, basically, yeah, but what we saw is that there was kind of an expectation Okay, team was advertising like crazy, crazy, like crazy. And we're coming up on Christmas. This was at the end of 2023. They've missed it. They've missed the holiday at a certain point because their shipping windows are too long and stuff's not gonna arrive in Christmas anymore and the rational thing to do you, you might think, would be reduce your investment. But they, because the conversion rates they reportedly or by estimates, already have very low conversion rates compared to a company like Amazon in these advertisements, but they, they just doubled down. They didn't slow down for a minute. I think you know the cost for them of slowing down or of changing anything, and it's just a different philosophy. They just kept spending.
Speaker 1:And and another thing that I find interesting you know there is nothing organic here. Organic is too slow. I mean, there's different kinds. It depends how you want to find organic, but if we're talking about like, for example, their presence in Google search. It's 100% paid. Basically, I can get this data from Google and we see that the ratio of their paid ads To their organic free ads Replacements is it's greater than a hundred to one. It's so it's at least a hundred to one. We don't know what it is because the report max is out there and this is very different.
Speaker 1:But you'll see, let's say Amazon, I have to look, but they're like 14 to one. Let's say auto might be at I don't know, 10 to one, up to maybe 20 to one. And then there's Timu out there on a limb with a hundred to one. And yet, you know, take I'll bring out another German reference here to the German market so Lando, absolutely massive retailer and marketplace specializing in fashion here in Europe. Their home market, their home field is Germany and Timu has more visibility than them in Google and and it's none of it is organic, it's just, it's just astounding what they're doing here and I think it's exactly it's in service of just trying to. It's as bad that they can make those physics work, I mean obviously.
Speaker 2:I mean it's it's land grab momentum and and they, I think, scared the heck out of out of the even Amazons of this world already. Because I mean, we'll talk about you know how to also look at this. I mean, is there a risk? I would say yeah. I mean it's a proven winner. I would say no. But but at the moment, who cares? I mean, at least they change dynamics, they change the marketplace, they change consumer perception and behavior and they eat revenue away from others. And you know, consumers don't care whether you're making a profit on an order or not. They place the order with you and not with Amazon or not with with Zalando. I mean it's like Definitely there. And they even eating into sea, to sea. You know, you know people. Why should I buy you stuff if I get the new stuff for even you know, a few lower prices, the strength from? So there's a lot of collateral damage or effects, if you will, on all kind of players and models. But of course you're right, I mean, if, if they cannot, they show repeat orders and unit economics to work, this will be a very expensive exercise and of course you would assume at some point even PDD's, you know funds would start to dry out if that wouldn't change. For now they don't care and apparently they.
Speaker 2:I think there is also there are pockets of profitability already. I mean, you never know what's true or what's not, but they seem to manage the average order value quite nicely Because and we should talk about some of the UX stuff as well, the gamification piece but apparently they they are able to to drive up number of pieces per order that they compensate for the low average selling price Through pieces per order. Hence, the average order value is actually quite healthy For a business with with such low prices. And because it's so cheap, people tend to not return. It's like, okay, who cares? Yeah, I mean $3 for a t-shirt. I mean I'm not going to the post office to return this. In fact they may even ask you to throw it away instead of sending it back anyway. But so partly any returns, relatively high average order values because they pump up the pieces per order and apparently they even managed to get you know existing customers to come back more often. I don't know if this holds true, but there is a data point from September to, in comparison to October 23, and the the relation of Daily active uses to monthly active use apparently improve from 9 to 20 percent. That's a massive improvement on Recurring activity.
Speaker 2:Now, if that was true, it would show that people actually appreciated the experience more than you and I may think, and if that was true, it would also indicate that there is a potential unit economics playbook starting to unfold. I'm skeptical, I'm totally honest. I'm skeptical because bad buyer experience is, at the end of the day, where this all may fall short, because it doesn't matter how cheap it is, if it creates skin energy, if the battery pack explodes, if stuff is just awful, wrong, defect, whatever. The bad buyer experience kills any model, no matter how cheap it is. But that's still not clear whether it's actually true what I'm saying. It could well be that the bad buyer experience is something that they get under control, that it is in fact not a problem, and then this would start to move into a unit economics friendly model. Just imagine that would happen, dear Amazon.
Speaker 1:Yeah, I mean, and I think Amazon they've kind of set this up to be possible because I think Timu would be utterly rejected by Western markets. I don't know, I'm just going to say five years ago that that share of Chinese sellers on Amazon has gotten higher and higher and higher. What is it?
Speaker 2:60% or something. So it's already a Chinese seller dominated platform as well.
Speaker 1:Yeah, absolutely, and I think people have just they've gotten familiar with the quality, they've just wrapped their heads around this, they've kind of made peace with it and now it's more possible for something like Timu to occur. And it's sort of an opposite playbook that Timu has run into Amazon, because Amazon at least historically they started out with Western sellers and then they gradually brought on more and more Chinese sellers into the marketplace. It's a little different when they launch in countries here in Europe that those Chinese sellers are already there and often they'll kind of seed with a lot of Chinese sellers, these new European or relatively new, like Netherlands, for example, or Sweden. That's how it played out there. But at point being, it's sort of opposite. With Timu they're started with 100% Chinese sellers and now they're looking at onboarding Western sellers. And I think that this I'm wondering if you think that Western sellers will take up this offer, but I think this could be really important to the next phase of that market.
Speaker 2:Yeah, I mean, I think the interesting piece here is and I said it in a few articles already two or three years ago the problem with existing marketplaces, at least over here, is most of them started as retailers. I mean, ebay is the only exception, but Amazon, otto Salando, about you they all started as retailers and then they added a marketplaces component to their model for obvious reasons, and that started to scale nicely and it has, I mean, a larger share for some of those players already than their own retail business. Having said that, it's still. Those are still companies that are, in essence, very retail and hence consumer focused.
Speaker 2:Now Timu, for example, came along from the opposite direction. So they are a, let's say, seller and supply centered playbook by giving SMB suppliers access to international audiences, by making sure that they have the same income as before when they did wholesale, and then any discount activity that Timu puts on top of it is at the expense of Timu, so the seller doesn't even need to worry about squeezing further profits by through discount actions and promotions and sort of thing. So I mean this is, if you think about it, this is a very I wouldn't call it it's not center friendly. I mean they're not, you know, then at the end, they may not care at all, but it's still a seller, a more seller centric approach, because they start to look at supply and what sellers do. I need to actually develop a proposition for consumers. That is absolutely killing it, and this is what they achieve by thinking differently and looking at this through the eyes of supply, logistics and the seller base to present an offering to consumers that has been so far not met by anyone.
Speaker 2:And Amazon, and Amazon sells the same products for twice the price. Because of the way that they integrate those sellers, it's a completely different relationship that Timu started to build out and I'm very curious to what extent a European or Western, let's say, manufacturer slash sellers. To what extent they will adopt At the end of the day, if you look at it through their eyes, if you get the same buck than before, so you get your normal wholesale margin and then you ship it to a warehouse near you and then everything else is taken care of by Timu and any discount that they give is at their expense. And you had, you did, your margin and you get high volume and good payment terms. What's not to like about it?
Speaker 1:That's a good point. I'm wondering and it's also about, yeah, that Timu really is this pure marketplace. It's true those are rather rare enough, but I'm wondering if we'll see, like you know, there's Amazon basics. If you're searching for batteries or a USB cable or something, you'll see the Amazon basics and their other brands. But I'm just wondering if we're going to see Timu basics rolling out one time. Let's see. I think the temptation must be there. But I don't want to just talk about Timu, let's talk about Xi'an a bit too. Hold on, I've got one real quick question. Why didn't this work for AliExpress? Because Alibaba I see this as similar. Alibaba is a massively successful Chinese e-commerce company. They tried to localize into some Western markets and they never took off. Is it just a matter of budget, or why wouldn't it just work for AliExpress or Wish?
Speaker 2:They all look the same but are very different. I would say the most comparable maybe is AliExpress, but even they are very different, especially with regards to that supplier base, that playbook, as I explained, of going into SMB, hence have very aggressive pricing and then give those people access to volume and end consumers with no logistical hassle. That's nothing AliExpress is, at least at the moment, capable of doing. Neither ever did they. It's a more professionalized SMB sorry, larger enterprise kind of supplier playbook that they have with different cost structure behind it. I think there is a difference in that, let's say, logistic supply playbook. When you look at Wish, they never had any integration. That was basically a curation on top of AliExpress, if you will. Those were smart guys from the US. They weren't even in China, they just tried to curate basically Chinese listings that were already available.
Speaker 1:More or less a drop-tripping company.
Speaker 2:I think that wasn't integrated into the logistics and the supply base at all. Aliexpress is or Alibaba, but with a different cost structure and a different, let's say, model behind this. I think if you couple the supply and logistics approach that I explained and couple that with a deep and aggressive investment strategy in terms of buying market share being very overly present, I think the combination of those two make a big difference. Whether bad buyer experience, which is partially, I think, what Wish and partially also AliExpress, suffer from, whether bad buyer experience will be in Timu's way, or whether they will solve this quicker and more effectively is to be seen.
Speaker 2:Apparently, I even read an article that the quality that we see on Timu is so bad that they wouldn't even sell this in China, which is funny that we've reached a point that China produces rubbish especially for the Western markets, because that's what they seem to appreciate.
Speaker 2:Now, if that was true and you never know, as I said, it could be a funny anecdote somebody made up. But if that was true even then you can imagine how easy it is for Timu to change quality levels and say listen, you don't need to eat this stuff, we can serve you better quality. And I would not underestimate the ability of those companies to understand what's needed and if there is a business case to scale up quality or reduce delivery lead times, whatever moves the needle, I would be very conscious or I would make a bat that they are able to pull this off. I mean, for decades we over here have been laughing about Chinese cars and by now electronic vehicles from China outperform even on the Western markets, to some extent even the Western brands. So I mean, it may take a bit, but I think they have the mindset and the financing behind this to see this through and deliver changes that are needed.
Speaker 1:Well, thank you for those notes. I really clarified that a bit for me, so I appreciate it. Now let's talk about another business model, and I know I don't want to keep you too long. But let's talk about Xi'an, because there's a lot of, I would say, false equivalency between these two, like they're often kind of considered like twin siblings or something and kind of fighting each other. There's the lawsuits and so on, and it makes for good headlines. But let's get back, because everyone knows D2C and people know consumer to consumer marketplaces. So what is consumer to manufacturer? Because I know it's nothing new to you, but I think a lot of people don't know that much about the business model. How does Xi'an work?
Speaker 2:Yeah, so Xi'an is, if you will, an H&M on steroids or a Zara on steroids. So what they did is they've taken the idea of a fully vertically integrated approach, which means I am the brand, I own factories and I produce my own goods to get the full margin and then, basically through a direct-to-consumer model, ship it directly and sell it directly to my consumers. They've taken this model. The next step they don't own factories. What they did is they built up a huge network of factories which are directly integrated into Xi'an's ERP systems, into their back end, and what happens is Xi'an through, amongst other things, but also leveraging AI. Xi'an understands demand in the market, so they listen to social, they try to understand signals that they see in social media. In their own app, on their own products, they try to get those signals in with regards to what's hot designs, colors, shapes, forms, whatever it may be and then they take those signals and they create products to serve those signals within a few working days. So by cutting out the time needed to turn a demand signal into a product, to cut this down, by cutting it down to three to five working days imagine three to five working days from signal to a product that's going up onto their app to be sold in small batches yeah, just to test the water, but still a couple of working days to get it live. And once this shows success, they reorder larger volumes.
Speaker 2:But by changing that approach and listening to consumers and feeding the consumer signal directly into the manufacturers which they don't own but they interface with and manage very closely.
Speaker 2:This is called consumer to manufacturer, because the consumer sends the signal via Xi'an's platform straight into the manufacturers sites they can bid to basically take the production so they can apply to now build the product and then ship it as well. And this leads to quick turnover times, to rapid updates. Three, five, six thousand new items per day hit the platform and they all, if things go according to the plan, they all are closer to any demand out there. Then Zara or H&M could possibly do it. I mean, zara is great already in copying demands and being quick, but they have a huge retail base. So already through the level of physical retail involved, they have a competitive disadvantage because it takes a lot longer to get it shipped into stores and so forth, while Xi'an is already alive and kicking on their digital points of sale, especially their app. That's a huge, huge shift and basically the next level after DTC. This is C10.
Speaker 1:Yeah, thanks for that very lucid explanation. And yeah, I mean, I've heard numbers as high as 10,000 new items a day.
Speaker 2:Yeah, I mean the numbers fluctuate three, five, six, maybe 10 by now. Yeah, it's pretty mind blowing. And, by the way, the other end of sustainability on this sustainability scale, but that's a different subject.
Speaker 1:Yeah, for sure and worth mentioning.
Speaker 1:Yeah, the textiles.
Speaker 1:Textiles, I think, are like something like 10% of the carbon, of the carbon footprint, the global carbon footprint, but it's just stunning the experience as a consumer, as a user it is kind of intoxicating this endless variety and you do need to act fast.
Speaker 1:There's a lot of FOMO too, because there's I think people don't necessarily realize that there's this algorithm behind the scenes and maybe it'll get reordered in a larger batch of nuts, but people have the experience of putting something in our cart. They waited too long, it's sold out and it's never coming back. So I think it also it encourages impulse buys and, unlike Timu, which is just yeah, there is word of mouth mouth effect to a certain extent with Timu, but Sheehan has achieved this genuine kind of virality in social and maybe there's probably, I'm sure, paid influencers out there as well, but they have gotten this really effective word of mouth presence built up and you'll see that. You know, users are uploading a lot of their own photos and very detailed reviews and stuff like that and it's just this very engaged kind of user base, it strikes me.
Speaker 2:So yeah, I mean the Sheehan hashtag. Sheehan Hall, for example, gets, I mean literally, billions in reach and they have tens of thousands of micro influences that they work with and they get a commission for new customers only, which is quite smart. So it's not a commission on any sale, on every sale, it's for new customers only, which means natural momentum to not pay for any further orders but to get them hooked up into the app, download app, start to order, and then that's a commission, and only once. So the micro influencers get huge reach because those hashtags are so successful. And then they get a commission on new customers and, of course, they get, you know, goods free of charge, which obviously they love. Young people, you know, love that. So this is, this is a nice, you know it's not overly complicated, but it's a nice flywheel that they match to not only implement but also scale Big, big time. I mean they are, I think, still the number one brand on most social outlets. So they outperform even, you know, well-known brands like Gucci or Prada or whatever. I mean they outperform most all Nike. I mean they outperform them all in terms of, you know, virality, virality, and you know, you know, the hashtags being used. This is, this is pretty, pretty impressive.
Speaker 2:And just a last sentence on that UX piece the user experience of both Sheehan and Timo is irritating to at least the Western eye. But don't be fooled, this is not just, you know, a cultural clash. You know there is more to it. So one, one phenomenon is that the user experience is slightly overloading. So your brain is super busy. It means constantly something pops up. There is, you know, a game, you know it's something you need to move and click and and you get, you know, micro rewards with every other click. And you know free this, do this. So there's a, there is a cognitive overload, which which, which there is a research was was published a couple of weeks ago on this, so that that cognitive overload removes your negative emotions that you may have. So it you're so busy you can't even reflect how much you you may dislike it. That's number one.
Speaker 2:And then, because of all those small, you know benefits and and you know gifts that you're getting, the second phenomenon is that they, pretty early on in the process, triggered dopamine, you know, and this means that you start to become trigger happy. You want to place that order. So it's a psychological trick, if you will, and it looks. Yes, yeah, it looks very obvious when you, you know, when you, when you browse the app or or the, the, the shop, but it is, it is by design, making you feel delighted, making you, you know, want to place an order. That's why the average baskets are so high, because you add five more products than you rationally would have had. But you're completely on dopamine, which is that hormone that you know is, is the one that kicks in when we feel good, when we feel lucky, when we, you know, when we're trying to reward ourselves. And that's. Those are two, two mechanisms remove bad feelings, pick in dopamine, you know, to make you place orders very, very early on. These are two very different things.
Speaker 2:Towards to Western e-commerce, we do search engine optimization and conversion optimization. I mean, that's what we do all day. And then in the shop, we try to make sure that you don't lose we're not losing out the funnel. So it's a conversion optimization that we grew up with. They think about this very differently. They seek dopamine, they seek reward, they seek, basically, engagement and through that they drive more consumption than you rationally would have had placed. Is that a good thing? Different debate, but it's at least a phenomenon to be aware of.
Speaker 1:Yeah, I think I mean just these technologies. Really, they mentioned, like this, this kind of algorithmic selection and that very direct integration. Just it's mind blowing open up your ERP directly to a network of manufacturers. It's because let's pick on Zalando again very advanced and very dominant fashion marketplace in Europe and you know, I know I've looked at their. They've got a really huge data science team and they work really hard on pricing and recommendation engine and all kinds of of important topics. They're a data driven company, but there's something, there's some other characteristic at work with a company like Xi'an. I just feel like these are incredibly modern companies. They're futuristic companies in some ways and we might not like it.
Speaker 1:Also, these dopamine loops that you've mentioned. You know everyone saw the social dilemma. We learned about dopamine loops latest then, but to then, that's not just social media. This stuff is just being built in everywhere and it's almost like biologically hacking someone, because this, this appeals to deep seeded biases and ancient mechanisms in our brain and our bodies. I mean, yeah, it's almost there's a level where it's not resistible. That's why I tend to remind everyone.
Speaker 2:Over here in Germany, things are always on the darker side and the glass is half empty and we like to moan and complain. The first reaction in the marketplace, over here at least, was to complain this isn't right, they shouldn't be doing this and this is awful. And look at this and the taxes and the postal fees. And you know and of course, don't get me wrong there is a long list of things we have to discuss and also criticize with those players. By the way, not only with Tim Wun-Shin. I mean there is a lot to be criticized in a lot of companies around fashion especially. I mean there's a lot of stuff going wrong.
Speaker 2:The point is, as much as I appreciate criticism and I don't want to be seen as someone that doesn't reflect critically on this, we have to but at the same time, don't fail to identify important learnings, innovation that is transferable into a better context. So I would spend most of my energy not on the complaining piece but in fact, on what is in there that I can learn from. I can take and apply it in a more I don't know economically or environmentally sensible fashion. Do something good with the innovation that you can see.
Speaker 2:Don't stop at the level of complaining and pointing fingers at a new competitor. Learn from it and innovate and think of how can you differentiate towards what they do, because you will lose on price. Just get used to the feeling that they will dominate that entry price level on most categories. Just get used to that idea. Maybe I'm wrong and they won't Great, but if they do, what then? And you shouldn't be surprised by this question in a year or two from now you should start thinking about if, in a scenario that that could be true. So what's your differentiating innovation against companies that will outperform you on price, whatever you do? That's how I would look at this. Yeah.
Speaker 1:Well, I wanted to ask you a final lightning-around question. Imagine you're still at like Otto or eBay or Tom Taylor, and how would you think about these companies today? But I think you just brilliantly answered that and I think it's a great note to end on. I've also kept you too long, so I want to thank you for sharing your time, your intelligence, your experience with us. I really appreciate it. So, before I let you go, where can we find you? Any projects you want to plug, anything you want to shout out?
Speaker 2:Well, I mean I have a couple of things going on in parallel. So I support a company called OnQuality, so that's a leading integrator for brands that try to succeed on marketplaces and software and services and I'm co-CEO of that company. That keeps me busy for a good part of the day. And anybody who wants as a brand, who wants to scale Europe-wide 20 markets, 100 platforms, anybody who wants to enter that complex world and need support, of course, feel free to reach out. But besides that I'm also busy as a consultant and advisor to founders and C-level executives, navigating basically commerce strategies go to markets. That's something I'm always willing to be sparing people, helping to make sense of strategies, moving forward. And, last but not least, I'm a keynote speaker and a podcast host. So anybody fancying to book me as a speaker on the next event it's not just DTC or CTM, it's all things digital, what goes on in the space. I also appreciate basically anybody who wants to discuss the topic linked in is our friend. Reach out, delighted to continue conversations.
Speaker 1:Yeah Well, I think for everyone listening it's abundantly clear just the depth of experience and insight that you bring in Great person to have on your team, as a great ally to have as a consultant or, in any regard, as a keynote speaker. I'd love speaking with you. Thank you again, and we'll see you around on LinkedIn and elsewhere.
Speaker 2:Thanks, Mike have a good day.
Speaker 1:Thanks for listening to Growing Ecommerce, and if you enjoyed this podcast, please consider sharing it with coworkers, friends or within your professional network. We really appreciate it. This podcast is produced by Smarter Ecommerce, also known as SMEC. To learn more, visit Smarter-Ecommercecom.