Why Xiaomi And NetEase Are Both Eyeing The Online Variety Store Sector?

(Chinese Version)

It’s very surprising that competition would appear between Xiaomi and NetEase, two very different companies from different industries. Xiaomi, one of the most successful phone makers in China, is selling beddings, and NetEase is selling slippers, socks and even patch panels and speakers.

Recently, Xiaomi rolled out an e-commerce platform named MiJiaYouPin, now available on App Store. MiJiaYouPin goes for a simple design, and it’s considered as Xiaomi’s Yanxuan by many as it resembles NetEase’s e-commerce platform Yanxuan.

Looking at the two apps’ product design, such as the simple UI design, products and SKU etc., it’s very apparent that they share a high level of similarities. Xiaomi advocates that to live well you have to have taste, saying that they are making the arts of everyday life. NetEase on the other hand wants you live a quality life that’s not that expensive.

TMTPost learned that MiJiaYouPin used to be a section of the MiHome app. MiHome is Xiaomi’s integrated platform of smart device control and e-commerce.

According to Xiaomi, the company broke down the unified e-commerce platform and made MiJiaYouPin to provide users with a more complete online shopping experience and more items to purchase.

At present, the e-commerce platform offers products ranging from appliances, necessities, clothing, smart hardware, kitchenware etc., many of which are Xiaomi’s own brand or brands in Xiaomi’s ecosystem chain. Besides that, the e-commerce platform also has third-party products that fit the voice of Xiaomi.

Unlike putting great emphasis on smart hardware in the past, MiJiaYouPin puts everyday items you could find in a Variety store on the very front page, which is very similar to NetEase’s Yanxuan. Yanxuan is now only one year old and Xiaomi is gradually working towards becoming China’s Muji.

Xiaomi is a renowned made-in-China tech company who started as a smartphone maker and NetEase is a comprehensive company that has set foot in gaming, e-commerce, education, music and even agriculture. Just how come these two companies are striving to set foot in the grocery sector now?

What charm does variety store business have?

In the earliest stage, Yanxuan only picked products from famous brands, and this often put Yanxuan in the same league with Muji. The label of China’s Muij has helped Yanxuan garnered a group of users. Muji took off in Japan for a reason, and Yanxuan became China’s Muji for a reason as well.

Consumption upgrade started earlier in Japan, and now it’s happening in China. This provides an opportunity for e-commerce players and local brands to find a new business alternative.

Consumption upgrade is not for everyone because there are already high-end consumption groups. These people don’t need an upgrade, they already living such life. Consumption upgrade for them would be things like China’s Hermès instead of China’s Muji. Therefore, it’s commonly accepted that the current consumption upgrade in China targets the middle class and millennials who are having more consumption power.

It’s worth noting that millennials are a generation that really pays attention to improving themselves.

Facing with a rather harsh job market, young people are pressured by the competition to learn as more as they can. That’s who content, or knowledge in this case, is able to cash in. Besides knowledge, millennials also highlight the values of their appearance. Thus, we have the ever-growing gym culture. The increasing demand of better life quality also makes young people more willing to rent apartments and pay for better appliances instead of pouring a great deal of money to buy a property. 

In Japan and developed western countries, it’s not unusual to see Variety stores like Muji on the street. Such Variety stores like Muji have in fact become a must-go destination for many when traveling to Japan. Besides Muji, Japan also has brands like AKOMEYA TOKYO and Flying Tiger etc.

Variety stores thrived in Japan for cultural reasons. In the west, people tend to DIY furniture, and therefore they prefer buying the materials themselves. But in China and Japan, we prefer already built items.

Such cultural factor also reflected in the difficulties IKEA had when entering the Japanese market. IKEA Japan’s director revealed that in 1974 the Japanese market was still considered closed from the perspective of retailing. “At that time, Japanese people were not ready to embrace our products as IKEA offered the products in parts and the customers had to DIY.”

In fact, grocery business first formed in the 70s. On one hand, the living space on average in Asia is not as large as that of the west, which makes people to prefer buying small items from the grocery. Customers grew fond of small items that don’t take up much space and storage items that help them save up space. On the other, these products are generally affordable. That said, consumers are more likely to buy them when they feel like it.

When we walk in the malls of first and second-tier cities in China, it’s easy to discover that clothing retail stores are often empty while Variety stores like Muji and MINISO are swarmed. However, China is a vast region and the economic state varies from place to place. It’s hard to compare the pair in terms of penetration rate.

In addition, young people in China are leaving hometown for career. The concept of traditional big family is gradually evolving to small family. People are less willing to get married, and durables consumption is becoming more personal.

When a group of people are experiencing consumption upgrade, the first demand that appears might be the upgrade of their lifestyle. They either equip themselves with more knowledge, or they crave a better living environment, which gives direct feedback. And Variety stores are a big market in this sense.

What makes clean and simple design the mainstream?

The consumption upgrade in Japan and China is being widely discussed by the general public and economists. A mainstream voice suggests that whether it’s looking from the social environment, GDP, population structure, or consumption pattern, China resembles the Japan in the 80s.

The consumption development of Japan can be divided into four phases. Consumption upgrade took place in the third phase, which was transforming from family-based consumption to personal consumption. At present, China is experiencing similar upgrade and also appears to have the characteristics of the fourth phase: going back to rational consumption, going from pursuing big brands to simple and local products. Muji for example, appeared in such phase.

Muji is famous for its label-free products, a business strategy that Xiaomi and Yanxuan are now following. Their products barely have any labels on them.

Yanxuan tells consumers that its products are manufactured by the same factories that produce big brands, meaning consumers can pay an affordable price for good quality products. It removes product labels to eliminate potential added value from the brand names. This conveys a message to the consumers: you are paying for the quality not the brand.

To begin with, simple design is the current mainstream aesthetics. Secondly, home products in the Variety stores are usually durable goods. Giving them simple and clean design can cater to most people, which gives them the opportunity to become bestsellers. Apart from that, simple and neat design can also lower the design cost to help expand the product category.

In the first Internet era, the mainstream business model had been cashing in through data flow. But the rise of Xiaomi proved many people that a manufacturer can also become a major player in the market by producing cost-effective products. As the potential of the Internet further squeezes out, more and more Internet companies are entering the manufacturing sector.

Xiaomi and NetEase are now the head-to-head rivals in this arena.

Xiaomi expanded from smart hardware to home goods while NetEase is going all the way around. When we start to see Xiaomi begin to sell bed sheets, we are also seeing NetEase selling speakers. Yanxuan now is one year old and has accumulated some experience in running its own brand after experimenting the ODM model.

NetEase is biggest card in hand is its user base of 900 million. In contrast to that, Xiaomi’s advantage lies in its supply chain resources garnered over years. Xiaomi doesn’t lack best-selling products, but its platform is lagging behind. NetEase has a strong platform, but it needs more popular products. Through its smartphone business, Xiaomi has already set up a brand name in the manufacturing sector. NetEase is trying to get rid of the Chinese Muji label and build its own voice for Yanxuan.

It’s hard to say which company has more advantages, but it’s fore sure they will have direct competition in the future. And in the future, the competition will get fiercer as more players are on their way.

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[The article is published and edited with authorization from the author @Xie Kangyu, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.

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