US rides China's e-commerce wave

A grower of the Yakima Valley in Washington state, the largest supplier of cherries in the United States, relocates the hives from one orchard to another in order to keep up with the cherry bloom.
PHOTO: China Daily/Asia News Network

A California-based company is selling to China's vast middle class, the fastest-growing consumer segment in the world, through Alibaba.

In the process, it's helping Jack Ma, the chairman and founder of the e-commerce giant, to realise his pledge to create 1 million jobs in the US over five years, report Chang Jun in San Francisco and Linda Deng in Seattle

American small and medium-sized businesses such as retailers of cosmetics, apparel, maternal and baby products, and health supplements and even farmers are cashing in on the huge purchasing power of China's vast and fast-growing middle class through e-commerce while creating jobs for the Americans.

A prime example is 100 per cent Pure, a San Jose, California-based company with a 15,000-square-foot complex from which Chinese consumers can buy organic cosmetics and other beauty products directly through, e-commerce giant Alibaba's business-to-consumer or B2C platform.

Ric Kostick, founder and CEO of 100 per cent Pure, said that when he and his two business partners started their business, they were concerned that the hefty service fee they had to pay to brokers and middlemen for packaging and ingredients would impede their company's growth.

Then, in that same year, "I found a packaging store through browsing Alibaba and couldn't wait to share that with my partners," recalled Kostick.

"Why wouldn't we just go to this website and contact suppliers directly?"

They became adept at using Alibaba's search mechanism and rating system to find reputable suppliers worldwide without wasting time travelling or vetting vendors. "We can spend our time and money more wisely on developing our products and, ultimately, benefit our customers," said Kostick.

On June 20-21, Alibaba Group Holding Ltd will host a conference in Detroit to teach US businesses what Kostick has learned: How to sell to the company's 443 million customers in China on the world's biggest e-commerce site.

Ma's promise

It's a move by Alibaba chairman and founder Jack Ma to fulfil a promise he made to the US President-elect Donald Trump: Get 1 million small and medium-sized US businesses enrolled on his Alibaba online platforms to sell their products to China's growing middle class and create 1 million jobs in the US.

With 12 retail stores in the US and about 150 employees, 100 per cent Pure is a $20-million (S$27.9 million) wholesale business that sells about 600 different products worldwide.

Kostick said the next target market is China, where the company has a subsidiary in the city of Tianjin, about a one-hour drive from Beijing. He has hired a Chinese general manager to lead a 10-member team to launch sales through Tmall.

"We will ship from Portland (Oregon)," said Kostick, adding that the company initially will only offer top-selling products to Chinese consumers.

To continue to use Tmall's marketing channels and to take advantage of sale opportunities like 11.11 Singles Day shopping, 100 per cent Pure will be competing against local and international competitors, but Kostick said his company will succeed. "We did our solid market research, and noticed that China is surpassing Japan to become the second-largest spender in the cosmetics and beauty products sector," he said.

Stadium Goods, a retailer and marketplace in New York City founded in 2015, specializes in collectible sneakers and also has connected with Alibaba.

It started when a Chinese shopper walked into its Manhattan bricks-and-mortar store and paid $10,000 in cash for about 50 pairs of Nike Air Jordans to resell to basketball enthusiasts in China.

That purchase, together with several similar transactions made by visiting Chinese shoppers, gave co-founders John McPheters and Jed Stiller of Stadium Goods a clue as to just how strong the Chinese market might be.

Selling sneakers

Statistics show that basketball fans pump up annual sneaker sales in the US to approximately $1.2 billion and $6 billion worldwide. "Within China, there's such a desire to get these products that the path forward was very clear," McPheters, the CEO, said.

The duo decided in August 2016 to launch a flagship store on Alibaba's cross-border platform Tmall Global. They took advantage of Alibaba's annual 11.11 Global Shopping Festival in November, the world's largest online sale by transactions and trade volume.

They used a combination of coupons and gifts to attract Chinese consumers instead of relying solely on large discounts. The result was a spike in transactions that day.

McPheters acknowledges that entering the Chinese market via Tmall Global has helped drive growth: "Obviously, Alibaba was big for us. We've seen a big jump in sales from it."

Five months after the partnership, Stadium Goods announced that it had raised $4.6 million led by Forerunner Ventures and the Chernin Group, and will use part of the investment for international expansion, including the Chinese market.

Besides hiring two full-time and one part-time staffer in New York dedicated to online China sales, Stadium Goods said it is "in a position now where we can add as it grows."

Jennifer Kuperman, head of International Corporate Affairs at Alibaba, told China Daily in a recent interview that Ma's pledge to create 1 million jobs in the US is nothing but "conservative," based on what has the company has achieved already in China.

"If you think about the number of businesses on our platform, if they even hire one person to help with the demand from Chinese consumers, that gets you to a million jobs; so that's very simple. And we think it's realistic because we have seen 30 million direct and indirect jobs created from the success of our ecosystem in China," she said.

Alibaba will keep functioning as a gateway to China and continue to help American businesses of all sizes access the tremendous Chinese market, and especially meet the increasingly sophisticated needs of the growing middle class, she said.

"Whether they are big brands or small- or medium-sized businesses or farmers (in the US), we help them sell to the swelling population of middle class in China-300 million Chinese consumers now and a half billion five years from now-they are looking for quality international products especially in certain categories. And where are they looking for these international products? The United States is one of those markets," said Kuperman.

Cross-border e-commerce imports into China grew about 30 per cent to $182 billion (1.25 trillion yuan) in 2016 and will grow at a similar pace in 2017, said research firm iResearch.

3,700 categories

According to Chinese research firm CBN Data and Alibaba Group, Chinese consumers in 2016 can buy products on Tmall Global in 3,700 categories from big brands or retailers from 63 countries. Among the 14,500 brands now available on Tmall Global, 80 per cent are newcomers to China's market.

Best-selling are foreign cosmetics products and food. Milk powder, baby food and dietary supplements are some of the most popular items on Tmall Global.

Since 2014 when Alibaba initiated collaborations with the US Department of Agriculture and local farm produce organisations, Chinese consumers have been able to purchase directly through Tmall seasonal American fruits such as cherries and apples, and wild seafood caught from Alaska.

Keith Hu, director of international operations at Northwest Cherry Growers, an organisation that represents growers in Washington, Oregon, Utah, Montana and Idaho, said Chinese shoppers consumed about 10 per cent of the 200,000 metric tons of cherries from those states' in past years.

"China is the largest overseas market for the Northwest cherry industry and will continue to be a key market," he said.

Hu works with major supermarket chains and specially fruit chains in China to market cherries from his organisation, and he also teams with Tmall to promote the Northwest cherry brand.

China is also one of the top five export markets for Washington apples: It consumed roughly $30 million worth of Washington Red Delicious and Gala, two main varieties, between September 2015 and August 2016.

Growers, through an arrangement with the Washington Apple Commission and Alibaba, have launched e-commerce promotion for their apples.

"This past fall, they were able to show Tmall customers a Washington apple orchard and take them on a live tour of an apple-packing facility on the day before Singles Day," said Rebecca Lyons, international marketing director at the Washington Apple Commission.

She said that more than 62,000 consumers watched the live broadcast at 2 am China time on Nov 10, and more than 245,000 saw the video on the Tmall website during the promotion.

Chinese consumers are very quality-conscious and care about the origin and safety of their food, which makes the Tmall market a perfect fit for Washington apples, said Lyons.

Apples fit

Exports for the current season, which will end on Aug 30, are projected to increase by 25 per cent from last season.

"We anticipate that China will continue to be a major market for the 2017 Washington apple harvest season (Sept 1, 2017-Aug 31, 2018)," said Lyons.

Kostick of 100 per cent Pure echoed Kuperman's comments about creating jobs in the US.

"I need people to work here to manufacture the products. I need people to communicate with customers, to talk to Chinese factories. You also need to pay rent somewhere in the US, that creates jobs because someone has to build the building and hire people to work. The bigger the company grows, the bigger the responsibility it has for job creation."

McPheters saidss: "As they (Alibaba) look to bring on small businesses (in the US), that'll be a huge asset to drive their success."

In the US, Alibaba makes a very small minority investment in companies for one reason.

"We want to support innovation and entrepreneurship here and we want to learn," said Kuperman, adding that Alibaba is offering educational assistance to US companies to promote "the integrated shopping experience", which she said is in much better shape in China.

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