Little Red Book 2.0

Fan Bingbing: KOL on LRB

It is almost impossible to separate the Quotations from Chairman Mao from China’s Cultural Revolution, a period when revolt against bourgeois behaviour was taken to the extreme. Printed in 1964, the slim volume of aphorisms – also dubbed The Book of Red Treasures (or HongBaoShu) because of its red vinyl cover – was the sacred text of the Red Guards, student paramilitaries that took Mao’s personality cult to new depths.

Their theatrical gesture of holding the ‘little red book’ aloft was a feature of the period, and over a billion of the booklets were produced, making it the most printed item ever behind the Bible.

Roughly 50 years later and younger Chinese are falling in love with something called “the little red book” again. But rather than a catalogue of sayings about perpetual revolution, this version, called Xiaohongshu in Mandarin, is a bible for haitao, or cross-border shopping.

Netizens come to Xiaohongshu to exchange tips on buying foreign goods not yet accessible in China. The content on the platform supports a differentiated type of e-commerce that major tech investors are bullish about. Xiaohongshu completed a $300 million fundraising on May 31, also its fifth anniversary, which tripled its valuation to more than $3 billion. Alibaba led the round, with long-term backers Tencent, Zhen Fund, GGV Capital, GSR Ventures and Tiantu Capital all doubling down on the Shanghai-based start-up. New sponsors included Genesis Capital (founded by Tencent’s former head of investment Richard Peng Zhijian) and Adrian Cheng, boss of Hong Kong’s New World Development.

Xiaohongshu started out as a place where users filled out wishlists for fashion and beauty product shopping before their overseas trips. Since then it has morphed into e-commerce by signing deals with foreign brands to sell their goods. Rather than serving as a marketplace, it ships the orders directly to customers from its own warehouses in 29 countries, playing up a ‘unique selling point’ of only sourcing from abroad. The platform charges 15-20% to the brands to sell their products, Technode reports, and there are further fees for running sales campaigns or operating storefronts.

Targeting an initial public offering in two to three years, Xiaohongshu said the fresh funds would be put towards staff hires, machine learning infrastructure and growing its customer base.

A key attraction of Xiaohongshu is the demographic it represents. Monthly active users have tripled from a year ago to 30 million, of which over 80% belong to the generation born after the 1990s. This cohort comprises 16% of China’s population, according to consultancy McKinsey, but it will account for a fifth of consumption growth between now and 2030, more than any other demographic.

Founded by 33 year-olds Qu Fang and Mao Wenchao, Xiaohongshu has found much of its success among urban women who don’t mind spending a little more on premium products. The same demographic is a sweetspot for the user-generated content that underpins a community of customers who are passionate about fashion and shopping. “Sharing is an inherent trait in women. Those who buy things here are vocal opinion leaders, and many choose to promote our platform on a voluntary basis,” Qu told China Daily in an interview last year.

The same group is also susceptible to influencers like the actress Fan Bingbing. She and other key opinion leaders (KOLs) promote products on the platform. Fan began promoting products she liked but has since used the site to push her new Fanbeauty skincare range.

Xiaohongshu is tapping into a phenomenon known as daigou shopping. Meaning “buying on behalf of” the daigou are traders that bring back goods from overseas such as cosmetics, jewellery, handbags and milk powder (see WiC327). Sales through daigou channels were $105 billion in 2017, according to marketing research firm Frost & Sullivan and Azoya, which specialises in bringing international brands into China.

Daigou salespeople – often Chinese students based overseas – can earn excellent incomes from the trade (one UK-based shopper boasted about making up to £46,000 a month, according to the Financial Times).

Designers that lack the scale to set up physical operations in China often see daigou as a cost-effective way to establish brand awareness in the Chinese market.

Xiaohongshu made the same pitch in January when co-founder Qu went to South Korea to convince lesser-known brands to market their goods on the platform, the Korea Joongang Daily reported.

Currently Xiaohongshu and the daigou are co-existing in cross-border commerce. It doesn’t charge them to post on its platform, for instance, because they provide advisory content – normally video – on many of the newest products. In the longer run maybe that relationship will change. As Xiaohongshu grows its customer base, it might put some of the daigou out of business.

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