Xiaohongshu losing steam? | Daily Jing
Eight-year-old Chinese lifestyle app Xiaohongshu (aka Little Red Book or RED) is a leading user-generated content (UGC) platform that is sometimes referred to as ‘China’s Instagram’, although the app – like many fellow Chinese platforms – is not a one-ride pony. One of the main reasons Xiaohongshu has attracted dozens of new users of luxury brands, including Louis Vuitton, Gucci, Céline, Saint Laurent, and Givenchy, is its reputation for driving online sales through the phenomenon of ‘culture. grass ”similar to FOMO (??), a Chinese internet term that refers to the experience of seeing a product owned by others and wanting it too. For this reason, Xiaohongshu is a popular destination for brands to place advertisements or collaborate with Key Opinion Leaders (KOLs).
Capitalizing on what has become one of the most powerful consumer trends in recent years, Xiaohongshu launched its own live e-commerce initiative in April 2020 to encourage more than its roughly 300 million users. to make in-app purchases rather than through third-party sites. The performance of this initiative and others focused on sales helped Xiaohongshu to raise $ 500 million investment in November 2021 and double its market valuation from $ 10 billion to $ 20 billion in a matter of months.
However, recent developments – mainly the intensification of competition from other platforms and internal problems of Xiaohongshu – could significantly hamper the development of the platform’s e-commerce aspirations.
On December 16, ByteDance, the parent company of the short video platform Douyin (the Chinese version of TikTok), spear its new “Douyin Box” (??), a fashion-focused e-commerce platform that uses a lot of User Generated Content (UGC) for segments such as streetwear, luxury, and beauty. The platform also has an “explore” page that displays products like a traditional e-commerce site and syncs user browsing records from the Douyin app.
“Douyin Box” is a major step for ByteDance to establish itself as an e-commerce giant that can compete with JD.com and Alibaba’s luxury Tmall pavilion and in so doing increase the pressure on Xiaohongshu. Indeed, Douyin saw the gross value of goods (GMV) of its e-commerce live streaming initiatives reach 500 billion RMB ($ 78.5 billion) in 2020, largely eclipsing Xiaohongshu’s 7 billion RMB ( $ 1 billion).
Meanwhile, Taobao increased UGC’s presence in the “explore” section of its app and launched its own “grass growing machine” (??) countryside which promoted the KOL recommendations and improved the “store recommendations” mechanism. These efforts have resulted in a recent increase in sponsored content since the launch of this year’s “Double Eleven” festival. But perhaps more importantly, Taobao’s efforts to highlight the social media aspect of its platform are reducing Xiaohongshu’s UGC competitive advantage.
Besides external competition, Xiaohongshu also faces notable internal problems. A key publish is the platform’s widespread image of being a women-centric fashion community, as over 67% of its 1,000 most popular products in 2020 were in the skin care category, followed by cosmetics at 21%. Although these products are a giant market, Xiaohongshu could cede potential male users to the sneaker and streetwear resale platform Poizon.
As noted in our recent report, Capitalizing on China’s luxury online resale boom, Poizon put more emphasis on transforming a simple resale site into a content-based community, which poses a problem for Xiaohongshu. Presumably spotting this problem, Xiaohongshu tried to attract more male users by promoting game-related content. However, it has recently been discovered that such content, much of which features minors, is often sexually suggestive. Xiaohongshu quickly apologized and pledged to improve its content regulation, but this is the second major public image crisis the platform has faced in the past two months, after a critical in October heavily filtered and stylized photographs posted by users.
While Xiaohongshu shows no signs of immediate decline, intensifying competition and shrinking UGC and e-commerce are just two of the main challenges the platform will face in the coming months.