Financial Times Europe - 31.07.2019

(Axel Boer) #1
Wednesday31 July 2019 ★ † FINANCIAL TIMES 13

CO M PA N I E S


TO M H A N CO C K A N D WA N G X U E Q I AO
SHANGHAI
Zhang Xiao says her passion for used
goods is a mystery to her mother: “My
mother never buys second-hand.”
For generations there has been a
stigma associated with buying used
goods in China, where they have been
synonymous with poor quality and pov-
erty. But like 29-year-old Beijinger Ms
Xiao, a younger generation of Chinese
consumers is embracing the second-
hand economy, with sales and pur-
chases of pre-owned goods from iPads
to clothes being fuelled by online plat-
forms.
Sales of second-hand goods in China
are forecast to reach Rmb1tn ($150bn)
next year, doubling from 2017, accord-
ing to Beijing hink-tank China Centert
for Internet Economy Research. Inves-
tors are taking note and pouring billions
of dollarsinto platforms selling used
goods from cars to luxury handbags.
The market is growing as decades of
growth in consumer spending in China
means there is a large pool of used goods
with significant resale value. Alongside
this, an increased wealth gap between
individuals and regions means that one
consumer’s trash is more likely to be
another’s treasure.
But the embrace of the second-hand
economy poses a challenge for multina-
tionals, as “in many product categories,
the competition will increasingly span
beyond the other new things for sale to
include second-hand goods”, said Mark
Tanner, head of consumer-focused con-
sultancy China Skinny.
Much of the trade is online, with more
than 60 per cent of consumers in China’s
largest cities regularly using apps selling
used goods, according to data provider
QuestMobile. There is a clear age gap,

with consumers under 35 making up 85
per cent of the user base of second-hand
apps, according to internet company
36kr. Younger consumers generally
have lower incomes than middle-aged
people and attach less stigma to used
goods.
The trend is clearest in the car mar-
ket. There are 240m cars on China’s
roads, and about 6.9m used vehicles
were soldin the first half, up 3 per cent
year on year, even as economic uncer-
tainty led new car sales to fall.
“Ten years ago it was true to say that
Chinese consumers rejected second-
hand products,” said Dai Kun, chief
executive ofUxin, one of China’s largest
used car platforms. “Buying a second-
hand car made you look like you were
trying too hard.”
But that has changed as cars moved
from being luxury goods to everyday
transport, he added. Uxin sold 800,
second-hand cars last year, which often
flowed from middle-aged owners in
larger cities towards young consumers
in small cities with lower incomes.
In developed economies in the west
such as the US, sales of second-hand
cars generally outnumber those of new
vehicles by about two to one but the
opposite is true in China.
Mr Dai estimates that because about
half the cars on the road in China are
more than five years old, their owners
will soon buy new models. As a result,
China’s ratio of used to new car sales will

match that of the US within a decade, he
added.
That prospect is attracting investors.
Uxin, which partners with traditional
car dealers and aims to triple sales this
year, raised $225m in a Nasdaq listing
last year and has received $1.2bn of ven-
ture capital funding.
Rival companyGuazi as teamed uph
withAlibaba’s Taobao platform, China’s
biggest ecommerce site. It secured
$1.5bn in funding from Japanese fund
SoftBank n March following an $818mi
venture round led byGoldman Sachs. A
third platform,Souche, has raised
$1.2bn.
Guazi pays car owners half the price of
their used vehicles upfront, before
showcasing them on its app and in phys-
ical stores. It says 336,000 cars were sold
on its platform in the first half of last
year and its full-year sales doubled even
as economic growth slowed.
“When the economic situation is not
good, more people will consider used
cars,” said oyce ZhangJ , its chief technol-
ogy officer. “The used-car business is
countercyclical.”
The greatest problem facing all used-
goods retailers is establishing trust.
Guazi offers a full refund for cars within
30 days, and a free four-year warranty.
Like Uxin, users of its app can examine
detailed videos of the carsfor sale.
“Three years ago customers wanted
to see and touch the car, but the differ-

ent platforms have educated them, and
now a considerable portion are willing
to trust us,” Ms Zhang added.
Growth of second-hand sales in China
is a mixed blessing for automakers.
Sales of used cars have been biting into
sales of low-end cars priced below
Rmb150,000, said Jochen Siebert of con-
sultancy JSC Automotive.
But as consumers who sell their old
models tend to upgrade to new ones, the
trend could benefit makers of higher-
priced cars. “The higher you are the bet-
ter; its great news for premium brands,”
he said.
Investors are betting that the next
sector to benefit will be luxury goods.
Chinese consumers became the world’s
biggest spenders on luxury brands in
2012, according to consultancy Bain,
and account for around a third of global
purchases.
Sales of pre-owned goods account for
just 3 per cent of the luxury market in
China, compared with 10 per cent in
Japan, according to Berenberg Bank.
Several online platforms aim to increase
that proportion, such asPlum, a Beijing-
based second-hand fashion platform,
which has raised $38m from venture
capital funds such asQiming.
“Chinese customers have accumu-
lated large sums of luxury and fashion
products; a lot of them are only lightly
used or have never been used,” said Jing
Wu, a partner at Qiming. “The younger

generation with limited cash is much
more receptive to fashion resell.”
China’s largest ecommerce company,
Alibaba, has also entered the second-
hand market through its platform
Xianyu, which sold Rmb100m of elec-
tronics, clothes, toys and other items
last year. More than 2m products are
listed on its site each day.
Alibaba ivalr Tencent as backedh Déjà
Vu, an online second-hand books
retailer. Thegroup says it has sold more
than 3m books since its 2017 launch.
Another sector with large second-
hand sales is mobile phones: 12 per cent
of China’s roughly 700m smartphone
users own a second-hand or refurbished
model, according to research company
IDC.
Aihuishou, which sold 10m phones
last year valued at Rmb7bn, has more
than 300 offline stores collecting used
smartphones for its online platform. In
June it received $500m fromJD.com,
China’s second-largest ecommerce com-

pany. The data it accumulates allows for
more efficient pricing than offline ven-
dors, said Michael Guo, the company’s
vice-president. “More than 90 per cent
of our offline stores are profitable, and
we plan to open more this year,” he
added.
Ken Shi, a partner at Aihuishou inves-
tor Morningside Venture Capital, said
that as sales of mobile phones had
peaked in China, manufacturers should
welcome the development of second-
hand platforms.
“When the market is saturated,
growth needs to rely on consumers to
change machines,” he said. “Making it
easier for everyone to handle old mobile
phones has become a priority for manu-
facturers.”

China embraces the second-hand economy


Investors flock to used-goods platforms selling products from iPads to clothes as younger generation fuels growth


Pre-owned goods lure China’s young
 surveyed who said they had bought second-hand
or rented

* Those aged  to , as of Oct 
Sources: KuRunData; Mintel; kr; Wind

Cars
Books/audio-visual products
Digital products/devices
Furniture
Home appliances/white goods
Luxury goods
Art collections
Clothes and accessories
Mother and baby products
Other

   

Under  years

 to 

 to 

 to 

More than  years

  20   

Second-hand car sales, units (m) Users of pre-owned platforms, by age ()

















   **
**  months to Jun

Y UA N YA N G —BEIJING

The Chinese company that owns
Grindr, the world’s most popular gay
datingapp,hasrevivedaplantolistthe
unit after a US national security panel
droppeditsoppositiontotheidea.

Beijing Kunlun Tech, a gaming com-
pany, said in a filing to the Shenzhen
Stock Exchange that the Committee on
Foreign Investment in the United States
[Cfius] “now had no opposition to
launching the listing process”.
Cfius, which reviews the national
security implications of foreign invest-
ments, had stopped Kunlun’s first
attempt to list Grindr last September,
the Chinese company said.
The US government deemed the ini-
tial IPO planinsufficient o address itst
concerns over Chinese control of Grindr,
preferring that Kunlun make a faster
exit through an outright sale.
Kunlun said it plans to list Grindr,
either wholly or in part, on a foreign
stock exchange at a time “dependent on
overseas market conditions”.
The company’s stockholders are

due to vote on the listing proposal on
August 15.
arlier this year people in Washing-E
ton familiar with the situation said that
Cfius was pressuring Kunlun to sell
Grindr over concerns that data gathered
by the app on its more than 3m daily
users, who are mostly gay, bi, trans and
queer men, could be used to blackmail
Americans. One former senior intelli-
gence official said the government was
increasingly scrutinising Chinesecom-
panies that own social media groups.
Kunlun said in May that it had

reached an agreement with Cfius to sell
Grindr by June 2020.It also promised it
would not transfer any sensitive data
from Grindr to China and that it would
stop its operations in China, keeping its
headquarters in the US.
The Cfius decision to intervene long
after Kunlun cquired a majority stakea
in Grindr in 2016 raised alarm among
Chinese companies, which feared their
US investments might bereviewed.
The Trump administration has
alsoexpanded the powers of Cfius ot
review investments in critical technolo-
gies, over concerns that Chinese invest-
ments could be used to gain access to
valuable early-stage technologies.
Grindr, which was founded in 2009,
pioneered the simple photo-based pro-
files that have been subsequently popu-
larised by Tinder and China’s Tantan. It
allows users to contact each other by
tapping on profile photos, which are
presented to each user based on geo-
graphical distance and attributes such
as race and sexual preference.
Grindr did not respond to a request
for comment.

Technology


Grindr listing plan clears US security hurdle


Grindr owner Kunlun says it will not
transfer any sensitive data to China

‘In many product


categories, competition
will increasingly span

beyond other new things’


Used car sales are hitting those of low-end new vehicles in China. Second-hand sales across product classes are set to reach $150bn next year —Kevin Frayer/Getty Images

Wheels and deals


As consumers who sell


their old models tend to
upgrade, this could boost

sales of higher-priced cars


JULY 31 2019 Section:Companies Time: 30/7/2019- 18:13 User:cathy.pryor Page Name:CONEWS2, Part,Page,Edition:EUR, 13, 1


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