MAY 2018 FORBES ASIA | 25IMAGINE CHINA/NEWSCOM
FORBES ASIA
OWN-LABEL OFFERSBrand Blindness
NetEase challenges Chinese e-commerce giants on a new battleground.
W
hile Alibaba and
JD.com are busy
holding each other
in check, a new com-
petitor has entered
the fray in a bid to secure a foothold in
China’s $860 billion online shopping mar-
ket: NetEase. And it’s doing things a little
diferently.
In April 2016, the tech company—
headed by William Ding, China’s third-
richest tech billionaire—started selling
fashion apparel, accessories, furniture
and home appliances it claims are made
by original manufacturers that supply
top international brands such as Gucci,
Burberry and UGG. But they sell at lower
prices on Yanxuan, NetEase’s own label.
How much lower? Here’s an example:
An original pair of UGG ankle boots sells
for just over $200 on JD.com and Tmall—
authorized sellers—while on Yan xuan, an
identical pair made by an “UGG manufac-
turer,” is priced at just $45. he model is
working. NetEase’s e-commerce business-
es, which includes cross-border arm Kaola,
has upped its net revenue by 160% to $1.8
billion. With Yanxuan’s portfolio now cov-
ering 10,000 products, Ding aims to rake
in more than $3 billion from the site in
2018, as it seeks to catch up with the likes
of Taobao and JD.com.
Not to be outdone, Alibaba launched
an own-label retail site, Taobao Xinxuan,
in 2017, while JD.com rolled out its Jing-
zao brand in January. Neither is market-
ing its products as made by big brands’
manufacturers, and neither has come
close to Yanxuan in scale.
However, Yanxuan has ruled some
feathers. “Yanxuan’s promotion would
mislead consumers to believe they are
buying authentic UGG products,” a
spokeswoman for Australia’s UGG toldForbes Asia. “We hope
consumers would
clearly understand
UGG is not in any
partnership with Yan-
xuan.” he American
Apparel & Footwear
Association has also
raised concerns about
“a potential thet of in-
tellectual property.”
“Any claim that
products are ‘made by
the same manufactur-
er’ as another major
brand is a telltale sign
of a possible bad actor,”
says Steve Lamar, the
organization’s exec-
utive vice president.
“he manufacturer is
potentially violating an agreement with a
brand partner.”
Yanxuan declined to comment when
contacted, but according to Pan Xiaoning,
director of the intellectual property de-
partment at Chinese law irm Yingke, such
claims by Yanxuan, even if true, would be
in a gray area without the brand’s authori-
zation. “A majority of brands would have
binding terms with their manufacturers
that forbid them to use the brands for
third-party promotion, in which case Net-
Ease’s conduct is more likely an infringe-
ment,” she told Forbes Asia.
Chinese consumers don’t seem too
concerned. Many of the hundreds of
comments on the Yanxuan page selling
UGG-style ankle boots praise its value—
though some noted that there’s still a
quality gap with UGG products. Lynn
Zhang, a 43-year-old housewife from
Shanghai, was attracted by the brand as-
sociation and bought a pair of Yanxuan’sankle boots for each member of her fam-
ily. “here’s not much design involved in
a typical pair of UGG boots,” Zhang says.
“and a piece of sheep leather is sold at
only $30 at Ikea. Yanxuan has helped us
become aware of a product’s cost.”
Others, such as Long Long, a 35-year-
old technician at an online game compa-
ny in Beijing, ind not the authentic but
the generic products to be Yanxuan’s true
strength. Long switched to Yanxuan from
Taobao to buy kitchenware and daily ne-
cessities “at a slightly higher price with
more consistent quality,” guaranteed by
the big brands’ manufacturers.
But will this own-label market chal-
lenge the e-commerce models of Taobao
and JD.com? Chinese consultancy iRe-
search’s analyst Jiao Dingkun is skepti-
cal: “A holdback for the business model is
whether it could ind quality plants along
the supply chain. here are only a limit-
ed number of such plants in China, which
will put pressure on the scale-up.”FWilliam Ding’s NetEase raises the existential question: When is an UGG an UGG?BY JANE HO