Find here the China Paradigm 74, where we, Daxue Consulting, interview seasoned entrepreneurs in China. In this episode, we will find out all the details of the story of creating a shopping website for foreigners in China and we will find out how they managed to connect Taobao with foreign customers.
Full transcript below:
Matthieu David: Hi everyone. I am Matthieu David, the founder of Daxue Consulting Group, a China market research company based in Beijing, Shanghai, and Hong Kong. I am also the founder of this podcast, China Paradigm. And today, I am with two entrepreneurs whose products I have known for 2-3 years. They are the founders of Baopals. So, today, I am with Charles Erickson and Jay Thornill. You are both co-founders, but you are three actually who founded Baopals.
Baopals is a shopping website for foreigners in China where you can buy in English in a very seamless and easy way, products from Taobao, the biggest e-commerce platform in China and maybe one of the biggest in the world based on the fact that 50% of the merchants on Amazon are actually from China. So, the numbers are pretty impressive. You communicated some numbers with me that I’m going to share with the audience. Close to 3 million items have been sold since 2016 when you founded the business. You have about 50,000 registered users. So, I believe that’s more loyal users, and you have about 700,000 orders placed. Actually, we need to have a precision between orders and items purchased and so on. So, thanks for being with us. It seems that it has been a very exciting journey. How many people are there in the team?
Jay Thornill: Now, we are close to 40 people.
Charles Erickson: We are around 40.
Jay Thornill: Right.
Mathieu David: Can you tell us more about the story since 2016? How did it start?
Jay Thornill: Yeah, Charlie can start because it started in 2015 with Charlie actually.
Charles Erickson: Yeah. I was an English teacher before this. I taught English and macroeconomics. I was doing that for two years, and I wanted a change in my career. But I didn’t know what to do. I think a lot of expats have this experience after teaching in China for a couple of years. But I didn’t want to go back to America. So, I was just sort of in this mindset; there’s a lot of things happening in China. Maybe I can figure out some type of idea. And my roommate, who is our third co-founder, was an app developer. He said, “Okay, let’s come up with ideas for apps”.
So, I just started writing down problems that expats have. And one of them that I wrote down was Taobao because all of us knew Taobao, but none of us was using it because our Chinese wasn’t good enough. We didn’t have Alipay. And so, I presented this to him. And he was like, “I think this is possible”. And when he said that, we got really excited. I told Jay about it as well. And then when our third co-founder (the tech guy) said we could do this, I just went ahead and quit my job. Right there, I was like, “Okay, this is what’s going to happen. We’re going to focus on this shopping website for foreigners in China. And then I convinced Jay to quit his job a couple of months later. And then TJ was already freelancing. So, everybody was on board.
Mathieu David: What are we talking about now? In your presentation, I saw three million items sold since the start. But what are we talking about in terms of revenues for 2018?
Jay Thornill: Altogether, we’ve done over ¥160M in gross merchandise value. So, it’s basically total sales. For 2018, I believe it was around ¥70M in the calendar year. We have our busy months and our slow months. So, we’re just coming out of our slow month. It’s by far the slowest month of the year because all these foreigners leave China for the summer holidays. And a new wave of expat starts coming in August for the new school year. But in a normal month, we’re doing about 5000 items sold.
Mathieu David: I see. How is the first semester for 2019?
Jay Thornill: From the beginning, we don’t really do many projections because we can be as optimistic or pessimistic as we want, but we don’t know until it actually happens. But 2019 is looking good. We keep growing every year. We’ve grown at least 25%. A lot of that depends on the peak season, though, because that’s when we see the most growth. And we haven’t started peak season yet, but it looks to be a good year. Our team is doing really well now. Our processes are a lot smoother than they were, especially in the first year when we were just figuring everything out on the go. And so, profitability-wise, we’re looking really good. We don’t really delve into how profitable we are. But the company’s in good shape.
Charles Erickson: Firstly, we hit ¥70M million in 2018. I’ll be very happy when we get to ¥100 million in 2019.
Mathieu David: Could you share a little bit about the business model. I think a lot of people who go to Baopals would say, “But how does it work? What margin do you take?” Do you have a special agreement to bridge Taobao with foreign customers? Can you explain to us more about the business model?
Jay Thornill: Sure. Well, yeah, just kind of going back to what Charlie said on the reason why we did this. Imagine there’s like a really good public education system in your country. And there’s an entire group of people who can’t even use it. That’s what it felt like for us with Taobao and just not being able to use it because we couldn’t read Chinese. We weren’t using Alipay. We didn’t know how to find the products we want. We didn’t know the brand.
So essentially, what our platform is, is a bridge that makes every single product and seller from Taobao available on our platform with our interface and our customer service. You can find whatever you want on your own. You don’t really need assistance until you want to talk to the seller about something or you have some delivery complications. And then our team is ready to help. So, we have every single product from Taobao available and it’s updating in real-time. So, if the seller changes the price, our price changes too. And as far as the business model goes, we have a markup of 6% and then a fixed fee of ¥2 to a maximum of ¥8. And that’s built for everything on the site.
Mathieu David: I see. Is it transparent? Do you communicate with them it’s 6% plus ¥2?
Charles Erickson: Right. Yeah.
Jay Thornill: Sorry?
Mathieu David: Do you communicate transparently on the 6%? Do you tell all your clients you take a markup of 6%?
Jay Thornill: Right. That’s on the website if anybody cares to look at the frequently asked questions.
Charles Erickson: So, if you add it up, it ends up being around maybe 8%-10% total on average of the selling price.
Mathieu David: I see. Yeah, that’s very reasonable. 6%
Charles Erickson: Yeah, we go pretty far. So that’s part of the service fee you’re paying for. So, we help communicate with the delivery man if there’s an issue. Over the past few years, we’ve developed a pretty good system on being able to liaison quickly between our team here and either Taobao sellers or delivery men and our customers. So, if there’s an issue, people can contact us very easily on the website through the help forums or message us directly on WeChat. We can solve their problems.
And one thing that’s been nice that we’ve seen, actually, over the past three years, is the number of requests for help has been going down even though our user base has been growing. And I think this is just because our users are becoming more intelligent. And they’re figuring out how this system works. So, once you’ve your package delivered to your apartment the first time, you know how it works and you say, “Okay, yeah, he puts in front of my door. He puts it in this locker”. You figure out how to navigate the site. You become smarter about how to find good products on the website. So that’s been a nice trend for us.
Jay Thornill: Right, a lot of what we do is visible too. We have our team checking every single order to make sure that the address is correctly translated into Chinese. Usually, our team translates it so the customer doesn’t have to. We make sure that every seller that a customer purchases from are reliable and they ship out within 48 hours. A lot of that happens behind the scenes. And so, we’re just trying to make sure it is a smooth shopping website for foreigners in China. And then there’s also pre-sale service. If somebody has questions about a product or they want help finding a product, our team is there to live-chat with them or answer their questions on the product page.
And then we do after-sales service too where we’re tracking down orders to make sure they reach their destination. If somebody wants to return something, we handle all the communication with the seller. We make sure they get their refund often in advance of the seller refunding. So, we just try to do everything we can. I mean the service for us is something we really pride ourselves on. It’s something that you’re often missing in China—a certain standard of quality and expectation. It depends on the seller. They’re the ones providing the service to you. So, some sellers might not even respond. So, we just try to make sure that we have a consistent quality.
Charles Erickson: It’s about establishing that trust. In the beginning, we established a rule or sort of a mantra. And that was either the customer gets the product or they get their money back. And I think we’ve been very good at that. And so, once people realize that, they’re able to shop with a lot more confidence that no matter what, I will always get what I ordered. And in the rare event that some package goes missing or anything like this, you are not out of luck. You’d get your money back.
Mathieu David: It’s very interesting because I believe that a lot of foreigners may have bought on Taobao in Chinese directly and they actually have given up on returning the product because it may be very troublesome actually to return the product. Or if there’s any issue, they would give up and lose the money or just give up on the product because it’s too troublesome to return. I have your demographics of online-shopping foreigners in China on the presentation you sent to me. And I see that Shanghai and Beijing are representing roughly 50%. So, the other half is spreading all over China. That gives a bit of an idea of who your customers are. They are very diverse. First, could you tell us more about the typical customer and the segmentation you have? Are they people who are only expats from the West? Are they expats from Japan or Korea? Are they all over China as I just described? Could you tell us a bit about who is shopping on your website?
Jay Thornill: Sure. Actually, in the first year, Shanghai was more like 45% of our demographics of online-shopping foreigners in China because we’re based in Shanghai and our friends are all in Shanghai. We don’t do a lot of traditional marketing. We rely mostly on word of mouth to grow. So, it’s been cool to see the website take off in Shanghai and then start spreading. In the early days, we would see, “Oh, we got an order from Shanjia or we got an order from Nanjing”. And then, many other orders from that region would follow because we had these early adopters in these different cities and provinces. And then they would tell their friends or their colleagues. And then, we started recognising these addresses show up more and more. So that’s been really cool. And because we don’t handle the logistics here in China, the sellers ship directly to the customers. That means we ship all over China right off the bat. So, it was never an issue for us to expand around Mainland China. So, it’s been good to see it take off.
As far as the other demographics of online-shopping foreigners in China, we spend the whole gamut on large groups. But our largest age group is about 25-34. They are those young professionals who have a steady income here and are making a home for themselves here at least for probably a couple of years or maybe more. And so, they’re buying things for their apartment. They are buying their clothes for different seasons. That’s kind of our core group which is really our demographics of online-shopping foreigners in China. And between males and females, the split is about 51%-52% female to 48%-49% male. So, it’s pretty even although females do a lot more browsing. They look at the departments more. They browse the categories a lot more. They spend more time on the website. And then, as far as the nationalities go, it’s primarily the English-speaking countries. That’s our main market. I mean our shopping website for foreigners in China caters to the English-speaking market.
So, we have a lot of Americans, Canadians, Brits, and Australians. And South Africans too are actually quite strong. And then, from there, we really just spread out and cover all kinds of nationalities. We actually made the website available in Russian and Korean. This is partly because a lot of Russians are shopping from AliExpress overseas and using Taobao agents. And then Koreans, because they are such a large expat group in China. But we haven’t really seen much take off with the Koreans; we do have Korean shoppers on the site but really not what we were hoping for. And I think that’s just because it’s a very different market than what we’re currently serving and there’s a different culture. There’s a different language. They expect just different things from the platform. So, other than the English-speaking, we have Europeans. We have Indians and people from the Middle East. We also have people from Africa. You really see people from all over.
Mathieu David: I went on SimilarWeb to understand better where you get your traffic and your demographics of online-shopping foreigners in China. And I found out that 35% (of course, it’s an estimation) are coming from the US. I’m not sure if it’s because of a VPN or if it’s really coming from the US. And 20% are coming from China, then Hong Kong, then the UK, and then Singapore at 4%. So, it seems you have a lot of traffic from outside of China. Do you have clients outside China and do you ship to them? Could you tell us more about the people outside of China who return to their countries? Is it a demographic for you?
Charles Erickson: No. I think that’s probably skewed by VPNs.
Mathieu David: I see.
Charles Erickson: Yeah, we do get browsing outside of China but we don’t ship outside of China. So, if you’re seeing 40% coming from the US, those are people on US VPN, I would assume. Like I said, we do have some people messaging us on a pretty regular basis, maybe almost every day, asking if we ship to their country. So, we do know that people outside of China are curious and find the website. So, it’s definitely something that we’ve been thinking about for a long time about how to expand this business and take it overseas. And we’ve actually started making some moves on that. We’ve been thinking about how we would do the warehousing and ship outside. But right now, we still feel also that we have to grow in the domestic market. Like you said earlier, our target user base is 50,000 users. But a lot of those users have actually already left China because there’s a high turnover of expats. A lot of people will be here for one or two years and then we find that they leave. And they’d be like, “We will miss you, Baopals”. And so, what we want to try to do is to try and change these customers that find and love us here in China into lifelong customers when they go back to their home countries.
Mathieu David: I see. I see. Got it. You talked about seasonality. You said that July is not a very high season for you. I believe you were talking about Christmas as the high season. But, again, when I was looking at the traffic from SimilarWeb, I see a peak in March. And I believe you have another peak for Christmas for sure. Could you tell us more about the seasonality? Is March a high season and why? Could you also tell us about Christmas? How do you manage the seasonality? I believe it’s difficult because you will have much more customer service and many more things to do during like two or three weeks for Christmas.
Jay Thornill: Sure, it was kind of tough for us in the first year and, to a lesser extent, in the second year managing the team itself because we launched the website on March 1st, 2016. You might see greater traffic in March partly because it’s our anniversary. And so, we’re doing our big anniversary sale and celebrating another year of the company, but also just because it’s the middle of the school year. And actually, some spring students come in. And people are back from Chinese New Year. So, they’ve had a long break. So, they have a lot of things they wanted to buy but they couldn’t buy in February because the sellers are offline. So, there’s a bit of a backlog of orders in March.
But peak season for us is definitely October through mid-December. It picks up a lot in September because the new school year starts. So, there’s a new wave of foreigners coming in. And in October, the weather starts changing. People start gearing up for the winter and buying lots of clothes and also buying a lot of Halloween gear because Halloween is such a Western holiday that in many parts of China, people want to celebrate Halloween. They want to have their parties. They want to share that culture, maybe, with their classrooms or just with their friends and families but they don’t know where to buy Halloween stuff even though all of it is made here in China. So, we have our Halloween department. We do a big marketing push that gets a lot of buzzes. And then, of course, in November, people start Christmas shopping.
And then we have the big 1111 sale which is just insane for us. I mean we are a small company, so it’s nothing compared to what’s going on with AliBaba. But 1111 is a huge deal where we’re working 24 hours to keep up with the orders. And then, the Christmas shopping carries on through 1212, the big Taobao sales event. And then, about a week after that, everyone goes away for Christmas. And things slow down a lot. So, in that first year, we were growing so quickly that we had to move out of the apartment. We were working in Charlie and Tyler’s apartment. And we had nearly 18 staff at that point of just like six, seven months after launching. And all of a sudden, we were like, “Oh my God, 1111 is coming. Christmas shopping is happening. We need to get an office. We need to get out of here. The internet was probably going to fail. And we can’t have enough staff here working in this two-bedroom apartment”. So, we ended up getting a massive office space and moving in just a week before 1111. And we had to set up all the computers and cables ourselves.
We’ve always been on a very low budget and just doing everything ourselves when we can. And then we move in and we find out the internet doesn’t work. So, we go through 1111, the biggest sale of the year, in our first year. And we’re on Wi-Fi hotspots and we had like six or seven Wi-Fi hotspots around the office. People’s internets were cutting in and out. We’re trying to service all these customers from midnight to midnight. And heating was breaking because it’s short-circuiting the electricity. So, we’re on space heaters. People were wearing winter clothing in the office. It was mayhem but we powered through it. It kind of bonded everyone together because we were growing so fast. It was really exciting. And people bond through a bit of hardship and struggle. So, there was a lot of learning that first year. And now we’re able to better manage our resources and prepare for those peak seasons and also survive the low seasons. When we’re not profitable in July, we’re able to weather that storm financially, at least.
Mathieu David: I invested in a company that was doing dropshipping. They were buying on Taobao, customizing the product, and then sending it to the customers in France. And one of the difficulties that the team had is that the shoppers on Taobao may just stop selling the product at some point. So, we had to find a new one because it was not available anymore. There are these kinds of issues with a platform like Taobao. What kind of difficulties do you face and how do you manage them? You talked about 1111 and 1212. At that time, it’s creating a lot of delays as well. I see you have a dog. So, for those who are not watching the video but listening to us, there is a dog in the office. Very cool. So, during 1111 and 1212, there’s a lot of customer service to manage as well. And your clients may not totally understand that. So, I believe it’s also extra work on top of the extra sales. It’s extra work for communication and service. Could you tell us about the challenges you faced by bridging Taobao with foreign customers and also the peak seasonality?
Charles Erickson: Yeah. Of course, when we have all these extra sales, the workload increases. So, sometimes, we have a lot of part-time staff on call. So, we are working at full capacity. Some people are working overtime. But also, our customers are good at understanding. We let them know that when 1111 happens, there are billions of packages moving across China. The warehouses are full. The distribution centers are overloaded. So, there will be delays. And so, we just make that very clear to our customers. And most of them understand. Of course, some people will be a bit angry and upset. But really, there’s nothing you can do. The system is just overloaded in China. And it takes up to two weeks to kind of unclog. We let them know in advance and say, “There are great savings and deals on this day but be prepared for delays”. We do have, on the site, the location from the sellers. So, we advise them that if they want faster shipping, they should try to find a product that’s in their city or near their city. And most likely, they will get it much quicker. So yeah, as Jay was saying, the workload helps the team bond as well. The hardship is actually good. People are excited because it’s the most profitable season for us. And we give out bonuses to all of our employees based on how profitable we are. So, everybody’s busting their ass. Everybody knows they are going to get a nice bonus at the end of November. So, they’re still happy though.
Mathieu David: Do you refund the commission, by the way, when they return the product or the commission will always be a fee for the service you provide?
Jay Thornill: We still hold to that policy. The customer gets what they wanted or they get all their money back. So yeah, we hold to that as well.
Mathieu David: That’s a very strong position.
Jay Thornill: Yeah, Taobao sellers can always be reliable. We also try to actively monitor that. And there are cases where we have to ban certain products. So, we ban certain sellers because we know that they can’t provide a good service. So more and more, we’re just trying to make sure that our customers are seeing the best sellers and the best products. That’s why we push out a lot of content. That’s why we’ve done a lot of work on reorganizing Taobao and Tmall and creating our own departments and categories featuring sellers and giving our users also tools for them to recommend the products that they like to other shoppers on the website. So, a big part of what we do is trying to find the best products and sellers to successfully bring Taobao with foreign customers—the products that other foreigners or our demographic wants—and making sure that the bad products get out of the spotlight.
Mathieu David: I’m seeing from SimilarWeb again that you have 70% of your demographics of online-shopping foreigners in China, which is people going directly to your website, and very few from search. It’s very little from Google, which is 17%. Again, the numbers are not exact but you get an idea of the volumes. And 10% of your traffic comes from email. So as far I understand, you have a strong base of customers who come back to your website and buy again or, as you say, through word of mouth. Can you explain a little bit more about your client acquisition vision, what you do, and what is your envision for the future? In some way, you compete with AliExpress or LightInTheBox. I mean it’s more for people who are outside of China but, in some way, you compete with them. And they do a lot of marketing on Facebook, on social media, and on search. So, it could be interesting for the audience to understand more about the client acquisition strategy. The manager who was managing the e-commerce I invested in actually knew you from an exhibition. His was actually very, very brick and mortar and you are managing an online shopping website for foreigners in China. So, it was very interesting for me to see that you were able to convert from actually being present in Shanghai at events. Could you share more about some ideas or things you did to scale the client acquisition?
Jay Thornill: Well, that person must be one of the rare ones that actually acquire clients from offline marketing because we’ve done so little offline marketing. I think I know the event because we only did one event. And so, on the marketing side, we’ve tried a lot of different things. And we’ve often found that the amount of time and resources committed to those marketing efforts didn’t really make as much of an impact as we would expect to justify those efforts because we do see many dozens of people registering on the website whether we do marketing or not. And when we put some effort in, we might see a short little spike for a day or two and new users, but oftentimes not enough to really justify doing marketing. Having said that, we do continue online WeChat marketing for e-commerce. That starts with content.
So, it’s kind of soft marketing. We want to put out a lot of good articles and a lot of good pieces on WeChat primarily, but also on Facebook. And we do Instagram. We have a Pinterest account now. So that drives a lot of the growth especially when we do our WeChat pushes and we write articles that get shared in people’s moments or people send to their friends directly. And it can be any content, whether it’s an article about living life as a foreigner in China (that gets a lot of comments going) or something like ‘Here are 15 very Australian products’. And then, a few Australians will share with each other and say, “Hey, we can buy these snacks from back home on Baopals”. So, we try to do good content as our primary marketing effort. But also, we do Facebook ads and Google AdWords. Those are quite low-cost. And we do see a decent return on those.
And in certain times of the year, we will pump that up a little bit more because we know it’s the time for growth or we’re promoting the 1111 sale or our Halloween department just went live. But otherwise, we don’t do events anymore. We don’t do a lot of sponsorships or traditional advertising. We don’t paid ads for adverts like banners or pieces on other platforms. Every once in
Charles Erickson: Yeah, what we value a bit more is not just the number of users but just sort of the loyalty and the activity of the users. So much of the growth is organic. In the beginning, it was completely organic. People were using the website because their friends told them about it. And they said this was a great service and a great product, so you can get on and buy things here. And that’s why you can see even though the demographics of online-shopping foreigners in China that we have only 50,000 users and many of them are no longer living in China but we sold 3 million products.
Jay Thornill: 60 per registered user.
Charles Erickson: Right. So, every registered user, whether they’re active or inactive, has bought 60 items. So, we just see that once somebody discovers it organically on their own, they buy again and again and again. Sometimes, it’s on a weekly basis or even more than that. And so, that for us, it is more important. So, we do some of these events, like Jay mentioned—DiDi English. So, we’ve got a bunch of registered users, but only 10% of them actually ever made an order. So, for us, that’s the real metric that we care about. It’s like, okay, we may have registered users but we really care about people who are actually shopping regularly. And those are the ones that find us usually just because their friends recommend us to them.
Mathieu David: You mentioned WeChat as a way to interact with your customer base. How many followers do you have? And do you have a WeChat mini-app? Can we buy through WeChat directly? Can you share more about what you do on WeChat?
Jay Thornill: Sure. We have about 40,000 followers on WeChat. And, actually, WeChat Pay is the primary payment method. I’d estimate about 70% are actually paying through WeChat. And we have our WeChat official service account. We also have a WeChat mini-program, but most of our users are on our official account. And it makes it really easy to shop because everyone’s already on WeChat all the time in China. So, you’ve got to have a presence there. And a lot of people have their money on WeChat. They’re used to paying through WeChat, especially foreigners. They’re much more likely to use WeChat Pay than AliPay. And so, through our official account, we have a custom menu.
So, they can quickly navigate the website, get on there, check out, and then quickly pay with their fingerprint scan or their passcode. And they can also live-chat. So, they can message our official WeChat account and then live-chat with a service agent if they need to. Most of our customers don’t need to, but it’s there for them. And then, of course, we get our pushes on WeChat. So, four times a month, we can push out our content, so that all of our users get a push and they can see four or five articles we write. And we try to do WeChat marketing for e-commerce, for example, to keep the content very focused on Baopals or on things that our demographic is interested in. So, we don’t try to make it feel advertise but more like fun, easy, readable content that they enjoy.
Mathieu David: I understand that your focus is more actually to nurture the current base of your clients and go further with them to build a better relationship and get more clients through WeChat marketing for e-commerce. So, I would believe that you are doubling down on marketing automation, newsletters, and so on. What kind of software do you use? Do you use HubSpot? Do you use some software to do marketing automation, retargeting, and so on? Is it part of your marketing efforts?
Charles Erickson: No, we don’t really use any software for marketing.
Jay Thornill: Right. Well, we do email blasts. So, we do use some email marketing software on the email side although we don’t send out a whole lot of emails. We’re very averse to spamming. I mean we’ve made accounts on other shopping websites, like American shopping websites, and gotten as many as an email every single day from some of them. And it’s quite shocking, really, because you just start to tune it out immediately. And the last thing we want to do is to bother our customers excessively. So, we do use email marketing software, but we tend to send out only about two or three email blasts a month. And usually, we just focus on showing them like what the favorite products from other shoppers this month were. What are the best deals going on? Or what new feature do we have or sale that they should know about? Otherwise, we’re just doing social media. We’re using, obviously, Facebook ad campaigns.
Charles Erickson: And Google AdWords.
Jay Thornill: And we’re using Google AdWords. But that’s really just kind of ongoing. That just keeps running. And we don’t put a lot into it; it’s just about $10 a day.
Mathieu David: Okay.
Jay Thornill: And we see people coming through.
Charles Erickson: Yeah, we just kind of feel that we don’t really want to shove our product and service down people’s throats because I think that’s the standard policy for most companies. It’s like very aggressive, in-your-face marketing. And we kind of took a more hands-off approach to it. And so far, it’s been working pretty well. That being said, I think we could be a bit more aggressive. Like we said, the customers really sort of appreciate that we aren’t very invasive. And that’s one of the reasons we’ve been able to create loyalty and trust.
Mathieu David: I like to understand a bit more about the code you built behind Baopals. When I go on Baopals, it takes a little bit of time to load the content. Does it mean that you extract the data from Taobao and then you translate the data and get the price and so on? Do you have a specific agreement on using the API of the website and so on? Can you tell us more about what the machine is behind Baopals?
Jay Thornill: Sure, yeah. We can’t tell everything, of course. There are some trade secrets. But, yeah, I mean what we built is really like a puzzle of different technologies that we had to piece together because there was nothing available for us to build this that would kind of just give it to us on a plate and we just say, “Oh, wow, how easy!”. Because, then, everybody would have done it. It’s a very difficult platform to build and maintain, but we do rely on APIs for the most part for the engine of the website. And that is what bridges Taobao with foreign customers and make sure that they stay updated so that customers essentially are shopping on Taobao, but with our interface—I mean our skin on there. And then, there are auto-translations apps built into that, which we also kind of tweaked a little bit when we noticed common problems. And we also manually translate certain things, especially products and sellers that we’re featuring or popular on our website. But, yeah, I mean a lot of that is automated.
And then, we’ve actually built twice the backend of our website which the customers won’t see. I mean, really, it’s almost three times because it’s a very sophisticated system where customers orders are coming through and going to the right person to handle the next step and really sort of breaking it into various teams that can specialize in servicing specific types of orders and specific types of issues. And then, we’ve built a lot of tools for our team to make their job easier, to reduce errors, to speed up the processing, to give them the right communication tools so that our service quality is good, and just make sure that the behind-the-scenes all run very smoothly. I don’t know how much more I can say beyond that. But maybe you can ask more questions to dive deeper.
Mathieu David: I believe it’s interesting for the audience to understand that the API of Taobao makes it possible to build on top of Taobao because the ecosystem of China is not very closed. But in fact, they have opened more than what I would have expected myself. And I saw that Alibaba featured you on their channel with a post, right?
Charles Erickson: Yeah, they made a post. So that was quite nice. A couple of years ago, AliBaba’s PR reached out to us before our second 1111 wanting to do a piece about us and they came over. And they were very excited. And this was kind of a big first step for us because we weren’t quite sure. How does AliBaba view us? Do they like us? Or are they going to be like, “Hey, what are you guys doing by establishing this shopping website for foreigners in China?” But when the PR team came to visit us, it kind of put to rest our fears because they always referred to us as part of their ecosystem. So, like you said, China is quite closed but what we do with AliBaba and, I think, a lot of things in China are actually quite open. So, they were just kind of excited, like, “Wow, we didn’t expect anybody really to do this. You’re just some kind of weird plant that started growing in our ecosystem”. We were like, “Hey, this is kind of new. Let’s see what happens”. So that was quite nice. And they’ve actually come back to us a few times again for some other stories and videos with us.
Mathieu David: That’s one of the surprises as well. And it’s contrarian to see that Alibaba is actually welcoming what you are doing. And most people would think that, actually, Chinese companies, especially those giants, will not be very open. But the conclusion I feel is that they are caring about building an environment and ecosystem around them. The last question is a bit technical. It’s about the transaction with Taobao. Is it automatic or you have to manually accept it? Was it easy to build? The other question is technically speaking, what was the most difficult aspect to build? Was it the payment? Was it something else?
Charles Erickson: I will say the payment wasn’t that difficult. Once we were able to set up payment channels, it was all right. As Jay was saying, building the API was a bit of a puzzle. So, there isn’t a single API so that we have to create this. There are multiple APIs that you have to apply for. And some of them require more sort of clearance and a firm agreement. Some APIs actually don’t even exist anymore. But luckily, we got grandfathered in. So that was the toughest part. It was figuring out. Taobao and Tmall are very complex giants. And you have to get little pieces from here to here and put them together to get the data to really display what we need to have for shopping. So, I would say I think that was the toughest part.
Jay Thornill: Right. And then, for Charlie and myself personally, learning to understand the technology a bit more and manage our tech team has been something that we’ve had to grow in because we’re not programmers. We tried talking like a beginner course and we didn’t get too far. But at least, now, we understand the lingo. And we understand a bit more how they work and how to communicate with tech people to explain what the problem is we’re trying to solve, how it looks, how it should look and feel, the way it should work and what we’re trying to build, and then organize things properly. Because for us, the tech team is 7-8 people and it’s one of the major costs of the company. It’s always either maintaining what we have or building the future of the company. So, if you mismanage that, it can be hugely costly. So, for us, getting the right people on the tech team, understanding how to manage them, and learning to use tools like JIRA for project management has been one of the biggest lessons that we’ve had to learn and one of the most important ones.
Mathieu David: What you said just before which I found surprising is that actually, people go on your shopping website for foreigners in China and also buy products from overseas through Taobao because you have those resellers who are actually buying products from Australia and reselling in China. Do you have an idea of these fleet of products that are actually bought through Taobao coming from overseas (what we call cross-border) and the ones which are actually coming from Chinese factories as cheaper products? We expect more on Taobao, actually.
Charles Erickson: I would say the majority are coming from China because it’s quite a bit more expensive. I think a lot of those Tmall stores that are reselling European and Australian products are really marketing more to the Chinese. I mean I can’t really put a number on it but I would say it’s probably less than 10%.
Jay Thornill: Yeah, I mean when it comes to foreign products that we’re selling, a lot of times, it is food. Probably, our top-selling product of all time is this Australian milk, Devondale. So, if people are able to easily get imported food or drink, then that’s something that they’ll buy quite frequently. But that product has been quite localized, so it’s very easy to get. The shipping is very fast. Usually, it’s 24 hours. And then, people still go on the flagship stores for foreign clothing brands like H&M, Zara, or Uniqlo. But more and more customers are buying from Chinese brands because when you go on our website, you can see all of it and compare so quickly. That’s the advantage of online shopping website for foreigners in China; it’s that you get to see all of your options for any given product category. And when you put the Chinese brands up against the western brands, oftentimes, the price is so attractive. And then you start to discover that the quality of many Chinese brands is really good, too. Just yesterday, I ordered some new Bluetooth earphones and I immediately went to the Xiaomi store on our website because I just know that Xiaomi is making good electronics at a very affordable price. And I’ve grown to trust that brand.
Charles Erickson: Yeah, I think a big value that we’ve been adding to China as a whole and Chinese sellers specifically is letting foreigners discover and trust Chinese brands because China has always had to deal with the stigma of made-in-China and low quality. But really, in reality, that’s not so true anymore. They have every range of quality. They have poor quality and they also have very high quality. And so, it’s nice to see our customers being a little bit braver and venturing out and trying Xiaomi or Huawei or buying Feiyue shoes because they’re just quite a bit cheaper and the quality is very, very high.
Jay Thornill: Yeah, oftentimes on Instagram, I get advertised random products. And I’ve seen these exact same products on Taobao and Baopals before. And they’re being advertised to the West and getting all kinds of likes and comments. And then I check the price and it’s been up like five times. And so, a lot of times in the West, they are buying the same products but we are just paying a whole lot less buying them directly from the source here.
Charles Erickson: Right. The products on Amazon are a bit pricey but people feel like it’s high-quality and safer because it’s on Amazon. And that’s a bit of advantage that Baopals has as well. People feel a little bit safer buying on Baopals and it’s a little plus for us.
Mathieu David: Talking about the products which are selling on your shopping website for foreigners in China, would you mind sharing a couple of best sellers?
Jay Thornill: Right. Other than milk, we’ve sold really all kinds of things. I mean the top-selling categories are a bit different from the top-selling products because the top-selling categories are apparel, mostly women’s apparel, and women’s footwear and beauty products. The women’s departments dominate in terms of browsing and traffic. But because there’s so much variety, and different women have different styles, there isn’t like one dress or one shoe that does all the sales. So, the categories dominate. But in terms of actual products that sell a lot, it really ranges a ton. I mean there were these really cool, framed prints of different Chinese cities. You may have seen them. You might see them around if you look for them. You could get kind of a line map of Shanghai or Beijing or whatever city you live in. They also do foreign cities, framed and printed. It’s a nice thing to kind of have on the wall at home. And they only cost like $15 to $20. We sold a lot of those. So, a lot of home decor and kind of cool products like a Lego mug.
Charles Erickson: Yeah, I mean women’s clothing is by far the largest department we get most people. The biggest sales are all women’s clothing. But there’s such a huge variety that it’s not usually one single product that’s selling a lot. There are tens of millions of women’s clothing on Taobao. But what we do see is that foreigners often tend to buy what other foreigners have purchased and reviewed on the site. So that’s another thing that is nice about Baopals’ over three years of having this website; it’s that the content on the site is getting better because customers will buy stuff and they will review it. And when a customer sees another customer says that this product is good, then they buy it.
Mathieu David: I see.
Charles Erickson: So that’s kind of a trend that we’re seeing. Like for example, there’s a lot of positive reviews on the milk that Jay was talking about. So now, all the customers see it and they all trust it. They tell you to like, “Okay, if you want to get milk, buy this milk. If you want to buy macaroni and cheese, buy this macaroni and cheese”.
Jay Thornill: Yeah, actually there’s a mac and cheese that’s one of our top-selling products.
Charles Erickson: Right.
Jay Thornill: And then there’s random stuff that just kind of becomes really popular on the shopping website for foreigners in China. Like we had some unicorn pajamas that became really popular one winter. And so, a lot of people bought those winter onesies that are really cute like unicorn and animal onesies. And then, there are certain electronics like Bluetooth speakers that can get popular. Before everyone started hating Game of Thrones with the last season, there was a really popular Tyrion Lannister t-shirt that we sold a lot of. It really kind of comes and goes. A lot of times, it’s seasonal or it’s something that’s topical that just kind of gets popular and we feature it.
Mathieu David: How much do you localize for apparel because the sizes are different between the West and China? Do you advise on this?
Charles Erickson: For the size differences?
Mathieu David: Yeah, the sizes. I remember the sizes were different for the robes business I invested in. Actually, the sizes were different. So, we had to reinterpret and even resize and try them? Do you advise clients on this as well?
Charles Erickson: We do a bit. I mean it’s something that everybody experiences, right? I’m like a medium or large in the US. And I’m a quadruple-XL here in China. And it varies largely by the seller. But one thing that’s good on Taobao is that the sellers don’t want people to return clothes. So, they want to try to get the best fit. So, every seller has a sizing guideline. And so, we always advise customers to first look at that sizing guideline. And we have an article that can help them translate and understand what it is. It’s like, “Okay, for 80 kilos and 170 centimeters, then choose this size”. So, most of our shoppers may have a bad experience the first two times because they don’t know any better. A medium-size in America wouldn’t be the same size here. So, they’ve got to look at these sizing guidelines.
Jay Thornill: Right. If you just look at the product options and pick a size, you’re going to have a bad experience. So, what you want to do is contact the seller and that the seller will almost always have a chart. And a lot of sellers are getting a bit smarter about it and realizing that people want to know ‘I’m this height and I’m this weight’.
Charles Erickson: Right.
Jay Thornill: Those are two things that I know. I don’t necessarily know how much I measure around the waist, for instance. But if you just tell me what size to get if I tell you my height and weight, that’s great. So, they usually put that in the chart now. And as long as our users scroll down, they can see that.
Mathieu David: Talking about the future, I feel that one of the considerations you had was to include cryptocurrencies and make people pay through cryptocurrencies. When I read that, I felt that it was a way for you to distinguish yourself from Alibaba or AliExpress because they would certainly not do that. They would not make it possible for people to pay with cryptocurrencies. And I feel that one of the directions you go to is trying to differentiate. Could you share a bit more about the future of Baopals?
Jay Thornill: Yeah, the connection cut out a little bit there.
Mathieu David: Oh sorry.
Jay Thornill: But I think you’re asking how we are different from companies like Alibaba or AliExpress. I think you mentioned cryptocurrency as a possible payment method which will spark our interest because we are big fans of Bitcoin. We actually have a Bitcoin flag that we made for our office Olympics in the back. I don’t think you can see it. But yeah, that intrigues us a lot. I think the main difference for us is that we are a platform created by foreigners who live in China and want to share what they love about China with the rest of the world or with other foreigners versus a Chinese company that’s combating against all these preconceived notions that foreigners have about Chinese platforms, companies, Chinese brands. We can build trust in a way that they can’t simply because we are foreigners who say “We know how you feel about China or about Chinese brands. We live here. And here’s what we’ve learned. And here’s what we like about China”.
So, there’s a level of trust and familiarity that we can create. Also, by being the middleman bridging Taobao with foreign customers that we are as opposed to AliExpress and AliBaba where sellers are communicating directly with customers and oftentimes providing a pretty bad or unpredictable experience, we’re able to standardize that experience. So, our families shop on AliExpress and one of the complaints that we often hear from them is that they’re getting weird messages from sellers who are clearly using translation tools to try to sell them more products. Or if they want to return it, they say, “Oh, no, no, no. Don’t return it. How about we give you a 10% refund and then you don’t leave a bad review. Okay? Okay, thank you so much, I’ll give you a gift”. It’s really often kind of a bizarre and uncomfortable experience for foreigners because they’re getting different service standards from every different seller. They don’t know what to expect. And also, they don’t know what products to buy as well. So, by being a platform built by foreigners with foreigners and a Chinese team, we can filter that experience and help foreigners gain more trust and buy the right products and then feel safe with the platform they’re shopping on. And then, maybe Charlie can also talk about cryptocurrency because he’s been talking about Bitcoin for a very long time.
Charles Erickson: I don’t really know what to say too much about crypto. I mean we would like to accept crypto when we go international—maybe, something Bitcoin on the Lightning Network. But it’s still very early stages. I love Bitcoin but as a sort of value, I don’t see it being used very much as a medium of exchange anytime soon. But I hope in the coming years, there will be second and third-tier payment levels built on top of Bitcoin. That could be very exciting in the future. So, we will see. We’re banking on crypto being the future of money in about the next five years.
Jay Thornill: We talked about creating our own and I got excited about the idea of a shopping website for foreigners in China that would have its own cryptocurrency. But the more we learned about Bitcoin, the more we realized that Bitcoin is really the best one. It’s different from all the altcoins. And that’s how we’re kind of banking on the future. And we just believe in it philosophically. It’s becoming a real thing too which is exciting.
Mathieu David: Thank you very much for your time. It’s already one hour of interview and congratulations on everything you’ve built. I mean you have been quoted in People’s Daily, Bloomberg, China Daily, and Alibaba as well. You got a prize as well from Shanghai city, right?
Charles Erickson: Yeah, that was a surprise.
Jay Thornill: Right. The Shanghai municipal government organized a city-wide competition with hundreds of start-ups. And they’ve been doing it every year for about nine years. And they’d never had a foreign start-up make it to the final round of 10. So, we went through a series of rounds and then all of a sudden, we were on stage at this big ceremony with politicians there. And so, that was an honor. That was something that we didn’t expect. We just kind of went in at the last minute because somebody encouraged us to, but it was really flattering to be featured and awarded and to kind of break some new ground as a foreign-run start-up in China.
Charles Erickson: Yeah, it was interesting because we weren’t even quite sure what this event fully was because we’d done a few start-up competitions before and they never really panned out. So, Jay was almost like, “Maybe, we don’t even want to go to this. Whatever”.
Jay Thornill: And I was sick too. I wasn’t feeling well.
Charles Erickson: Yeah. So, Jay was on stage doing the presentation and I was in the audience and then right after he’s done and we’ve won, some news reporters came by and interviewed me. And he’s like, “How did it feel? How did you get there?” And I was like, “To be honest, I don’t even know. We just signed some things and then we showed up here”. I didn’t really understand. The paper quoted that and said, “We asked how it felt and how they got there. And Charles Erickson said, ‘I had no idea what was happening. We just showed up.'” So that was quite nice.
Mathieu David: Congrats again. I hope you enjoyed the talk. I hope everyone enjoyed listening to it as well. You can follow us on China Paradigm iTunes, Spotify, and on every channel including YouTube and Facebook through the name, China Paradigm. Thanks again for being with us today.
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