Over the past two years, 1688, a platform originally focused on B2B wholesale procurement, has been making waves among younger consumersThis shift is characterized by a growing number of people seeking to source quality alternatives to high-end brands at affordable prices directly from manufacturers.

However, the traditional B2B shopping experience has often presented challenges for individual buyers, lacking user-friendlinessIn response to the needs of personal consumers, the platform has officially launched a private label business known as "1688 Yuanxuan," targeting the C-end market with a renewed focus.

The newly introduced brand is specifically designed to meet the demands of middle-class families in first and second-tier citiesThe initial product range will feature three major categories: bathroom supplies, liquor, and pet foodTo expand its reach beyond its existing platforms, 1688 plans to collaborate with social media giants like Douyin and Xiaohongshu to introduce co-branded products

Currently, over 20 different products are in the pipeline, set to launch in December.

The phenomenon of platforms collaborating with factories to offer private label goods has become a common business model, with competitors such as NetEase Yanxuan, a Chinese supermarket chain, Xiaomi Youpin, and Oriental Selection operating similarlyYet, aside from a few successful cases like Sam's Club, other platforms have struggled to achieve significant breakthroughs in this domainThese failures often stem from reliance on the sales of private label products for profit, highlighting a limitation to growth potentialFor instance, NetEase Yanxuan, despite operating for eight years, reported an estimated annual Gross Merchandise Value (GMV) of merely around 10 billion yuan.

Given this backdrop, 1688's foray into private label business raises questions about its ability to transcend the financial and operational confines typical of traditional wholesale platforms

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Will it truly meet the nuanced consumption needs of middle-class families, allowing it to carve out a niche in the competitive C-end marketplace?

1688's private label venture has been in the works for an extended periodThis is not its first attempt to penetrate the C-end marketAs early as September 2022, 1688 launched a factory-direct brand sales platform called "1688 Yanxuan," where over 90% of the participating vendors are direct manufacturers adhering to stringent quality and authenticity standards.

In 2023, the platform underwent an upgrade, introducing a membership-based "White Label Supermarket" under the name PLUS Membership StoreFocusing on high-quality, factory-sourced products, prices can drop to as low as 10% of leading brand prices, with a nominal membership fee of 99 yuan offering consumers exclusive purchasing services.

The surge in "alternative brand" consumption has attracted a burgeoning number of individual buyers to 1688, especially as this trend has captivated social media discourse

For example, a search on Xiaohongshu reveals that there are over 270,000 posts discussing reviews of equivalent clothing from 1688.

A dedicated consumer, MsXiao, shared with us her loyalty to 1688 for finding budget-friendly optionsWhenever she spots attractive apparel or accessories in physical stores or other e-commerce platforms, her instinct is to cross-check prices on 1688. She frequently encounters significant discounts, often exceeding 50%. However, she observes that while 1688 offers numerous basic styles, for more unique designs, she typically turns to other e-commerce platforms.

Encouraged by the popularity among youthful buyers seeking affordable alternatives, both 1688 Yanxuan and the 1688 Membership Store have experienced rapid growthBy the end of 2023, CEO Yu Yong disclosed in an interview that user growth on the platform had surged by approximately 40%. The primary demographic consists of users aged 25 to 30 and shows a significant commitment to the C-end consumer strategy, with annual sales for "1688 Yanxuan" hitting 30 billion yuan.

The strategic positioning of 1688 within the Alibaba family has also seen notable enhancements

In November 2023, the platform was selected as one of the inaugural innovation businesses by Alibaba Group, joining other brands like Xianyu, DingTalk, and QuarkThis ensemble has been dubbed the “Four Little Dragons.”

As 2024 dawned, 1688's pace of expansion into the C-end consumer market acceleratedIn March, the platform announced a full integration with Taobao, launching a dedicated channel for promoting carefully sourced private-label products from factories.

By September 1688 Yanxuan ventured into private label territory, debuting two types of high-quality liquor, “Yuan·Chunxiang” and “Yuan·Jiangcang”, along with plans for a private label cat food productIn October 1688 founded a new company named “Shenzhen Yi Liu Ba Yuanxuan Supply Chain Management Co., Ltd.” under full ownership of Alibaba, with plans to hire between 300 and 500 employees.

In the last two months, 1688 has reported significant achievements, not only launching its private label brand "1688 Yuanxuan" but also prepping an extensive product lineup, slated for gradual release starting in December

“All pre-production design, product packaging, promotion, and sales will be managed by 1688, allowing factories to concentrate solely on research and development, stocking, and shipping,” shared Pan Jie, the head of the new initiative“We aim to digitalize the supply chain and expand the capacity of quality manufacturers with designs and rapid response capabilities.”

In the rapidly evolving e-commerce sphere, implementing a private label strategy in cooperation with manufacturers is not a novel concept, with notable players like NetEase Yanxuan, Xiaomi Youpin, and Oriental Selection already established in this domainNow, the question arises: is 1688 attempting to enter a saturated market too late? According to industry leader Zhang Yi from Ai Media Consulting, 1688's multi-layered approach to evolving its private label business reflects the broader need for Alibaba to restructure its overall strategy.

Currently, Alibaba's well-established platforms, including Taobao and Tmall, are encountering growth stagnation as they increasingly rely on suppliers and brand owners—a model that is becoming increasingly fragile, particularly with fierce competitors like Pinduoduo and Douyin capturing market share due to their competitive pricing through factory direct supply methods.

Recent fiscal reports indicate that while subsidiaries under Alibaba, such as Taotian, account for over 40% of total revenue, growth has slowed significantly with only a 1% year-on-year increase

Adjusted earnings before interest, taxes, and amortization (EBITA) experienced a 5% decline to approximately 44.59 billion yuan, showing sustained profit erosion.

Remarkably, in November 2022, Alibaba's market cap was overtaken by Pinduoduo for the first timeA year later, Alibaba announced the consolidation of its e-commerce operations under a new Ali E-commerce Group, underscoring an urgent pivot towards innovation.

Zhang emphasizes that 1688, as a longstanding pillar of Alibaba, boasts impressive resources and solid manufacturing capabilitiesHowever, the existing wholesale model has failed to fully leverage its potentialWith the success of private label approaches showcased by Sam's Club, 1688's plan introduces well-targeted innovations to penetrate the C-end consumer market, marking a natural evolution in its strategy.

The economic landscape in recent years has encouraged consumers to be more value-conscious, marking "value-for-money" as a prevailing consumer trend—an opportunity that 1688 is eager to embrace.

Research from Wu Xiaobo's channel indicates that nearly 85% of consumers have purchased comparable products within the last year, particularly among the younger demographic born after 1995, who are increasingly reluctant to pay a premium for big-name brands

Additionally, the 2024 Consumption Trends Report from Youzan highlights an increase in the percentage of consumers retaining items in their shopping cart after being exposed to products, contributing to a prolonged decision-making processOne-third of these shoppers are actively searching for alternatives during this period and often choose budget-friendly options.

Industry analyst Zhuang Shuai highlights that 1688's private label efforts are not a new strategy but a continuation of its efforts through the Yanxuan initiativeAlthough 1688 has expanded into the C-end market, its B2B wholesale and C-end retail functions operate on the same platform, presenting distinct procedural differencesThe B2B process involves sample shipments and order confirmations, while C-end consumers expect immediate purchasing and shippingThis necessitates substantial efforts to reshape user perception, which is a key objective of launching "1688 Yuanxuan."

1688 Yuanxuan seeks to establish a presence in Taobao and Tmall while also exploring partnerships on platforms like Douyin and Xiaohongshu

Executing this model allows for a more concentrated approach to address C-end user demands compared to a mixed-use B2B and C-end service on the same platformZhuang claims that this arrangement enhances the overall supply chain within Taotian, helping position 1688 as a robust supply chain entity that collaborates with a wider network of platforms to drive order growth.

"A factory lacking sales expertise entering the sales domain faces significant pressure1688 fills this gap by shouldering the sales responsibilities of the factories, presenting an exceptional opportunity,” stated retail e-commerce industry expert Zhuang Shuai.

Despite the potential, 1688 faces a formidable challenge when attempting to capture market share from established players like Sam's ClubRespected as the gold standard in retail, the membership-driven model presents unique obstacles.

In discussions with us, Pan Jie, the general manager at 1688 Yuanxuan, consistently referenced Sam's Club, stating that "1688 Yuanxuan's core goal is to serve buyers effectively through a multi-channel strategy." The operation parallels Sam’s brand styling, “Member’s Mark,” recognized for connecting consumers with quality products.

Notably, Pan emphasizes that while 1688's operational model bears some resemblance to Sam's or Costco's membership retail strategies, it diverges on a critical point: membership fees are not considered a primary revenue source

Instead, identifying buyers who require household essentials and routinely replenished products has emerged as the main focusTo date, 1688 boasts over 10 million paid members, surpassing the membership numbers for Sam's Club in China.

Although 1688 has achieved relative success in terms of scale, the challenges it faces remain significantZhuang Shuai points out that the fundamental nature of 1688 as an information platform rather than a sales platform presents hurdlesWhile it offers a robust supply chain, many transactions occur offline, indicating that 1688 carries the responsibility of curating and recommending quality products.

Moreover, consumer reluctance to engage in alternative brand shopping may fluctuate, influenced by factors like a lack of genuine interest in making purchasesBrand creators possess stronger research capabilities, while many factories merely handle order processing

1688’s research capabilities may also lack strengthIdentifying and selecting popular products while avoiding IP infringement becomes a considerable challenge, as erroneous selections might lead to liability for 1688, amplifying operational risks.

Furthermore, 1688's operational capabilities will be put to the test as it endeavors to boost marketing and operational performance on platforms like Taobao, Douyin, and XiaohongshuWith a limited professional team at its disposal, questions persist regarding whether to build an in-house team or collaborate with external stakeholdersDetermining the layout of any collaborative efforts is pressing and complex.

Zhuang believes that 1688's primary challenge lies in effectively communicating to consumers the advantages of its offeringsFor these products to stand out, 1688 must articulate clear benefits; otherwise, overcoming the established negative perceptions associated with wholesale platforms will remain challenging.

In comparison, the key competitive advantages of players like Sam's Club and Costco rest not only in their product offerings but also stem from strong research capabilities and significant economies of scale

Many exclusive items at Sam's are not available through other channels, whereas 1688’s reliance on private labels might not yield comparable competitive advantages.

Moreover, it is critical to note that membership retail brands like Sam's generate supplemental income through membership fees—a model lacking in 1688's structureShould 1688 decide to implement membership fees, consumers may start questioning the value of the private label offerings, especially given that alternative products may be available on other platforms without the same uniqueness or competitive advantage.

While 1688’s representatives assert that their pricing strategies will offer consumers more accessible products, based on instances like Lai Fen providing an alternative to Dyson at significantly reduced prices, the complexities of distinguishing pricing across different models within selected centers and membership stores remain