- Online retailers are turning to baby and maternity products to drive revenue
- BabyTree has raised $300m to expand its e-commerce business
- Cosmetics retailer Jumei has invested in BabyTree to attract its users
By Neil Flynn
China is the world’s second-largest market for mother and baby products, after the US, and domestic firms have been quickly developing platforms to cater for this. Last year, online retailers began to discuss how baby and maternity products would be a key driver of revenues during 2015, and we are beginning to see these products generating both strong GMV and revenue growth.
Online retail giants such as Alibaba and JD.com have promoted their new platforms, but it is a much more important market for the more specialised retailers such as Jumei and VIPshop. This is because their products typically target female shoppers, meaning that baby and maternity clothes are a natural expansion focus.
The online community for early care and education, BabyTree, has raised over $300 million in funding, which will be used to further its e-commerce business. This is particularly prominent given that the firm counts online cosmetics retail firm Jumei and education firm TAL Education among its investors, and suggests that both firms will help to monetise the site’s large online community.BabyTree's homepage
With such a large online community, the site should be successful at building its e-commerce platform. However, the problem that BabyTree will face is that it is coming into direct competition with established e-commerce platforms with large product ranges and extensive logistics systems.
This is why I fully expect that BabyTree’s e-commerce platform will simply be an extension of Jumei, which will allow BabyTree to sell Jumei’s extensive product range, as well as use its international logistics network. From Jumei’s perspective, although we may not see large organic traffic flows from BabyTree, it should be a very valuable asset for the firm, and an effective way of monetising the large community.
Finding the next generation of consumers
Over the past few years, we have seen specialised tech firms expand their business scope to the point that many firms simply do the same thing. As an example, JD.com was originally an electronics retailer, but since its investment from Tencent, it is a general retailer that is more than capable of competing with Alibaba’s Tmall platform.
Likewise, VIPshop was originally a flash retailer, but has since expanded into direct sales and third-party merchants, which puts it in direct competition with Alibaba, JD.com and Jumei.
Therefore the problem that firms face is how to win the new generation of consumers, and keep them away from rival sites. Given that platforms all look the same, have the same goods at the same prices, it’s difficult to boast a competitive advantage.
Therefore it is very interesting to see Jumei making this investment into BabyTree, as it boasts over 10m daily active users, who visit the site specifically to discuss baby, maternity and education issues. This makes BabyTree unrivalled in terms of the community platform for these subjects, and the users are exactly who Jumei is trying to attract.
China is now the second-largest market for mother and baby products and online retailers
are keen for a share. Photo: iStock
TAL Education invested $25m in BabyTree in January 2014, with the intent of expanding its pre-school business by offering its online and offline courses to its target customers on BabyTree. Online and after-school education is a very fragmented industry, with even the largest firms holding only a single digit market share. The industry was typically focused on English teaching, but we are seeing a strong drive for diversification as English levels improve across all age groups.
The focus on infants is particularly interesting, because parents are generally sticky when it comes to their child’s education. Its biggest rival, New Oriental Education, has partnered with Tencent, which has the largest social network user base in China through its WeChat and QQ platforms.
The major purpose of this is to market apps for students to prepare for particular subjects in the university entrance subject. Tencent is incredibly valuable to New Oriental because of its user base, so the TAL Education investment in BabyTree is expected to reap gains because of the monetisation of its community.
The clear strategy was to monetise the large user base, and I expect that we will continue to see further investments in any Chinese platform with a large user base.
– Edited by Gayle Bryant
Neil Flynn is a China watcher based in Shanghai. Follow Neil or post your comment below to engage with Saxo Bank's social trading platform.