Early in July, Bollywood actor Ranveer Singh and Manushi Chhillar, winner of the Miss World 2017 crown, came together for an ad series for Club Factory, a Chinese e-commerce marketplace that is making waves in India. In the 18 months or so that the platform has started selling in India, it claims to have signed up 40 million users in India (perspective: Flipkart has over 100 million registered users in its 10 years of operations).

Chhillar summarised the marketplace’s promise best when she said, “Club Factory has the potential to reach every nook and cranny, giving young women easy access to affordable glamour.” (Emphasis added by FactorDaily.) Calling India Club Factory’s “most important market,” CEO Vincent Lou said, “…our new campaign captures insights of today’s generation perfectly well and draws on their quest for trendy fashion at unbeatable factory prices.” (Again, emphasis ours.)

Club Factory’s offerings check three boxes: unbranded, trendy and cheap. It keeps it that way by having 200,000 suppliers on its platform looking to churn their inventory. Founded by Lou, a Stanford graduate and a former Facebook employee, Club Factory started as Hangzhou-headquartered Baokuanyi, a software as a service (SaaS) data intelligence platform to help suppliers make decisions based on factory and inventory data in China.

Lou met his co-founder Aaron Li at Stanford University where they worked together on an artificial intelligence-powered solution to help World Health Organisation optimize costs of medical devices. They used AI techniques to model medical knowledge and help develop ICD 11 (World Health Organization’s official medical knowledge graph) and got attention in top academic journals and conferences.

Later on, with the opinion that the same solution could be applied to supply chain management, they started Baokuanyi in December 2014, which soon became one of the largest data analytics platforms for manufacturers with inventory and stock data of more than 200,000 factories. The promise: increase margins with a better sense of inventory data.

With the platform scaling up, in 2016, Lou realised that Club Factory could help suppliers liquidate inventories by selling directly to customers. Fast forward to today: Club Factory has honed its supply-chain management system focused on the individual and pairs with its AI-based algorithm to recommend products to users.

Its app uses proprietary AI technology to compare prices from multiple manufacturers in real-time to present the customer with the lowest price for a product. It helps that the platform has the benefit of reduced cost saved on middlemen.

Further, Club Factory’s SaaS offering helps suppliers with insights on production such as details on products that sell fast and designs that work well with a set of users — reducing the likelihood and cost of dead inventory. Club Factory did not divulge the cost saved at the consumer level.

The India story

As India progresses towards being Club Factory’s top market in revenues, the company will focus on localising its product here, says country manager Ashwin Rastogi. It is already piloting its platform with 1,000 Indian sellers. The strategy is simple: copy the playbook that has worked for it in China. With its focus on the Indian market for the long run, says Rastogi, the company wants to get a large number of Indian sellers on board to improve unit economics.

There are Indian tweaks, to be sure. For instance, it offers cash on delivery as a payment option.

The company is clear that it will be a ‘horizontal player’, not a vertical specialist. Its app has over a million products listed in eight categories with 10,000 new products added every day. Though apparel remains the fastest-selling category among its offerings in India, other categories such as fashion accessories, home decor, kitchen appliances, and personal electronics are also seeing good traction on the platform, says Rastogi. “The plan is to establish Club Factory as a mass market brand,” he adds.

Its target markets make for an even bolder strategy: tier 2 and tier 3 Indian cities and towns – in what could be a threat to second-tier Indian e-commerce players such as Paytm Mall and ShopClues. The holy grail for Indian e-commerce lies in chasing the next 100 million internet users in such smaller cities and towns, which consulting firm RedSeer estimates will add some 19 million to India’s online shoppers in 2018.

Club Factory has partnered with five last mile logistics players – two that customers named are Gati and Delhivery – in India and opened three warehouses in the last two months, to meet a growing demand in the country. The company says it already caters to over 26,000 pin codes in India.

What about customer acquisition? Rastogi says Club Factory’s customer acquisition costs remain low with its focus on digital marketing platforms such as Facebook and Instagram. “We have learned from the mistakes of the players that came before us to not invest heavily in channels where acquisition costs shoot up,” he says. He explains the no doubt expensive campaign with Singh and Chillar more towards “awareness and recall value” of the Club Factory brand. Rastogi earlier worked with VC firm Eight Roads and Premji Invest, software billionaire Azim Premji’s family office fund.

Satish Meena, Senior Forecast Analyst at Forrester Research says that Club Factory’s trendy and fast fashion line of products at unbeatable prices (see Amazon and Club Factory comparison for the same product) has given it an advantage of new users experimenting with its products. The focus of large fashion platforms such as Myntra on high spending customers leaves a huge opportunity for players like Club Factory to woo consumer buying unbranded products.

India’s online fashion market is expected to grow 3.5x from $4 billion in 2018 to $14 billion by 2020. It is a focus area for almost every player: from the likes of Myntra to its parent and more horizontally focused Flipkart to large offline retailers like Future Group. But, most have not had much success penetrating tier 2 and tier 3 Indian markets.

Club Factory is not the lone Chinese player that has identified the small town-India opportunity, though. AliExpress, the online retail service owned by Alibaba has been selling in India for over three years now.

In a recent report, app tracker App Annie highlighted that India is one of the main markets of focus for China’s cross-border e-commerce players due to consumer demand for cheap products and the potential for high economic growth. The report listed Club Factory, AliExpress, SHEIN, ROMWE, and JollyChic as five of the top 10 best performing cross-border e-commerce Chinese apps in the first five months of 2018. Of the top 10, five count India among its top three markets.

Club Factory, whose employee count in India is more than 500, fulfils around 25,000 daily orders from India with order sizes ranging from Rs 1000 to Rs 1,500 ahead of AliExpress and SHEIN that get around 10,000 daily orders from the country, estimates Meena. It says it has reduced its cross-border shipment delivery time to less than 12 days. This is lower than delivery time for those like AliExpress that offers a standard shipment time of 15 to 25 days in India. Club Factory also has a local customer care service in English and Hindi.

Selling online to buyers in smaller cities has the advantage of lower competition but sellers will have to bear the higher cost of logistics, says an expert. “At the aggregate business level, the company needs to take a call on whether cost saving or lack of competition will compensate for lower demand and high logistics cost,” he says.

Overall, Club Factory delivers on its inexpensive, fast fashion promise despite scepticism in some Indian quarters. What brought Hyderabad resident Payal Ganguly, who describes herself as a choosy buyer, back to the platform were its “addictive” recommendations. In the past, she had ordered clothes, home decor and jewellery from the platform. She says that while it takes hours for her to find that one kurti or top that she likes on other fashion e-commerce sites, Club Factory pops up choices she likes often.

“I think it (Club Factory platform) picks up very basic attributes like the length of sleeves, preference of colours, and patterns in trousers very quickly and suggests multiple other products you might like,” says Ganguly. A recent delight: her last order was delivered within two weeks.

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