INTERVIEW
image

The Next Big Thing

Biyao's Bi Sheng is on a mission to revolutionise e-commerce

PUBLISHED : Monday, 29 June, 2015, 1:12pm
UPDATED : Monday, 29 June, 2015, 1:12pm

Bi Sheng is a man on a mission. He wants to revolutionise e-commerce by cutting out wasted inventory for manufacturers and doing away with middlemen who mark up prices. His website Biyao.com lets shoppers buy directly from manufacturers, thus offering cheaper prices. The Hebei native says this is only the first step in his ambitious goal to change the way people shop online.

Tell us about your career so far.

I was a business assistant to Robin Li Yanhong, co-founder of the mainland's top search portal Baidu, when the company was still a start-up. I became its chief marketing officer within four years. In 2005, I left Baidu after it went public on the Nasdaq. For the next two years, I didn't work as my parents were quite ill and I had to care for them.

Lei Jun, founder of the mainland's top smartphone maker Xiaomi, is a good friend of mine. At a time when I was very much in need of help and support, he encouraged me to start my own business.

We scraped together US$2 million and launched Letao.com to sell shoes online. It soon became the mainland's top online shoe retailer.

Why did you sell Letao?

Letao was not short of investment. It also generated good revenue. But because of the way e-commerce is structured on the mainland, the margins were very low. We had to offer our customers subsidies to draw them to our site.

Revenue reached 1 billion yuan (HK$1.26 billion) at its peak, but it soon became clear to me that I was not creating value. Unlike the case with Baidu, which helps users find information very quickly, I felt Letao was simply burning my investors' money. To be honest, I had no experience in e-commerce, and I thought the manufacturing process and supply chain we were using did not quite add up to a viable business model, so I decided to sell the company.

What happens in a supply chain on the mainland?

Let's take the T-shirt you're wearing as an example. It has gone through a very long process to become a saleable product.

First, the factory has to buy the raw material, and then it takes its cut. There will also be tax on that. Afterwards, there are delivery and insurance costs. The stock then has to be stored in a large enough space, which requires staff to look after it. Add in more delivery charges to transport the stock to local storage depots, which again have to be manned. Finally, it is shipped to retail outlets, which means other costs like branding and marketing.

So as you can see, the costs are all adding up, and we haven't even come to the most important one yet: inventory. This is the single biggest headache for retailers, and a product's pricing hinges on it.

But doesn't online retailing save some of those costs?

Yes, but it also brings other costs into play. Most of the big online retailers on the mainland aren't doing very well, except for Alibaba. For example, JD.com runs on very low margins, and because it doesn't just sell other people's products, it invokes huge inventory risks by acting as a vendor itself. While Alibaba is making money, many merchants on its consumer-to-consumer site Taobao and business-to-consumer site Tmall are not.

The problem lies in the fact that the supply chain is already too long before you even get to the online platform. As such, when retailers put in their orders, they are already factoring in other costs such as marketing and advertising. All this leads to marked-up prices for the consumers.

What's your solution then?

A business model that directly links verified manufacturers with consumers will offer the same high-quality products they already offer in the market, but at much lower prices.

That is why I began running around factories in Guangdong and Zhejiang about two years ago trying to speak to luxury suppliers, hoping to convince them to modify their established supply chains and ingrained mindsets.

The system I am proposing is the way of the future. It's about time manufacturing on the mainland kept up with the changing times. And that is why I started Biyao.com.

How did they respond?

The idea held a lot of appeal, but they took a lot of convincing. I suppose I'm quite well-known in some internet circles thanks to my background at Baidu and Letao, but in the manufacturing industry, I'm an unknown, so I got kicked out of a lot of factories. On top of that, I had to convince them to use their own money - up to 50 million yuan each - to invest in a flexible supply chain that responds to customer demand, as Biyao works only as a platform between customers and manufacturers.

Things are a lot better now. I have teamed up with leading manufacturers in six areas, namely glasses, suitcases, leather shoes, sneakers, sportswear and women's clothing. They all supply to the top brands in their fields, including Burberry, Prada and Samsonite, to name a few.

Doesn't your model simply shift inventory risk to manufacturers?

No, it doesn't. Let me tell you why. Glasses have an extremely high mark-up. This can be more than a hundred times the original cost, because customers have different degrees of myopia, astigmatism and pupillary distance.

The way things are done now, manufacturers make glasses in all possible configurations, and then put them in storage. Not all of them will sell, however, and the leftover products will eventually hit their expiry date. Now, the customer is effectively made to cover all these costs - how ridiculous is that? But under the system I propose, the manufacturers keep only the raw materials they require, and they process them as and when the orders come in.

Such a system may lead to some slight delays, but most customers don't mind waiting a bit for a much better deal.

Has this model proved successful so far?

Biyao.com has been running for about two months, and we have already seen more than 300,000 unique visitors for May, which generated millions of yuan in revenue that month. So I would say it has been going very well.

If this level of growth continues, I think we will break even in about eight months. Later, I plan to expand overseas so that my new business model can have a global impact.