Meet the man who wants to upend China’s fashion industry with an app called Mogujie

  • Last week, Mogujie raised US$66.5 million in its Nasdaq listing, with its share price opening at US$14
  • Co-founder plans to incubate fashion start-ups by reverse-engineering consumer demand
PUBLISHED : Tuesday, 11 December, 2018, 7:01am
UPDATED : Tuesday, 11 December, 2018, 7:00am

Shark Chen Qi got the idea to create fashion-centric social commerce firm Mogujie from helping his wife operate an online make-up and skincare community. Last week, the company, which claims to have pioneered the live-streaming e-commerce model, finally went public on Nasdaq with an estimated valuation of about US$1.3 billion.

Now, the hard part is convincing investors that it can eventually turn a profit.

Mogujie, founded in 2011, has attracted heavyweight investors including the likes of Tencent and and has been labelled as China’s combination of Pinterest and Amazon. It has over 62 million users who share photos of their outfits on the site and browse for clothing on the app, with its live-streaming section racking up over 3,000 hours of live broadcasts daily. But filings to the SEC show that the Hangzhou-based firm is still loss-making, with declining revenues and slowing growth over the last two years.

To co-founder and chief executive Chen, these slowing numbers are temporary as he looks to take Mogujie a step further and transform itself into a fashion label incubator.

China’s Pinduoduo posts maiden net loss after expenses surge

It plans to do this with data that it has amassed on Mogujie, allowing the firm to help merchants optimise their supply chain processes by helping to estimate demand and providing insights into consumer preferences. Previously, the company had over 100,000 merchants on its platform, but that number has now been reduced to about 18,000 as Mogujie becomes more selective with the brands that it wishes to incubate. The active reduction of merchants has naturally resulted in a dip in revenues, Chen said.

“We have to be selective, we can’t incubate everyone,” Chen said in an interview conducted in Hong Kong in November ahead of the company’s listing. “With Mogujie we hope to transform the whole supply chain of fashion in China.”

Mogujie’s so-called transformation also comes at a time when China’s consumption trends are changing. As China’s rising middle class becomes increasingly affluent, so has the millennial consumer, who wields greater spending power and an appetite for not just international brands but also domestic ones.

“[Millennial consumers now] are more international, they don’t hanker after overseas luxury brands or see them as pure status symbols,” Chen said. “They are happy to mix a designer piece with a local brand in their outfit to express their own style.”

Chen is perhaps the best embodiment of such a consumer. On the day he met the South China Morning Post, he was dressed in slacks and a simple navy T-shirt with four Chinese characters that translated to “frayed by labour” emblazoned on the front – a design by Chinese brand chichaqu. On his wrist, he sported an Hermes pilot-style watch. He decided to buy the timepiece because its understated style was atypical of Hermes’ usual luxurious designs.

Chen pointed out that until recently, many fashion designers would open an online store on e-commerce platforms to sell their items to the masses, doing everything from designing and manufacturing and even organising their own photoshoots, without a focus on building its brand. But as Chinese consumers become more particular about branding, designers have to adapt to the changing trends or risk being sidelined.

“E-commerce companies in China today like Mogujie should focus on producing more premium products as consumption upgrade becomes a trend,” said Kitty Fok, managing director of IDC China. “Consumers are looking for better-quality products and acceptance of domestic brands is increasing.”

One of the ways that Mogujie hopes to help designers today is via its live-streaming model, where users can place orders as they watch the hosts – almost always young, female and petite – try on various items of clothing while dishing out advice on sizing and information on materials. By analysing the data from the streams, Mogujie can help brands accurately estimate demand for their items, preventing excess inventory and thereby lowering operation costs. These savings can then be passed on to consumers, Chen said.

However, the company is listing amid a global tech rout, fuelled by trade tensions among the US and China and slowing growth among some of the world’s largest technology giants. Technology companies like Xiaomi and Meituan, both of which listed on the Hong Kong bourse to great fanfare earlier this year, have slid below their initial public offering price.

Last week, Mogujie raised US$66.5 million in its listing, with its share price opening at US$14. On Friday its stock price closed down at US$13.48.

“Choosing to list at this time likely means that Mogujie is coming from a position of weakness rather than strength,” said Shaun Rein, managing director of China Market Research Group.

If investors have been bearish on larger firms like Alibaba and Tencent, the chances of them investing in a company with declining revenues like Mogujie is even lower, Rein pointed out. Mogujie’s current valuation of about US$1.3 billion is a far cry from the US$3 billion it was worth in 2016.

Taobao launches short video app to drive e-commerce

Mogujie is also up against the likes of Alibaba’s Taobao and Tmall, as well as, which dominate China’s fiercely contested e-commerce market. Last year, Alibaba established a Tmall Innovation Centre aimed at reverse-engineering customer demands based on consumption data, helping brands to create new products that are likely to be a hit. Alibaba is the parent company of the Post.

While data can offer significant insights into consumer preferences, Chen believes that it is not the be all and end all to predicting fashion trends. Ultimately, fashion involves an assessment of aesthetics, and there will always be room for humans to be creative and explore trends that cannot be predicted via data. That is where Mogujie's team of fashion editors come in, to help set trends for its users and become tastemakers for the industry.

“Technology is a productive force, but so is [the human eye for] beauty,” Chen said. “Determining what is beautiful also requires gut feeling.”