When Alibaba listed on the Hong Kong Stock Exchange in 2007, it chose '1688' as its stock code.

Behind 1688 lies one of Alibaba's oldest businesses. This B2B venture not only secured a significant share of the domestic e-commerce market for Alibaba but also played a pivotal role in establishing the infrastructure for Taobao's nascent B2C operations.

Over the following fifteen years, China's C2C e-commerce sector flourished, and Alibaba's investment and influence in Taobao grew substantially. Meanwhile, the voice of 1688's B2B e-commerce model began to fade, yet neither Alibaba nor the market forgot about it.

Last November, during Alibaba's reorganization, 1688 emerged as one of the company's strategic innovation businesses.

Alibaba Group stated that 1688 serves mainstream manufacturers in China's manufacturing industry, possesses a solid foundation and enormous potential for secondary entrepreneurship. It is expected to expand its reach beyond B2B business to include procurement by small and medium-sized enterprises and consumers. Furthermore, it has the capability to support cross-border transactions.

Over the past year, 1688 has undergone significant transformations, delving into OEM business, launching 1688 Original Selection to strengthen its supply chain, opening supermarkets to bridge online and offline channels, aiming to become a 'Costco alternative,' and planning for overseas expansion through cross-border business...

With these efforts, 1688 has seamlessly integrated with Taobao, merging its product sources and supply chain into Taobao's main platform. Additionally, services such as free shipping, free shipping for a single item, and return shipping reimbursement have gradually aligned with Taobao's offerings.

Over the past two years, low prices have emerged as the main theme of major e-commerce platforms. To attract more consumers, policies such as 'compare prices across the web,' 'refund only,' and 'mandatory shipping insurance' have placed pressure on merchants to sell goods. Consequently, e-commerce platforms have found themselves operating in a challenging environment with slim profit margins.

As the source of e-commerce, 1688's 'no middlemen markup' model has attracted a growing number of young consumers.

In Alibaba's diverse e-commerce landscape, 1688, while not the largest, manages Alibaba's domestic B2B e-commerce trading market. It has also extended its reach to the C-end market and is now venturing into B2B business overseas.

Of course, retaining users with low prices is only the first step for 1688 to succeed in business. To achieve real growth, 1688, like all e-commerce and retail players, must prioritize performance and after-sales service for both consumers and merchants.

1. 1688 Unveils Its OEM Business and Explores New Business Models

Over the past two years, 1688 has regained the spotlight.

At the end of last year, alongside Xianyu, DingTalk, and Quark, 1688 became one of Alibaba's 'Four Dragons,' with Alibaba pledging continuous investment over a 3-5 year period.

With increased importance, 1688 is also seeking more growth opportunities. C-end consumers who prioritize quality-to-price ratio have become a new source of growth for 1688.

Recently, 1688 launched its OEM business - 1688 Original Selection, further strengthening the brand alternative market. The so-called Original Selection involves selecting products from the source, not merely 'rebranding and relabeling,' but creating channel brands.

Over time, as a strategic project within 1688, 1688 Original Selection appears to be an upgrade of 1688's actions in the brand alternative market.

As early as September 2022, 1688 launched a direct-sales platform for factory brands called '1688 Strict Selection,' with over 90% of merchants being source factories.

In March of this year, 1688 announced its full integration with Taobao and set up a dedicated channel to promote strictly selected OEM source factory goods.

Essentially, 1688 Original Selection is still within the supply chain business. However, unlike previous strict selections, Original Selection not only builds brands but also dives into factories, involving product research and design. It leverages 1688's digital supply chain capabilities to enhance factories' scale effects, resembling the retail giant SHEIN, known for its flexible supply chain.

In terms of its model, 1688 Original Selection focuses on the needs of 'family managers' for household procurement and stockpiling, starting from industrial clusters to provide buyers with products of the same quality as major brands but at one-third of the price. Relying on 1688's offline product selection centers, from production to sales, 1688 Original Selection deeply participates in various aspects of product development and promotion with cooperating factories, strengthening its supply chain construction capabilities.

It is worth noting that 1688 has shown great determination in this Original Selection endeavor, not only registering 1688 Original Selection Supply Chain Co., Ltd. separately but also publicly stating that the Original Selection business will not be profitable in the short term.

This means that 1688 Original Selection will prioritize growth and attracting consumers as its main objectives, while exploring feasible business models.

Behind this trend lies the rise of the 'alternative consumption' wave in the market. Consumers are gradually realizing that the middle links in the sale of branded goods account for a significant portion of the cost, ultimately passed on to consumers. High-quality white-label factory goods with 'no middlemen markup' are the most cost-effective products. Consumers are no longer overly concerned with brands but prefer source factory goods of the same quality at lower prices.

However, problems also arise.

Faced with a complex supply chain market, it is difficult for consumers to choose which is a truly good-value 'alternative to a major brand.' As more and more young small B entrepreneurs and C-end consumers flood in, factory sellers are also not accustomed to the needs of individual buyers, leading to an information gap where both parties have good intentions but insufficient capabilities.

On one side is a strong demand for alternatives, and on the other is the industrial pressure on the supply chain, requiring the platform to step in for balance.

This has spurred new competition among e-commerce platforms. In recent years, competition among e-commerce players for white-label industrial clusters has intensified, especially as Pinduoduo's growth has validated opportunities in white-label industrial clusters. New e-commerce platforms such as Douyin and Kuaishou have also entered the fray to seek opportunities from factories.

These undoubtedly pose significant challenges to 1688, which has been deeply rooted in industrial clusters for many years. Therefore, 1688 must also seek new narratives. However, for 1688 Original Selection to become a growth point, it must still face market competition and consumer scrutiny.

2. 1688 Opens Offline Stores, Aiming to Be a 'Costco Alternative'?

Since its inception, 1688 has been unique in that it has both abundant high-quality source supplies from industrial clusters and can directly supply small and medium retailers at factory prices. Belonging to the Alibaba ecosystem, online has been 1688's main battleground.

This year, however, 1688 has extended its reach offline.

In November of this year, 1688 opened a product selection center at Zhengzhou Airport in Henan Province.

Unlike traditional malls, the core positioning of the 1688 Henan Product Selection Center is 'exploring Henan's industrial clusters in one day.' Focusing on Henan's characteristic industries, the center not only offers local specialties such as Hulatang soup, stewed noodles, and Xinyang Maojian tea but also features many excellent source products from across the country.

The reason it is called a product center is that the goods here are carefully selected by 1688 directly from factories, rather than being a traditional goods center.

This determines that the location of 1688's product selection centers revolves closely around source industrial clusters, as there are thousands of enterprises and factories behind them, which is conducive to 1688 leveraging its supply chain advantages.

For example, in May of this year, 1688 opened its first product selection center in Chenghai, Shantou, a toy manufacturing hub, focusing on the toy industry. In July, 1688 came to Zhejiang's Taizhou, Yiwu, and Yongkang, known as the 'hometown of small commodities,' to open a product selection center for daily necessities.

By bringing factories to the forefront, 1688 breaks the boundary between B-end and C-end while bridging online and offline channels.

A major trend is that with the emergence of new e-commerce concepts such as live streaming e-commerce and buyer e-commerce, consumers' identities have become more diverse. They can be small buyers from factory sources or small sellers to C-end consumers, also known as the 'small B entrepreneurs' mentioned above.

What 1688's product selection centers value is the demand for product sources from this group. 'Small B' refers to emerging buyers such as e-commerce live streamers, grass-seeding bloggers, and group-buying organizers that have emerged in recent years. With the development of new e-commerce formats such as live streaming e-commerce and community group buying, the small B group, as the middle ground between merchants and consumers, requires more stable product sources.

Compared to big buyers, this group has product category needs but limited demand. When selecting products, they often encounter issues such as lack of data support and uncooperative manufacturers. Especially when communicating with multiple manufacturers simultaneously, the communication costs are high. However, 1688's product selection centers can help them procure efficiently and easily.

At the same time, the product selection centers are also linked to 1688 Strict Selection and 1688 Member Stores. Users can view products online and place orders offline, forming a closed loop for product selection business.

When it comes to opening offline stores, especially factory stores, a sample that cannot be ignored is Costco. Costco's success has been a model for many retail players to learn from, not only validating consumers' demand for quality-to-price ratio but also highlighting the importance of the supply chain in the retail industry.

With a similar supply chain advantage, 1688 takes Costco as its benchmark, with some products even directly labeled as 'Costco alternatives.' In October last year, 1688 Strict Selection even directly launched a 'Costco Alternative' channel, with many manufacturers on the page labeled with '1688 Strict Selection,' 'Original Factory Brand,' and other descriptions.

In addition, after its upgrade last year, 1688 Strict Selection launched its PLUS Member Store. Users can enjoy exclusive services such as procurement by paying an annual fee of 99 yuan, featuring source factory goods and brand alternatives at prices as low as one-tenth of major brands.

Similar to Costco's membership system but not a direct copy, compared to Costco's warehouse membership supermarket focusing mainly on private label brands, 1688 aims to create an offline white-label supply chain supermarket, focusing on selecting white-label products. It is understood that 1688's goal for the next three years is to penetrate 1,000 industrial clusters in China and continue to deepen its presence in 177 key industrial clusters across 40 cities.

However, regardless of its positioning, 1688 will face many challenges in moving offline.

Compared to a purely online model, offline product selection centers naturally require heavy investment, which undoubtedly tests 1688's financial and human resources.

More crucially, while the trend of 'Costco alternatives' is strong, most of 1688's users are still on the B-end. For C-end consumers, 1688's brand power is limited. How to attract users to pay for membership and increase repeat purchases is something that 1688 cannot ignore.

Every step, from products moving from offline to online and from factories to consumers' hands, tests 1688's coordination and efficiency. To challenge industry players like Costco, 1688 has much to learn.

3. Going Overseas for Growth: What Should 1688 Do?

After this year's Double 11, Alibaba underwent its annual routine adjustment.

At that time, Alibaba CEO Wu Yongming announced through an all-staff email the establishment of the Alibaba E-commerce Business Group. The E-commerce Business Group will fully integrate e-commerce businesses such as Taobao and Tmall Group, the International Digital Commerce Group, as well as 1688 and Xianyu, forming a business cluster covering the entire domestic and foreign industrial chain.

This change reveals a key point: Alibaba's domestic and international e-commerce businesses are completely integrated, with the group focusing all its efforts on the fundamental e-commerce sector.

Under this adjustment, 1688 is also part of the integration team, which is not surprising to the market. Before this adjustment, 1688 had already ventured from domestic to international markets, exploring the overseas e-commerce market.

At the end of last year, three days after 1688 was upgraded to a first-tier innovation business within Taobao and Tmall, its cross-border business officially debuted. At that time, 1688's cross-border business mainly consisted of two aspects: providing a cross-border API interface allowing partners to distribute 1688's product inventory globally, increasing sales channels; and providing AI technology to help users quickly complete processes such as price comparison and product selection through image/text/link search functions.

In May of this year, 1688 announced a business collaboration with the Mongolian e-commerce platform Shoppy, allowing Mongolian buyers to directly procure source factory goods from China through Shoppyhub. To enhance merchants' cross-border direct procurement efficiency, Wanlihui, a global e-commerce cross-border payment platform under Ant International, also upgraded its cooperation with 1688's cross-border business.

Historically, 1688 had a dedicated cross-border channel. Reports indicate that from January to November 2023, the number of registered cross-border buyers surged by 76% year-on-year, totaling over 5.94 million buyers and involving over 130 million cross-border products. This resulted in a cross-border procurement scale of approximately RMB 200 billion on the platform.

Similar to its inception as a domestic platform, 1688's cross-border e-commerce operations do not cater to the overseas consumer market but rather serve overseas business-to-business (B2B) buyers.

From this perspective, 1688's cross-border endeavors appear more as an extension of overseas channels for the platform's existing merchants.

Essentially, 1688's foray into international markets aligns with a broader trend. In recent years, e-commerce platforms have increasingly ventured overseas, with the rise of SHEIN and Temu opening up new avenues for market growth among Chinese e-commerce players. As the trend toward globalization gains consensus, industry competition has intensified.

Taking the B2B market targeted by 1688 as an example, Temu has been expanding its supply scale and initiating plans to onboard factory merchants, aiming to uncover more high-quality product sources within its supply chain. This suggests that 1688's core supply advantage will face stiff competition, and breaking through will be a test of 1688's capabilities.

Image source: Alibaba official website

Reviewing 1688's development, while it has garnered attention due to its supply chain prowess, it faces significant pressure and challenges.

However, with the shift toward a focus on quality-to-price ratio in the e-commerce market, the emphasis is no longer solely on low prices. The considerations are more diverse, placing more comprehensive demands on 1688. More crucially, after 24 years, it is challenging for 1688's overall market to undergo fundamental changes. It remains uncertain how much incremental growth multi-pronged efforts will ultimately yield. All of these questions await prompt answers from 1688.

(The lead image for this article is sourced from the 1688 Business Circle WeChat official account.)