E-commerce site raises $110m despite trade tensions

Although it was only founded last year, Aikucun.com has already raised $207 million. But new regulations and a trade war could hamper growth.

Chinese social media e-commerce startup Aikucun.com has raised $110 million in a follow-on Series B round of funding from Sinovation Venture, GGV Capital, United Media FOFs and BA Capital, it said on Monday.

It is Aikucun’s third fundraising so far this year. In May, it raised Rmb100 million ($14 million) Series A funding from Eastern Bell Venture Capital. Quick on its heels, it then raised $83 million Series B funding in July, led by Legend Capital together with Eastern Bell and Xiamen C&D.

Founded only last year, Aikucun provides a platform for two kinds of products. One is storage for goods for brands that weren’t sold this season. The other is for products purchased overseas to sell to Chinese customers. Typical users of Aikucun are individual purchasing agents on social media.

Aikucun provides pictures, edited product descriptions, logistics and aftersales services for users who wish to advertise and sell those products on their own social media.

Aikucun has a fairly mature business model for the storage of goods. It has its own channel for unsold and discounted branded goods. The platform has also started to cooperate with certain brands to sell directly. Its targeted consumers are those who live in third and fourth tier cities. It is a growing group that has already demonstrated its purchasing power. 

The overseas purchasing market is more challenging, but has a higher profit margin.

This is another huge market in China which is closely related to the exchange rate. Some international brands price similar products differently in each country, and that price arbitrage can create huge demand. 

With its eyes on this market, Aikucun founded its international purchase department earlier this year, buying goods from overseas which are then mailed directly to a warehouse in one of China's free trade zones. Goods are sent out from the warehouse to end consumers when an agent sells them on social media.

A shadow, however, has fallen on this market thanks to the threat of a trade war with the US, and a new domestic e-commerce law.

As a pre-emptive move, China has reduced tariffs on some imported products. This means that the prices of some international brands in China have fallen, which makes overseas purchases less appealing. On top of this, Beijing published a new e-commerce law in August which requires everyone who sells online to have an offline company registration.

The latter does not seem to be that much of a spanner in the works. Aikucun has said that individual purchasing agents who don't have licenses, can register on its platform. Agents can comply with regulations and keep their businesses running.

But a trade war is much more of an urgent concern, as it affects both tariffs and foreign exchange rates. Its biggest impact is on the end price that consumers pay and their decision of whether to buy or not to buy. 

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