Xiaohongshu (also known as Little Red Book) was founded in 2013 by Miranda Qu and Charlwin Mao, has grown to become China's foremost fashion and luxury shopping platform. It is more like a content-sharing site, where users can post product photos with reviews and tips for other users to read, comment, and save to their boards.
According to CNBC, Xiaohongshu now has more than 200 million registered users and claims that the number is growing by 300% each year. 90% of these users are middle or upper-class women with higher degrees of disposable income. Over 50% of these users are between the ages of 18-35 and are living in Tier 1 and 2 cities in China. This is an incredibly lucrative market for global fashion and cosmetics brands. For example, on June 6 2017, Little Red Book held a shopping festival to celebrate the anniversary of its founding, with sales revenue exceeding 100 million RMB in just two hours, reported by Linkfluence.
How are global brands using Little Red Book to drive sales? Currently, there are around 8,000 verified brands featuring products on Little Red Book, including many major global brands - data from Linkfluence. To attract local users, many global brands work with Chinese key opinion leaders (KOLs). Including Chanel, Gucci and Dior, all of whom have recruited Chinese celebrities for their advertisements.
What truly sets Xiaohongshu apart is its commitment to being truly user-centric. It has built a highly-engaged community of savvy users, allowing users to communicate widely so that Xiaohongshu has become a reliable source of information and suggestions. Combined with its direct connection with e-commerce, Xiaohongshu is even more influential than other social platforms.
First, the app doesn't allow official brand accounts, advertisements, or commercial posts permitted on the platform. This makes Xiaohongshu's users trust that all of the recommendations and endorsements from other users are genuine. So notes on Xiaohongshu have a much higher conversion rate compare to other e-commerce platforms. According to Econsultancy, 8% of Xiaohongshu users make an order on the app after reading Notes, compared with 2.6% who do the same on Tmall, China's largest marketplace for brand goods, owned by e-commerce giant Alibaba(NYSE: BABA).
Secondly, after clarifying the demands of users, Xiaohongshu has no hesitation in reshaping its business model to meet the needs of customers. The app's origins as a social and content platform designed for sharing product recommendations. However, with the increase of users, a large number of underlying data will be generated due to the behaviors of users such as browsing, praising and collecting. Through these data, Xiaohongshu can accurately analyze the needs of users and ensure that users highly praise the purchased goods. Then Xiaohongshu immediately combined e-commerce and social functions, successfully meeting the user's demand for the platform.
All of these factors have combined to make Xiaohongshu one of China's most popular and successful e-commerce apps, and a recent Series D funding round valuing the app at $3 billion, stated in various media sources.
As a rapid development platform, Xiaohongshu also has problems to be solved. One thing the platform is looking to address is the number of "window shoppers": users finding products on Little Red Book, then purchasing them on Taobao or other apps instead. To combat this, Little Red Book has stopped companies from inserting links within content, encouraging users to visit other e-commerce sites. This helps to keep shoppers on the app. However, if users still want to shop elsewhere, they still can.
"In China, they get to monetization much faster than the west. You need to get your hands dirty, as retail is always one click away." Xiaohongshu co-founder Charlwin Mao said, "We don't ask ourselves if we're a social or a commerce company. We ask, 'What does the customer want?" Cited by Econsultancy.