*

Xiaohongshu attracts niche, high-end brands amid tough

retail

environment

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Influencers use conversational tone, setting Xiaohongshu

apart

from competitors

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Xiaohongshu's GMV expected to grow, but remains small

compared

to three dominant platforms

By Casey Hall

SHANGHAI, Dec 16 (Reuters) - Since Tera Feng started

documenting her enviable Shanghai lifestyle, including visits to

art galleries and fashion events on Chinese social media eight

years ago, she has built up a following of more than 500,000

people.

While that is a drop in the vast ocean of China's consumer

market, Feng and brands she works with have found her audience -

mainly financially independent urban Chinese women - is willing

to spend.

A recent switch to livestream selling on social media

platform Xiaohongshu three months ago has seen Feng sell

everything from a 15,000 yuan ($2,060) Carven suit to her

favorite brand of rice that costs 60 yuan for a 1 kg bag.

Xiaohongshu, sometimes compared to Instagram, has long been

one of China's most important marketing tools. It has made

several e-commerce pushes over the past decade without much

success.

But now, consultants say brands, especially those

peddling niche and high-end products, are finally seeing sales

breaking through this year amid a difficult retail environment.

While retailers have been forced by penny-pinching consumers

into heavy discounting on other e-commerce platforms such as

Alibaba's ( BABA ) Taobao and PDD Holdings' Pinduoduo, Xiaohongshu's

focus on aspirational lifestyles is attracting less

price-sensitive users.

"Brands really value a following on Xiaohongshu, because the

consumption power is totally different" to other platforms, said

Suya Wang, general manager at Early Data, a Shanghai-based

consultancy.

While some brands including L'Oreal and

Tapestry's Coach have opened their own stores on the

platform, many brands are also investing in partnerships with

influencers who livestream selections of products from multiple

brands and categories.

"There is a better chance of us being discovered by the

right consumers because this is where people go to research

female-oriented lifestyle products," said Melody Zhao, an

investor in period care brand Enya. Xiaohongshu e-commerce will

be a priority for the brand's market entry early next year, she

added.

Xiaohongshu was late to the livestream sales boom in China

led by Alibaba's ( BABA ) Tmall and ByteDance's Douyin, but in

2022 it combined its e-commerce and livestreaming divisions,

incorporating purchasing functions into livestreams.

Influencers livestreaming on Xiaohongshu tend to employ a

quieter, conversational tone when speaking to viewers, setting

themselves apart from fast-talking, high-energy hosts on other

platforms that use aggressive sales tactics.

Ian Hylton, president of Ms Min, an independent Chinese

designer brand which sells knitted sweaters priced at over 5,000

yuan, said they were caught off guard by a sudden growth in

Xiaohongshu sales after being featured in a livestream hosted by

Chinese actress Dong Jie.

"We never approached Xiaohongshu as a selling platform, it

was a place to tell our stories and to raise brand awareness,"

he said. "But when Dong Jie talks about Ms Min, we can sell

hundreds of units of an item following a single livestream,"

Hylton said.

Ivan Gu of Magic Advertising, an agency that manages the

social media and e-commerce operations of luxury brands, said a

lot of his clients, including Max Mara and LVMH, were

looking more seriously to Xiaohongshu as a sales driver.

Plans, still in the works, include opening stores and

running more livestreams, or setting up brand sales associates

as livestream hosts on the platform, a phenomenon known as KOS -

or key opinion sales - in China.

'TRIPLE DIGIT GAINS'

Xiaohongshu, whose name translates to "little red book", is

similar to Meta's Instagram in that it allows users to

curate photos, videos and text documenting their lives. In

recent years it has also become a de facto search engine for

young women looking for travel tips, anti-aging creams and

restaurant recommendations.

The company, a privately held firm with over 300 million

users and a reported valuation of $17 billion after its latest

funding round in July, declined interview requests from Reuters

and did not respond to questions regarding its sales revenue.

Hongshan (previously Sequoia China), Hillhouse, Boyu, and Citic

Capital are all among Xiaohongshu's investors.

Xiaohongshu has stayed largely quiet about its e-commerce

strategy but Jacob Cooke, CEO of e-commerce consultancy WPIC

Marketing + Technologies who works with brands looking to join

the platform, said it has been hiring staff away from

competitors Alibaba ( BABA ) and ByteDance's Douyin in a sign of its

ambition.

"We're anticipating triple digit gains in Xiaohongshu's GMV

(gross merchandise volume, a measure of sales) next year," Cooke

said, estimating the platform will top $100 billion in sales

revenue in 2025.

Others however, say that Xiaohongshu will likely remain

niche as a e-commerce player and not a real threat to larger

platforms.

Tmall, JD.com ( JD ) and Pinduoduo, China's top three

platforms, account for more than 90% of the country's $2.78

trillion in GMV, according to data consultancy Syntun.

"Compared with large platforms, their GMV is too small and

so they don't have substantial platform influence,"

Beijing-based tech and e-commerce analyst Li Chengdong said.

($1 = 7.2768 Chinese yuan renminbi)

(Reporting by Casey Hall in Shanghai; additional reporting by

Sophie Yu in Beijing; Editing by Lincoln Feast.)