In recent years, a significant narrative has emerged within the market, particularly since 2021, regarding the rise of short video platforms and the influencer-driven e-commerce modelThis trend had been touted as the future of retail commerce, with many major online retail giants positioned precariously due to the influx of influencers and their captivating live-streamed sales techniques.

This catchy notion took the industry by storm, prompting influencers, publicly traded companies, and merchants to jump on the bandwagon, all vying for a front-row seat in what was perceived as the new gold rush of e-commerce.

However, in a turn of events that caught many by surprise, the year 2023 marked a sharp pivot as major short video platforms began their transformation toward traditional shelf-based e-commerceThis was further evidenced by a decline in Gross Merchandise Volume (GMV) growth rates; for instance, a UBS survey revealed that Douyin's GMV growth slowed from 66% in the first quarter to just 20% by the third quarter.

In a recent report focusing on the Singles' Day shopping festival, investment bank Jefferies noted a stagnation in the influencer-driven live-streaming e-commerce spaceThis was attributed to a shift in merchant priorities towards profitability and better product return rates, compared to the live-streaming modelThere has even been a noticeable return of merchants to established platforms like Taobao and Tmall.

This essay aims to dissect these notable shifts in the industry narrativeOver just two years, the development trajectory of the e-commerce sector has undergone a dramatic reversal, beckoning a closer examination of the driving forces behind this transformation.

The core assertions of this analysis are threefold:

Firstly, the rise of influencer live-streaming commerce was inflated during a proactive de-stocking cycle, allowing platforms to profit significantlyHowever, as we enter a new industrial cycle where merchants’ bargaining power is growing, the era of influencer dominance appears to be waning.

Secondly, the 'goods finding people' model of shelf-based e-commerce is regaining favor in the market.

Thirdly, a recalibration of the balance between merchant and consumer interests is underway

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This recalibration is a driving force behind the series of reforms initiated by prominent shelf-based e-commerce enterprises like Taobao and TmallIn this new cycle, the merchants’ loyalty will define the competitive landscape, a reason Jefferies remains optimistic about the prospects of traditional shelf-based e-commerce players.

As the industry transitions from a focus on inventory clearance to a new mindset prioritizing profitability and sustainable growth, we find ourselves reflecting on the past few years in China which has seen a relentless push towards de-stockingThis de-stocking phase manifested as a reduction in both inventory levels and the Producer Price Index (PPI). This trend saw businesses engaging in aggressive discounts to clear out old stock, but as of 2023, the narrative has shifted toward stabilization, evidenced by a rise in inventory levels and a corresponding increase in product pricing.

To illustrate this transformation, we will examine pivotal sectors in the retail market, namely electronics and apparelData confirms this shift; the latter half of 2020 saw the rapid ascent of influencer-led live-streaming commerce, coinciding with the early stages of the de-stocking phaseAs we enter 2023, these platforms are now transitioning toward traditional sales models, coinciding with the conclusion of that same de-stocking phase.

This proactive de-stocking cycle saw firms predominantly focused on depleting stock, with influencers' high traffic becoming increasingly valuable to businesses, who were willing to incur the higher operational costs associated with selling through this mediumFor context, Douyin's monetization rates skyrocketed, being over twice that of more traditional platforms.

Influencer-led e-commerce came with its complexities, including not only the regular costs associated with commissions and ad spend but also the expenses incurred through hiring influencers and managing live-stream teamsNotably, larger retailers might even opt for self-broadcasting, incurring costs related to staffing and equipment, while smaller businesses often relied on influencers, incurring additional expenses from commissions and promotional fees.

However, with the macroeconomic environment evolving, the relationship between merchants and platforms is shifting

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As merchants increasingly seek predictable growth focused on profitability, platforms must recalibrate their roles from accumulating high sales volumes to prioritizing profit, leading to greater scrutiny of operational costs.

Moreover, due to the competitive nature of the market and the pronounced supply-demand changes, the once-optimal 'goods finding people' dynamic is giving way to a model where consumers expect to access the right products at the right prices—reflecting the fundamental shift in the consumer landscape.

This shift opens up discussions about the stagnating interaction rates on live-streaming e-commerce platformsResearch shows that viewer engagement on Douyin has been declining, with indicators like average viewing time and engagement metrics suffering double-digit percentage dropsSuch downward trends reaffirm the perception that the peak of influencer-driven commerce may have been reached.

During the recent 618 shopping festival of 2024, weak performance metrics from leading influencers highlighted these issues, with sales dropping dramatically compared to previous yearsThis drop suggests a consolidation of the sector, seeing a movement towards established platforms at a time when live-streaming commerce's novelty has begun to wane.

As we analyze these recent developments, it becomes apparent that the combination of macroeconomic trends and the evolving needs of merchants have gradually reshaped the landscape, indicating that historical reliance on high traffic and influencer-led strategies may no longer suffice.

In understanding the sector's transition, it is essential to appreciate that the balance of power is shifting towards merchants who increasingly demand clarity and profitability from platforms, reshaping the competitive landscape across the industry.

In this new phase, e-commerce platforms must navigate the complexities of fostering an environment that brings merchants back into the fold while still catering to consumer expectations

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