VIPshop: Combat climate change in China e-commerce
Summary
VIPshop is a Chinese-based discount e-commerce retailer with USD $~15B annual GMV in 2016. It is now the 3rd largest e-commerce website in China and the 6th largest one globally. Because of the large transaction volume, the usage of resources such as energy and materials in packaging and distribution process are tremendous. VIPshop started some measures to become more eco-friendly and help to solve the climate change problems.
VIPshop is a Chinese-based discount e-commerce retailer with USD $~15B annual GMV in 2016. It is now the 3rd largest e-commerce website in China and the 6th largest one globally, after Amazon, E-bay, Rakuken, Alibaba and Jingdong.com. It was founded in 2008 and has grown rapidly with China’s e-commerce boom, along with Alibaba and Jingdong.com. VIPshop is listed in New York Stock Exchange (NYSE) and is one of the first Chinese companies to adopt green measures to combat climate change.
Because of the large transaction amount, the usage of resources such as energy and materials in packaging and distribution process are tremendous. VIPshop started to embed the Corporate Social Responsibilities (CSR) measures to incorporate more stakeholders, including consumers, employees, shareholders, partners and the public to make it more transparent. The environmental protection is a basic requirement and it strives to create a green environment by insisting on low-carbon and energy-saving operation.
There are several major initiatives that VIPshop took regarding helping the climate change: Distribution, warehouse and packaging.
Warehouse and distribution are critical to a successful e-commerce player. Eric Shen, founder and CEO of VIPshop said “Building our own warehouse and reducing logistics distribution service radius are the two most important parts of wining in the competition on service chains of e-commerce companies.” However, building warehouses and logistics distribution are most subjected to energy consumption and waste production.
Green distribution
VIPshop selected the most environment friendly vehicles and track fuel consumption carefully. After comparing with different truck model, they concluded that Scania is the most efficient truck and thus deployed this model to its logistic system. In addition, they track energy consumption electronically and educate the drivers. For example, the drivers used to leave the air-condition on while loading and unloading the truck, and after the electronic system was installed, the drivers get out of the vehicle and turn off the air conditioner when they upload the goods, which can economize on fuel and reduces emissions during the process. VIPshop also employs bikes and electronic bikes to distribute product in the last mile to save energy and reduce cost.
Efficient warehouse
In the warehouse, VIPshop strives to build environment warehouse. They installed a daylighting band so that they can use sunlight during the day time. VIPshop also launched a Solar PV program to fully utilize the sunlight in southern China. They also start pilot testing to use LED light bulbs in warehouses, which requiring more initial investment but more efficient and eco-friendly in the long-term.
Eco-friendly packaging
VIPshop starts to use environmental-friendly material in packaging, such as recycled cardboard box or recycled paper. They also improve the packaging design in the customer-end. Most of the consumers use transparent adhesive tape for returning product, making the recycling harder. VIPshop stuck two adhesive tapes on the bag and give a reuse instruction to customers that one for product delivery and another for return. These simple design creates convenience for customers, improves the customer experience and helps the recycling easier. In the protective filling of fragile goods, most of the e-commerce players use polyethylene, which is super eco-unfriendly. However, the price of the alternative is two to three times higher. So VIPshop designed a series of measures for the operational management to educate our employees using protective fillings moderately. In addition, they also recycle package materials as much as possible such as paper and plastic. They also select materials that have higher rate of degradation and use less cellophane tape for the classification and secondary processing.
Next step: VIPshop should be more systematic in the measures
Currently VIPshop is ahead of Chinese corporations in dealing with climate change. However, most of the measures are small and less structured. I would suggest VIPshop to make it more systematic. For examples, they can make the recycling process and delivery process more standardized to save more material and energy.
Energy consumption and infrastructure investment (such as servers and computers) in an e-commerce player are huge because of the tremendous computing power need. The peak and trough of the customer purchasing in e-commerce make VIPshop need to purchase extra capacity in the infrastructures to provide buffers in the sales period. For example, e-commerce players need to invest enough infrastructure for the volume of Black Friday while other 51 weeks of the year the capacity are under utilized. The deployment of a cloud computing system that they can use other provider’s infrastructure can help solve the problem. For example, they can outsource the computing needs in Black Friday to Huawei, another system company in Guandong to save infrastructure investment and energy.
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Derek it was an interesting read. I really like your suggestions in the end.
I would like to add that as consumers increasingly become dependent upon the E-commerce platforms, the ecommerce platforms should also start altering consumer behaviors when it comes to making eco-friendly decisions. After all they have proliferated the consumption needs of people.
I remember the number of times I have ordered multiple small orders instead of consolidating my orders.
In some cases, the urgency of the product may not allow such consolidation. But maybe it is time that each customer makes an educated purchase and be made aware of the carbon footprint of each order.
I really liked this post as I didn’t even know that this company exists! I wonder though how important green warehouses are to their value prop. Warehouses typically need to be as cost efficient as possible, so beyond easy and NPV positive expenses such as installing LED bulbs (as we learned a long time ago in FIN), do you think they are enacting any green policies that do not necessarily help their bottom line along with the environment. That is, are they dealing with the externalities of their distribution network? I like your idea about creating more systemic programs such as recycling and outsourcing computer power during busy times. The first is a great marketing vehicle while the second reduces waste and power consumption. They could make a big impact in China with getting more people to recycle!
Derek – cool post. I think you bring up a super interesting point about seasonality and especially volumes during black Friday. In the short run it doesn’t really seem intuitive that a company would prepare such a massive infrastructure investment (and every environmental impact that goes along with it) to succeed on only one day of the year (black Friday). However, I would challenge that since e-commerce is still in its infancy, preparing for the proverbial ‘black Friday’ allows the company to think differently about scale in preparing for a long term future. As an example, Amazon’s Q1 2016 was bigger than every other quarter in its history other than Q4 2015 – this means it was bigger than Q4 2014. Building those massive warehouses wasn’t just about buffers – it was about recognition that in the very near future, due to the exceptional growth of e-commerce, those buffers might not feel so wasteful!