For the last decade, shipping parcels from China was heavily subsidized, but no longer. How will Americans get their 5-gear electric toothbrushes and air-dryer accessory kits now?
situated next to a florist and a taekwondo studio in a Portland, Oregon strip mall, Jullienne Adams’ discount store feels like a brick-n-mortar infomercial. A panda shower cap — just $1.25! A comb that turns into a knife — now only $7.68! A “YOLO” pool float — a steal at $13.45!
Adams’ store, which is called LiquidNation, also feels distinctly like the discount ecommerce site Wish — that’s because, in essence, that is what it is. Looking to increase her foot traffic by serving as a pick-up point for online orders, Adams partnered with Wish last year, not unlike how Rite Aid, GNC and other struggling retailers have linked up to become Amazon delivery points. Then she started scooping up inventory herself to sell in the store.
“It’s fun, kitschy stuff,” says Adams, who says she now sees a steady stream of 20 to 25 new visitors coming through her doors every day, to pick up their Wish orders, quadruple her previous foot traffic. Two thirds of them make an impulse buy in Adams’ store.
LiquidNation is one of 36,000 small businesses in the U.S. and Europe that have partnered with Wish since January 2019, agreeing to stock and sometimes even deliver its product. For the retailers, they get extra income and access to Wish’s 80 million monthly active users at a time when they desperately need the boost. Wish, meanwhile, gets an inexpensive distribution network practically overnight.
“It allows us to have 36,000 warehouses in really close proximity to our core consumers and it helps these stores get traffic,” says Peter Szulczewski, 38, cofounder and CEO of Wish, in a rare interview.
Wish, which was launched in San Francisco in 2011 by Szulczewski and college friend Danny Zhang, has become one of the most popular ecommerce platforms in the world — by selling an avalanche of cheap junky stuff, nearly all of it sourced from China. Most of Wish’s customers are working-class people who can’t afford Amazon Prime and are more likely to shop at dollar stores. Today, just 20% of the company’s customers fork over $119 a year for Amazon Prime, while nearly 90% frequent Walmart.
Wish now has about 500 million “registered users” (meaning they have created an account or downloaded the app, but not necessarily bought anything), roughly a third of them in the U.S. It was the most-downloaded shopping app in the world in 2019, and the fourth-largest online marketplace in the U.S. by sales. Wish sells around three million items each day ranging from bamboo fiber socks (10 pairs for $4!) and fake fireplaces ($178) to anti-snoring pillows (special! $14) and “Irish Drinking Team” T-shirts ($9). The company was valued at over $11 billion after its last funding round in 2019, pushing Szulczewski, who owns about 18%, further into the billionaire ranks with a net worth of $1.8 billion.
“Instead of building dozens of large, expensive warehouses like Amazon, we said look at all of these stores that are hurting and are looking for additional sources of revenue and foot traffic.”
The pandemic has only made the ultra-bargain site more attractive. Not just to existing customers, but to a growing swath of the population that is reeling from lockdowns. With 30 million Americans now out of work, Wish could become an appealing option for those looking to make their dollar stretch further. Downloads have spiked in recent months, with the app garnering 50 million installations around the globe since the beginning of April, according to Sensor Tower, a mobile app research firm.
From the start, Szulczewski has catered to those who were in the bottom 25% of U.S. households by income, scraping by on $31,000 or less a year. They often had their credit cards declined right before payday. “We looked at a set of consumers that everyone was overlooking,” says Szulczewski.
Aided by its new brick-and-mortar presence, Wish’s sales surged 70% during the second quarter; it is on track to record its first-ever annual profit after ending the first six months of the year in the black. Last year, the company lost about $100 million on $2 billion in revenue.
But there is a big hitch. Wish was built almost entirely on a subsidy that allows packages weighing 4.4 pounds or less to be shipped more cheaply from China to the U.S. than it costs to ship them within America. For instance, shipping a 5-ounce electric nose hair trimmer from China to Atlanta used to cost $1.55. Ship that same 5 ounces within the U.S. and you’d pay $2.80, about 80% more, says Bryan Wyatt, a principal at supply chain consulting firm Chainalytics.
The sweetheart deal ended on July 1. That’s the date when the Universal Postal Union, an arm of the United Nations that has governed international shipping rates for over a century and was under fire from President Trump, slashed the subsidy, basically doubling shipping costs overnight. Given that the company relies on Chinese merchants to ship packages directly to consumers (unlike most retailers that ship the stuff in bulk to their warehouses in the U.S.), it’s an existential threat.
“This is ultimately what allowed Wish to exist in a way,” says Juozas Kaziukenas, founder of ecommerce research firm Marketplace Pulse.
Add to that the notoriously slow shipping times from China, and Wish faces mounting pressure to come up with a better way to compete with retailers like Walmart, Target and Amazon.
Which is why it began courting U.S. and U.K. merchants a couple years ago and now has a few hundred selling on the platform, still a sliver of a merchant base that numbers more than one million. “We’d love to diversify,” says Szulczewski. The benefit: Their merchandise isn’t coming all the way from China. Often it’s overstocked or returned items that the big retailers have offloaded for pennies on the dollar. For instance, its top U.S. vendor sells refurbished laptops and other electronics.
It has also looked for ways to stockpile items from China closer to customers in the U.S. and Europe, as a way to speed delivery. As early as 2015 it began experimenting with warehouses to hold limited inventory. It currently has two in the U.S., one in Los Angeles and one in Orlando.
But long term warehouses are too costly if it wants to remain a place for insane bargains. Which is how it first came up with the idea of partnering with small business owners. “Instead of building dozens or hundreds of large, expensive warehouses like Amazon … we said look at all of these stores that are hurting and are looking for additional sources of revenue and foot traffic,” says Szulczewski.
Wish is now increasingly bundling multiple orders together at a warehouse in China and then routing them to stores in the U.S., where customers can come pick them up. That helps it offset the rise in costs by shipping items in bulk, rather than individually to people’s houses.
“For our consumers who are very value conscious, saving $1 or $2 makes a big difference.”
Adds Scott Benedict, Director of the Center for Retailing Studies at Texas A&M University, “It can take advantage of an existing network of small businesses at little to no cost.”
In January 2019, it started courting these shops, dangling its customer base in exchange for storage space. They get 50 cents for every in-store pickup, plus Wish is offering a bonus of $4 if the retailers deliver an order to someone’s house. “It helps stores get traffic and survive or hopefully prosper at a time when things are tougher than ever,” says Szulczewski. Customers, in turn, are finding that more items may be available for immediate pick-up or delivery via a local store. If an item has to be shipped, they can get 15% to 20% knocked off the price if they have it delivered to a store. Adds Szulczewski, “For our consumer segment that is very value conscious … saving $1 or $2 makes a big difference.”
However, customers who want the same low prices they have been accustomed to now have to deal with the hassle of going to a store and picking up an order themselves — plus they may wait longer, if their item is being bundled and shipped with other orders. Customers who want items delivered to their doorstep will put up with the same long wait times, but now pay more.
The entire play hinges on the small business owners, who are now being asked to accept, sort, store and hand off packages to customers. It’s too early to tell whether they will see a big enough spike in foot traffic to justify the efforts – or if they will do a good job.
Szulczewski, who grew up in communist Poland in the 1980s, moved to Canada at age 11, the same year that the Soviet Union fell. He studied computer science at Ontario’s University of Waterloo, which also counts the founders of Instacart and Kik Interactive among its former students. After graduating in 2004, he got a job at Google developing software that helped advertisers target people’s searches. He left in 2009 to start his own software company with the notion that he could predict someone’s interests based on their internet searches and match that to a potential product or advertisement. After two years of tinkering, he relaunched the company as Wish.
It wasn’t until recently that he ever considered a brick-and-mortar presence. But now he says he sees huge potential. He is aiming for 100,000 stores on the platform by the end of the year and ten times that down the road. “If you think about it, Walmart has about a billion square feet of retail space. If we have a million stores sign up for our service with about 1,000 square feet per store on average, we have a virtual Walmart,” says Szulczewski.
If he is worried about ceding control to thousands of small businesses, who are increasingly serving as the face of his company (and could mess things up), he doesn’t let on. “The largest lodging company in the world doesn’t hold any hotels or real estate. That’s Airbnb. The largest transportation company in the world, Uber, doesn’t own any cars. We think the best way to run a physical brick-and-mortar retail operation is to partner with stores that understand their communities really well,” says Szulczewski.
Sounds like a desperate move by a business that had to pivot quickly, or get overrun by competitors. Time will tell if the gamble pays off, or Wish turns into a relic of the last decade.