Vipshop, an online platform popular with female shoppers, kicked off 2016 with a credibility crisis.

On January 2, Vipshop admitted to selling fake Moutai liquor, a popular brand of Chinese spirits. In its statement, Vipshop said it severed relations with the fake Moutai supplier and reported the case to the police.

Counterfeit goods are hardly uncommon in China, and even major marketplaces like Tmall are littered with fake goods. But for Vipshop, the liquor scandal is a matter of life and death. The platform’s entire premise is that it only sells 100 percent authentic goods.

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The fake liquor was exposed during Vipshop’s anniversary activity, a promotional event that began on December 8.

To celebrate the brand’s establishment, Vipshop announced numerous special offers. But one consumer surnamed Zhang wrote on 99shi.com, a forum for liquor lovers, saying the Moutai he received from Vipshop was fake.

“I bought eight bottles of Moutai at a price of 580 yuan per bottle on Vipshop on December 8. When I received the goods, I could tell at once glance that they were fake,” Zhang told Securities Daily. “Professional identification confirmed that the Moutai sold by Vipshop was indeed fake.”

Zhang called Vipshop’s customer service, but the company refused to admit its Moutai was fake or offer compensation. Zhang then reported it to Guangzhou Food and Drug Administration in Guangdong province, where Vipshop is located.

Meanwhile, many other liquor lovers chimed in on 99shi.com to report their Moutai from Vipshop was also fake.

If Vipshop had offered a sincere apology immediately and compensated the buyers, it might have avoided a public relations nightmare. Unfortunately, companies rarely have the courage and wisdom to confess faults on their own.

Vipshop scrambled to shift the blame to its supplier, stating it would offer refunds to the 903 customers who ended up with fake Moutai on December 15.

“Vipshop has built a sound system to check every commodity supplier,” it said in a statement. In other words, Vipshop denied selling fake goods.

“I’m very disgusted with Vipshop’s attitude and the way it refuses to admit it was wrong,” a consumer who didn’t be named told Securities Daily.

On January 2, the day Vipshop made its formal apology, Kweichow Moutai Group announced it had no business relationship with Vipshop. Seven days later, Vipshop apologized for its “insincere attitude” and temporarily suspended all its liquor sales.

No matter what measure Vipshop takes, its credibility is already lost. That will make it tough for the company to survive in China’s brutal e-commerce arena.

Struggle to Survive

Vipshop was one of the first Chinese shops to utilize time-limited special offers, during which consumers could buy a specific quantity of goods at a steep discount.

It used the model to cooperate with many popular brands and to offer high-quality and inexpensive goods to consumers. The company also has a professional team dedicated to filtering goods for quality or suitability to optimize its customers’ shopping process.

The model helped Vipshop win many female users, and it quickly became the top online market for female shoppers. In the fourth quarter of 2014, the number of Vipshop’s active users totaled some 12.2 million.

But by the third quarter of 2015, Vipshop’s active user base fell to 2.4 million. On December 30, its market capitalization was $8.84 billion, less than the $17.9 billion reported on April 10, 2015.

The sharp decline suggests its “special offer” marketing model is failing to retain users. That may be because many other online retailers have started to imitate Vipshop’s tactics, giving shoppers alternative choices.

It could also be a sign of how consumer’s shopping habits are beginning to normalize. Previously, the exclusivity of the marketing model led many shoppers to binge on useless items. Since the discount model is no longer new, consumers may have learned to shop less on impulse.

Moreover, the competing online shopping platforms Meilishuo and Mogujie have started to encroach on Vipshop’s territory.

Meilishuo and Mogujie have cultivated a reputation as the best online clothing shops. They recently invited Lu Han and Li Yifeng to do their commercial endorsements. On January 11, Meilishuo and Mogujie signed a merger agreement. The value of the new company is estimated to be $3 billion.

Vipshop has not been waiting for death. It tried to revive itself by expanding its business since 2013, adding household appliances, maternity wear and child products to its catalog. But those require a delicate balance of time, money and energy to avoid bringing down its core business.

But given its competitors in the clothing business and the fake Moutai incident, analysts say such balance has eluded Vipshop.

Shu Pengqian

About Shu Pengqian

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Shu Pengqian is a TV drama and novel addict. Although most people think she looks like an introvert, she's actually really outgoing.

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