Short-term perspective: Lei Jun regards luxury e-commerce as the most tragic investment, ignoring the underlying logic of business

Author: Xu Tan

Lei Jun has also invested in luxury e-commerce

Secoo founder Li Rixue said, "This is an era of willingness to pay for services, this is an era of value directly linking users, and this is an era of corporate ideals." There is nothing wrong with what he said, but as a luxury e-commerce company, Secoo has fallen into a huge business dilemma.

Founded in 2008, Secoo is the longest-lived luxury e-commerce company, and recently, Beijing Secoo Trading Co., Ltd. added a bankruptcy review case, and then Secoo denied bankruptcy rumors. If Secoo goes bankrupt, luxury e-commerce will be wiped out. Earlier batches such as Huha Network, Pinju Network, Privilege Network, Shangpin Network, Catwalk Network, etc. have all gone out of business.

Since last year, Secoo's employees have been complaining online that their salaries have been delayed. Suppliers are also experiencing arrears in payment. On November 4, 2021, Secoo's stock price fell below $1 for the first time. Secoo's highest price in U.S. stock history was $15.48, and it fell to $0.3 on January 15, 2022, and has received a delisting warning from nasdaq, on the verge of delisting.

The "first domestic luxury e-commerce stock" listed in 2017 does not seem to have been able to crack the "death curse" of luxury e-commerce.

High-end fashion makes investors ignore the underlying logic of business

Luxury e-commerce has a paradox, luxury is a niche market, e-commerce is a mass market. How to make a profit by doing niche business on an e-commerce platform for the public?

Li Rixue, the founder of Secoo, is very unhappy that others call them luxury e-commerce, although they started with second-hand luxury consignment sales.

One of the things that many luxury e-commerce companies are committed to doing is to "de-luxury".

Domestic luxury e-commerce has tried two market routes: one is to diversify the development strategy, try to dilute the positioning of luxury goods, and increase the income of other business sectors. For example, siku continues to develop siku life, siku famous things, siku art, siku agriculture, siku finance and other business areas, it seems that the more plates the more secure. Unfortunately, the largest proportion of Secoo's business has always been the luxury sector.

The catwalk network, which started with luxury goods, once got the agency right of Salvatore Ferragamo, the top luxury in Italy, while serving the demanding Ferragamo, while adjusting its positioning as a high-end fashion product for women, weakening the positioning of a single luxury business.

There was a fierce debate among internal executives for a while: whether to go on the brand of Seven Wolves? Because a brand determines the positioning of the website, whether it is a niche luxury or a mass consumer goods. This is a conundrum.

There is also a route of extreme specialization. The typical company is Shangpin.com, one of the earliest luxury e-commerce companies established in China.

Founder Zhao Shicheng said that Shangpin's positioning is to "bring the world's best fashion back to China" His vision for the company was to become a unicorn company in the future. Whether consumers believe it or not, Lei Jun, chairman of Xiaomi Technology, believes it anyway.

Shangpin.com was founded in 2010 and received an investment of 70 million US dollars in just 12 months, and Lei Jun invested heavily in this company. E round of financing, received morningside capital, Siwei capital, Hillhouse capital and other blessings. It must be said that high-end, fashionable, scarcity and other gimmicks will make investors ignore the thinking of the underlying logic of business.

Xiaomi's success secret "focus, word of mouth, extreme, fast" undoubtedly affected Shangpin Network. Founder Zhao Shicheng once said that Shangpin Network is very focused, slightly expanded categories do not do, mainly concentrated in clothing, bags, shoes and clothing four categories.

However, Xiaomi mobile phones are precisely positioning low-end mass consumer goods, and Shangpin.com is positioning high-end luxury goods. Whether Xiaomi's business strategy applies to Shangpin.com is a question.

When the scenery is the darling of capital, it is also extremely fast when it is abandoned. Shangpin.com died in 2019.

Lei Jun regards Shangpin.com as one of his "most tragic" investments in the e-commerce field.

Lei Jun once summarized the four major problems of luxury websites: online payment restrictions; consumer trust problems in high-end online shopping; brand licensing; and high-end customer acquisition.

Except for the first one, which has now been resolved, the other three have always been difficult.

There are several big problems that have never been solved

The global economic environment tends to be depressed due to the epidemic, but the more depressed luxury goods, the more prices rise, and in more than a year, LV has increased prices 4 times, and Gucci and Celine have also raised prices.

The pricing principle of luxury goods has never been "agreed" with the pricing of general consumer goods.

Generally speaking, product price = production cost + R & D cost + marketing cost + sales expense + management expense + exchange gain or loss + reasonable profit + brand premium.

Luxury goods go beyond traditional pricing thinking, and his first task is to maintain the fundamental attribute of high prices, which is the spiritual value of luxury goods. At the same time, high prices can make up for the loss of profits in the case of exchange rate changes and rising raw material prices.

This brings about the reality that the higher the unit price of luxury customers, the lower the frequency of consumption, and correspondingly, the higher the probability of fake goods.

In fact, high-end online shopping has never completely solved the problem of consumer trust. Secoo has never admitted that he has fakes, but there are many entanglements in fakes at present. The most sensational is the 2021 Vipshop Gucci fake belt incident, consumers ask "get things" to identify as fakes, Vipshop will insist that the goods are genuine. Finally, there was a Rashomon affair with no truth.

Luxury brands emphasize "tonality", many big brands have an innate contempt for e-commerce, LVMH has always refused Amazon's offer. Therefore, whether it can obtain the authorization of luxury brand owners and have a stable supply of goods has become the primary issue of life and death for luxury e-commerce.

Over the years, the world's top luxury goods such as LVMH have had several fixed, long-term cooperative distributors, and a limited number.

The reason why Ji Wenhong, the founder of the catwalk network, ran a luxury website was because he had been doing foreign trade for a long time and had the opportunity to contact the most important distributors in the world of luxury goods. The catwalk cooperates with luxury dealers in the United States, Europe, Hong Kong and other places, and establishes a direct supply relationship with luxury brands, and they are willing to distribute some luxury goods to the catwalk.

Another stable way to obtain a supply is to get official authorization from top international brands, such as catwalk and Secoo are licensed by Ferragamo, and Tmall is authorized by Gucci. But the luxury brands that agree to the authorization are only a minority.

McKinsey has produced the China Luxury Consumer Report, which expects Chinese consumers to absorb 44% of the global luxury market by 2025. Over the years, domestic e-commerce has tried to use the huge market as a chip to attract luxury brands to sign licenses, but it has not impressed top luxury such as LV.

There was a consensus in the field of vertical e-commerce, specialization determines the differentiation of the website, and the premise of specialization is that the differentiation is deep enough, which is the foundation of many vertical e-commerce companies. But this consensus doesn't seem to work in the luxury e-commerce space.