Wen 丨 Deep Krypton New Consumption, Author 丨 Mu Jiujiu, Editor 丨 Huang Xiaojun
Following 3C and clothing, home furnishing has become a "rising star of cross-border e-commerce".
The data shows that in recent years, home kitchen supplies have accounted for the third place in cross-border e-commerce sales on all platforms, with an annual growth rate of 150%, the number of online products increasing by 179%, and the number of purchasing regions and quantities also increased significantly.
Especially under the boom of the home economy spawned by the epidemic in 2020, the HOME category has repeatedly entered the hot list of Amazon and eBay, two well-known overseas e-commerce platforms. Taking one of Amazon's largest international markets, Europe, as an example, its hot category TOP1 in 2020 is home products.
At the same time, not only did the home furnishing platform Wayfair reach sales of US$14.145 billion in 2020, achieving profitability for the first time since its listing in 2014, but also the performance of cross-border home furnishing companies such as Aerson E-commerce, Lege Shares, TAG Heuer and Henglin Shares was all red.
And our protagonist today, Zhiou Technology is no exception.
01, annual income of 3.9 billion, Amazon all-round sellers
In 2010, with his previous foreign trade experience, Song Chuan, the founder of Zhiou Technology, returned to his hometown to establish Zhengzhou Zhiou Import and Export Trade Co., Ltd. (the predecessor of the company), mainly engaged in household categories.
Like most domestic cross-border sellers, the development of Zhiou Technology is inseparable from Amazon.
In 2011, in order to expand the variety of platforms, Amazon encouraged Chinese sellers to settle in as third parties. Under such an opportunity, Brands such as Vesync and Zhiou preemptively settled in, seized the dividends, and achieved rapid development.
Since then, relying on Amazon, Zhiou Technology has begun to sell its products from the initial Germany to more than 50 countries and regions such as the United States and Japan. Today, Europe and North America are the company's main sales markets. According to the prospectus, the company's sales revenue to Europe accounted for 60%, and North America accounted for 39%.
Source: Prospectus
With the further expansion of the market, the company's product categories have also been updated.
Before 2018, the company only had one own brand, SONGMICS, and as it continued to expand its categories, the company added vasagle and FEATHERREA brands in 2018.
At present, Zhiou Technology has three self-owned brands, namely SONGMICS, furniture brand VASAGLE and pet home furnishing brand FEATHERREA, and continues to deepen the subdivision of furniture series, home series, courtyard series, pet series and other subdivisions, becoming a world-renowned Internet home furnishing brand.
Not only was SONGMICS and VASAGLE selected as "Amazon Global Selling China Export Top 100 Cross-border Brands" in 2019, but the company also won the titles of "Amazon All-round Seller" and "Amazon Most Popular Brand Seller of the Year".
According to the prospectus, from 2018 to 2020, the company achieved operating income of 1.595 billion yuan, 2.326 billion yuan and 3.971 billion yuan, with an annual compound growth rate of 57.80%; the net profit attributable to the mother was 40.6386 million yuan, 108 million yuan and 380 million yuan, respectively, with an annual compound growth rate of 205.89%.
However, it is such a brand with great influence in Europe and the United States that has repeatedly encountered a wall in domestic listing.
In June 2021, Zhiou Technology first impacted the ChiNext board of the Shenzhen Stock Exchange, and was forced to suspend the listing process due to the expiration of financial information 3 months later; at the end of 2021, Zhiou Technology, which completed the latest financial information disclosure, restarted the IPO process, but only 1 month before the restart, Zhiou Technology took the initiative to apply for suspension of listing; at the beginning of this year, Zhiou Technology once again challenged the IPO.
Whether it can be successfully listed is still unknown, but the problem of Zhiou Technology has indeed existed for a long time.
02, high inventory gross profit and low platform dependence into the industry ills
Although revenue and net profit have risen sharply, Zhiou Technology has repeatedly had the problem of negative cash flow.
From 2018 to the first half of 2021, the Company's net cash flow from operating activities was -32.8211 million yuan, 88.996 million yuan, -207.3927 million yuan and -59.1105 million yuan, respectively. In this regard, Zhiou Technology explained in the prospectus that the negative cash flow was mainly affected by the "increase in inventory items" and "the increase in operating receivables".
Indeed, it is. At the end of each period from 2018 to 2020, the carrying amount of Zhiou Home Furnishing inventory was 175 million yuan, 253 million yuan and 859 million yuan respectively, accounting for 41.58%, 38.68% and 47.83% of the total assets, respectively.
However, the inventory scale has increased year by year with the expansion of the scale of The European Home Furnishing Business, and to a certain extent, it has also increased the risk of inventory price decline and the pressure of capital occupation of enterprises.
In addition, Zhiou Technology is also facing the problem of declining gross profit margin year by year.
In the first half of 2018-2021, excluding transportation costs, the gross profit margin of the company's main business was 56.48%, 55.82%, 54.78% and 51.26%, respectively, of which 2019 decreased by 0.66% compared with 2018, and in 2020, it decreased by 1.04% compared with 2019.
In this regard, Zhiou Technology said that the decline in gross profit margin is mainly due to the rapid development of the company's B2B business since 2019. According to the prospectus, the proportion of B2B channel revenue increased from 5.54% in 2018 to 13.01% in 2019 and further increased to 17.07% in 2020.
As the main transaction model in China's cross-border e-commerce, although B2B has the advantages of large single amount and stable long-term orders, the gross profit margin of B2B is also lower than that of B2C sales model.
It is worth noting that despite the increase in B2B business development, the main sales channel of Zhiou Technology is still Amazon.
According to the prospectus, as of the reporting period, Amazon's platform sales revenue accounted for 93.25%, 89.54%, 80.25% and 77.85% respectively. Among them, the B2B model accounted for 3.93%, 8.41%, 8.45%, and 8.54% of the revenue on Amazon's platform, showing an upward trend year by year.
Excessive reliance on a single sales platform is bound to increase operational risks.
Zhiou Technology's dependence on the platform is almost a microcosm of China's cross-border e-commerce industry. In last year's large number of Amazon suspension incidents, many Chinese cross-border e-commerce companies ushered in a fatal blow. According to a report released by Marketplace Pulse, nearly 50,000 Chinese merchants were negatively affected by Amazon's crackdown from May to August last year, of which China's cross-border e-commerce industry suffered losses of more than 100 billion yuan.
03. China's cross-border e-commerce urgently needs to make up for its shortcomings
Two years after the epidemic has affected cross-border e-commerce, cross-border e-commerce, especially the home furnishing industry, is still regarded as a style.
In recent years, the export volume of mainland furniture and its parts has shown an overall growth trend. According to customs statistics, the cumulative export volume of mainland furniture and its parts in 2021 was 477.19 billion yuan, an increase of 18.2% year-on-year. At the same time, as a major furniture consumer, the United States, 39% comes from imports, the proportion of self-production accounts for only 61%, less than the mainland 98%, there is still a huge demand for furniture market.
Under the outlet, it has attracted a large number of brands to step up their entry and race to the ground. In addition to Zhiou Technology, Ao Sen, who is also a cross-border home, was listed on the 2021 China Cross-border E-commerce "Top 100 List" and became a benchmark for going to sea; the newly established home furnishing brand Newme also achieved 3 rounds of financing in a short period of time.
These brands are trying to make up for the shortcomings of China's cross-border e-commerce represented by Zhiou Technology:
First, they have their own independent stations.
Different from relying on the passivity of third-party platforms in data and operation, self-built independent stations are not only conducive to increasing risk resistance, obtaining richer first-hand data and information, facilitating accurate product research and development, but also conducive to cultivating high loyalty customer groups and improving customer stickiness.
As early as 2014, Aosom began to test the waters of independent stations, and at the end of the following year, it built its own independent e-commerce platform Aosom, and the number of users of the Aosom platform has exceeded 1.04 million. This group of loyal customer resources and traffic has driven the development of Aerson, especially in the home economy, to achieve high net profit growth for the brand.
Image source: Screenshot of Aosom website
Even Newme, which was established in 2020, mainly uses TikTok as a customer acquisition channel, guiding customers to complete commodity transactions in TikTok small shops or independent stations through advertising and live broadcasting. Nowadays, as the TikTok live broadcast ecosystem gradually matures, Newme will also enter the stage of building a brand and continuously expanding channels.
Second, they are committed to building supply chains and building their own overseas warehouses.
Due to the particularity of furniture products, logistics flow often involves warehousing, trunk line transportation, regional transportation and terminal services, etc., and its service chain is long and difficult to operate, resulting in inconvenient and fragile cargo transportation. To this end, as a cross-border home e-commerce, improving the layout of overseas warehouses is the key.
Image source: Network
Today, Aerson has nearly 20 self-built overseas warehouses overseas, reducing logistics costs while also improving the consumer shopping experience, which is conducive to shortening the order cycle and ensuring gross profit margins.
Whether it is independent station operation or supply chain construction, China's cross-border home e-commerce companies are constantly controlling their own initiative and reducing future operational risks under the experience of representative brands such as Zhiou Technology.
The industry is maturing.