Produced by | At the forefront of entrepreneurship
Author | Hu Fangjie
Edit | Egg total
American Editor | Li Yufei
Audit | Ode
In the past, many brands had to rely on agency operators when they began to expand e-commerce channels, which created a number of listed companies that mainly operated on Taobao platform, such as Baozun E-commerce, Beauty Beauty, Ruoyuchen, etc.
However, as e-commerce platforms enter the era of stock competition, the generation operators hidden behind platforms and merchants have inevitably entered a bottleneck period.
"The key is that the e-commerce agency operation has not formed a core competitive barrier, and the substitution is strong, and the phenomenon of crossing the river and dismantling the bridge is also common in the industry. For these e-commerce agency operations, it is necessary to avoid relying too much on large customers, constantly introduce new customers, and find new ways out, such as developing self-operated brands and investing in familiar fields. Mo Daiqing, director and senior analyst of the online retail department of the E-commerce Research Center of the Network Economic Society, said to "Interface News - Entrepreneurship Frontline".
"In this track where you can see the ceiling, the second entrepreneurship is an important node for all e-commerce operators. Mo Daiqing added.
Business transformation has become a compulsory course for generation operators.
Relying on the rapid development of its own brand, the agency operator Ruoyuchen has taken the lead in recovering performance growth.
As early as 2022, when the performance of many generations of operators declined, Ruoyuchen achieved a net profit of 33.756 million yuan attributable to the parent company, a year-on-year increase of 15.62%. In 2023, growth is accelerating.
On April 28, Ruoyuchen released its 2023 financial report, the company achieved revenue of 1.366 billion yuan, a year-on-year increase of 12.25%, and a net profit attributable to the parent company of 54.2905 million yuan, a year-on-year increase of 60.93%.
Although the performance has increased, in the face of the long road of transformation, the challenges faced by Ruoyuchen are still severe.
1. The transformation has achieved initial results
As early as 2021, Ruoyuchen launched its own brand business, seeking a second growth curve in addition to the agency operation business.
In 2023, Ruoyuchen's own brand revenue will be 263 million yuan, a significant increase of 63.63% year-on-year, far exceeding the company's revenue growth rate, and the proportion of revenue will increase to 19.27%.
Compared with 2021 and 2022, the proportion of revenue will be 5.74% and 13.22% respectively.
Ruoyuchen's financial report for the first quarter of 2024 shows that its own brand revenue in the first quarter of this year was 78.3629 million yuan, and the proportion of revenue increased to 21.05%.
The company's performance was positively affected by the significant increase in private label revenue, especially in terms of profitability.
Personal care and beauty products are representative products with high gross margins, and the gross profit margin of the beauty industry is much higher than that of the e-commerce service industry.
In 2023, Ruoyuchen's overall gross profit margin will be 40.24%, while the gross profit margin of its own brand will reach 62.16%, which greatly exceeds the gross profit margin of the company's agency operation business and brand management business.
If Yuchen's revenue and gross profit margin of each business segment in 2023
(Photo / Ruo Yuchen's 2023 financial report)
Tapping the potential of the consumer market represented by the new middle class is the main direction of Ruoyuchen's own brand operation.
Bloom Home is a high-end natural plant extract personal care home cleaning brand, and its core products include laundry detergent for underwear, floor cleaner, etc.
With environmental protection, natural and high efficiency as the core selling point, the price of Zhujia products is also relatively high, taking 750ml of floor cleaner as an example, the price of 750ml is 79.9 yuan, while the price of popular Dettol floor cleaner is only 29.9 yuan.
In the first half of 2023, the company continued to maintain outstanding performance in various channels, with Tmall flagship store revenue accounting for 39% year-on-year and revenue increasing by 28% year-on-year, Douyin channel accounting for 33% and revenue increasing by more than 100% year-on-year, and multiple channels such as Xiaohongshu and JD.com continuing to maintain double-digit growth.
The main products of JOY Anman include sleep spray, aromatherapy, etc. In the Tmall flagship store, sleep spray and body lotion are at the 100 yuan level, while the price of the aromatherapy wax melting lamp with higher sales is as high as 520 yuan and 1290 yuan.
(Photo / Tmall flagship store)
"The main thing is a good-looking, atmosphere!" Many consumers who bought aromatherapy wax lamps shared their experience on the e-commerce platform.
In addition, Yuejing Anman has not hesitated to invest in marketing and promotion, and has cooperated with Papi sauce, Li Jiaqi, Zhang Xiaohui, etc. In 2023, it will successfully enter the 618TOP list of new merchants on Tmall, ranking fourth in the list of full-cycle transaction stores.
At present, Ruoyuchen's overall revenue scale is more than 1 billion yuan, which is not high among the main operating companies.
Baozun E-commerce, Shuiyang Co., Ltd., and Beauty Beauty, which are also operating companies, will have a revenue scale of more than 2 billion yuan in 2023, all exceeding Ruo Yuchen. Among them, Baozun e-commerce and Shuiyang shares exceeded 8.8 billion yuan and 4.4 billion yuan.
However, it is precisely because of the relatively small revenue scale that the growth of its own brand has a more obvious effect on performance.
2. The cost of de-generational operationalization
Through the presentation of the financial report, it can be clearly seen that Ruoyuchen attaches great importance to its own brand, brand management and other businesses other than agency operations.
In 2023, Ruoyuchen will not only list its own brand business and brand management business separately in the annual report for the first time in the form of different industries. The wording of the company's main business has also been completely replaced.
In 2022 and 2023, Ruoyuchen will be the source of income by industry
(Photo / Ruo Yuchen's 2023 annual report)
(Photo / Ruo Yuchen's 2023 annual report)
In the 2022 annual report, the company's main business is described as "online agency operation, channel distribution and brand planning". In 2023, the expression will be changed to "brand management, private label and agency operation business".
(Photo / Ruo Yuchen 2022 Annual Report)
(Photo / Ruo Yuchen's 2023 annual report)
In just one year, the agency operation business has moved from the first to the last, although this business still accounts for about 70% of the total revenue.
De-generation operation, from brand generation operation to brand management, its own brand operation, is the key to Ruoyuchen to accelerate the transformation.
In addition to the above-mentioned private brands, accelerating the layout of brand management is another focus of Ruoyuchen's transformation.
According to Ruo Yuchen's annual report, the so-called brand management includes three major parts, namely, the general agency business (enjoying the franchise right of the brand in a specific region and for a period of time, such as Johnson & Johnson's Aiweinuo, Bayer's Kangwang, etc.), the buyout of the management right (the acquisition of the right to operate the cooperative brand in China and the right to use the trademark), and the joint venture brand (integrating the technology, capital, management, market and other resources of the company and the cooperative brand to jointly produce and sell products).
It can be seen that Ruoyuchen is constantly moving towards the upstream of the industrial chain and grasping more right to speak, however, the price of "de-generational operationalization" is heavy.
Taking the general agency business of brand management as an example, in 2023, the company's general agency business will accelerate its layout, joining hands with Bayer's Kangwang and Johnson & Johnson's Aveeno. In addition, the company has also signed strategic cooperation with a number of overseas brands such as Floradapt and Grass&Co.
The profit model of the general agency business is that after obtaining the authorization of the cooperative brand, the company purchases from the brand in the form of a buyout of goods, and then promotes and sells through online and offline multi-channel layout, and makes a profit through the price difference. From the perspective of profit model, the general agency business is still an asset-heavy distribution model in essence.
With the acceleration of the general agency business, Ruoyuchen will inevitably need to purchase a large number of goods in advance, and most of the cooperation methods under the company's agency operation mode also need to purchase goods in advance, which has greatly increased the company's inventory.
According to the financial report, at the end of 2023, the company's inventory increased from 194 million yuan to 319 million yuan, an increase of 125 million yuan, a year-on-year increase of 64.4%.
(Photo / Ruo Yuchen's 2023 annual report)
Not only that, with the advancement of the general agency and other businesses, it has also led to a significant increase in the company's accounts receivable.
Ruoyuchen also made it clear in the financial report that "the growth of distribution revenue and the increase of cooperative brands in the reporting period" led to the growth of accounts receivable. Among them, the accounts receivable of the distribution platform accounted for the highest proportion.
(Photo / Ruo Yuchen's 2023 annual report)
This is because, in addition to selling goods directly to C-end consumers, Ruoyuchen also wholesales goods to third-party retailers, distributors, agents and other channels.
In 2023, the revenue of these two methods will account for 45.35% and 40.59% respectively. The wholesale business to the B-end leads to the fact that part of the funds cannot be recovered in time.
(Photo / Ruo Yuchen's 2023 annual report)
According to the financial report, at the end of 2023, Ruoyuchen's accounts receivable increased from 119 million yuan at the beginning of 2023 to 169 million yuan, a year-on-year increase of 42%.
(Photo / Ruo Yuchen's 2023 financial report)
With the significant growth of inventory and accounts receivable, the company's operating cash flow will also turn from positive to negative in 2023.
Although Ruoyuchen's profit increased significantly this year, its net operating cash flow fell sharply by 140.52%, from 227 million yuan in 2022 to -91.7907 million yuan in 2023.
(Photo / 2023 Ruoyuchen financial report)
Entering the first quarter of 2024, Ruoyuchen's net operating cash flow has turned positive to 121 million yuan, but how to grasp the rhythm of operation, achieve stable growth and prevent risks in the process of accelerating transformation is still the next test that Ruoyuchen needs to face.
3. Is outbound investment a "shortcut" to the upstream?
"Jiemian News - Entrepreneurship Frontline" noticed that frequent external equity investment is one of the specific means for Ruoyuchen to continuously deepen the layout of upstream brands in the process of transformation, and this method has continued to this day.
2022 is a year of concentrated outburst of Ruoyuchen's foreign investment.
According to incomplete statistics, Ruoyuchen will invest in several new consumer brands such as SPD Care Super Dental, Beizhenbao, OUNGMAY, KEYiN, Xie You, and Suhua in 2022, covering oral care, pet health products, scientific and technological skin care, functional food and other tracks.
Entering 2024, just two months ago, Ruo Yuchen made two investments.
According to the Times Weekly, in January this year, Ruo Yuchen continued to invest tens of millions of yuan in the technology skin care brand KEYiN. As early as the establishment of the brand in 2022, Ruoyuchen has invested a round of tens of millions of yuan in it.
In February, Ruoyuchen invested in the herbal health brand JUZTLAB Herbal Future for an angel round of financing of 10 million yuan.
(Photo / Photo Network, based on VRF protocol)
Different from the pure cooperation between Party A and Party B, foreign investment expands the cooperation to the equity level, which also means that the agency operator and the brand are more motivated to create a win-win situation, and the agency operator can also obtain more certainty of future business growth on the basis of small equity investment.
Although Ruoyuchen's foreign investment is complex, most of them focus on health-related fields.
On April 19, Ruo Yuchen also said in response to investors' questions on the investor relations platform that in the future, the company will focus on the big health category, firmly grasp the growth opportunities of the big health industry, and accelerate the development of brand management business.
However, the pressure to invest in new consumer brands is also obvious. Whether the new brand can survive, whether it can be understood and recognized by consumers, and whether it is willing to pay for it is not only a matter of operation, but also a question of brand influence.
This is not a short-term effect, but if the investment paid by Yuchen is real money, it will also put pressure on the company's cash flow.
In 2021 and 2022, the net cash flow generated by Ruoyuchen's investment activities continued to be negative, and in 2022, it was -140 million yuan, an increase of 15.55% on the basis of 2021, which was due to the increase in foreign investment expenditure in the reporting period.
(Photo / 2022 financial report)
And if these companies invested by Yuchen, are they still alive?
Taking the oral care brand SPD CARE as an example, the products currently on sale in its flagship store include mouthwash, dental floss, toothbrush, oral spray, etc., and the highest-selling portable mouthwash has a sales volume of 900+, which is obviously still in the early stage of growth.
The scientific and technological skin care brand Xiangmei is mainly based on beauty instruments and supporting skin care products, and the "dermal perfusion" transdermal technology is its core selling point. However, at present, the beauty device market is facing strong supervision, and the concept and efficacy of "dermal perfusion" are not only the concept of epidermal skin care, but also need time to test whether it can be recognized by the market and regulators.
Since the launch of its own brand in 2021, coupled with the acceleration of the general agency business and foreign equity investment, Ruoyuchen is accelerating the transformation from brand agency operation to brand management.
However, the thinking and capabilities of generation operators and brand owners are different, which still requires generation operators to make up for shortcomings and reshape capabilities.
Bai Yunhu, a senior beauty critic and founder of the Meiyun Space e-commerce platform, once said in an interview with Times Weekly that for Ruo Yuchen and a number of generations of operators, the brand management business has brought challenges to the company's team remodeling.
"Ruoyuchen's genes are inseparable from channel operation, or more store-based retail operation. This is very different from the product innovation ability and brand marketing ability that brand owners should have. He said.
There is still a long way to go in the transformation of generation operators.
*Note: The title image in the article is from the photo network and is based on the VRF protocol.