Heart of CEO Dong Bowen: Do not recognize the concept of consumption downgrade, second-hand luxury goods have a market of 200 billion yuan

Founder and CEO Dong Bowen (Courtesy of interviewee)

Text | AI Finance and Economics Agency Liu Xueer

Edit | Chen Fang

[This article is originally produced by AI Finance and Economics, without permission, please do not reprint it on any channel or platform.] Violators will be prosecuted. 】

Not long ago, The RealReal, a second-hand luxury goods platform in the United States, officially submitted an IPO application to the US Securities and Exchange, planning to be listed on the NASDAQ stock exchange. In China, there is a benchmarking company founded in 2015 - Xinshang, which mainly does idle luxury consignment, recycling, appraisal and other businesses, with a monthly transaction volume of more than 60 million yuan.

However, in the field of second-hand recycling, which is full of pits, there is also a crisis of trust in the cold start and the challenge of integrating decentralized supply chains. Four years on, the focus has been on creating a dynamic valuation system, which is their ticket to the future. A week ago, Founder and CEO Dong Bowen and GGV senior investment manager Tang Chuanye accepted a media interview including AI Finance and Economics, and the following is an excerpt.

"I don't approve of the concept of consumption downgrade"

Q: How big is the second-hand luxury market?

Dong: We did a survey some time ago, and the current second-hand circulation rate in China is about 2%-3%, the United States is 28%, and Japan is 23%-26%, and it is expected to rise from 3 points to 13 points in the future. Every year, the scale of domestic luxury new products is 780 billion yuan, our platform sales is 3-5 years of inventory, according to three years of inventory, it is already more than 2 trillion new products, and then multiplied by more than ten percent of the circulation rate, is also two or three hundred billion yuan of second-hand luxury goods market size.

Q: Why hasn't the second-hand luxury goods industry exploded like second-hand houses and used cars?

Tang: On the one hand, the experience problem from the buyer, from the recycling to the identification process, can really convert the user, there is a high threshold, the user's mind needs to be cultivated for a long time; on the one hand, the integration of the seller's supply chain, the supply chain is extremely fragmented, it takes a lot of time, how to match everyone to do a good job of fulfilling the contract, but also need to polish.

Q: What are the pitfalls of doing second-hand luxury goods trading?

Dong: First, the supply chain is relatively scattered, to let professional sellers believe in you, willing to put on the shelves of goods, but also to let buyers believe in the identification services of the new platform, early cold start has challenges; second, when there are many goods, to do the sorting, classification and removal of goods, according to the transaction data backwards which goods are more popular, give them ordering; third, after the current two stages have been experienced, to improve the matching efficiency to a greater extent, consolidate the ability to perform and deliver, so that buyers feel that the entire transaction process is smooth, he is practical.

Q: How do you see the impact of consumption downgrade on the industry?

Dong: I don't quite agree with the concept of consumption downgrading, because I don't believe that people will pursue things that are getting worse and worse, and I think that people's pursuits must be getting better and better, in any country at any time.

D: The economy is rising, but when people can't keep up with real income growth, idle demand is amplified. And when the user demand goes up, it is difficult to be frugal from luxury to thrift, and when it can't come down, the use of idle supplies is a good solution.

"The brand side will one day come to the door to cooperate"

Q: Where do you think the core barriers in your heart are?

Dong: I think the high-end positioning in our hearts has cast a barrier in the stock price system, unlike our peers who do 800-1000 yuan per unit price or more sinking commodities, our average customer unit price is between 2000-3000 yuan.

Why is the unit price of lobbyists related to barriers? First, the secondary circulation value of commodities with lower residual value is limited, because the secondary circulation requires cost expenditure, and if the residual value is low, the commodity model cannot be calculated. You see that the well-developed second-hand cars, second-hand houses, second-hand mobile phones, etc. in the market are relatively high net worth or high residual value.

Second, things with high residual values facilitate the establishment of a stock price system. Because the brand volume of high-end brands is relatively concentrated, the difficulty of big data construction is relatively low, and it is more convenient to establish a stock price system according to more than ten factors such as age, color, purchase amount, origin, and whether there are accessories.

Q: How to establish a standardized valuation system for non-standard second-hand products?

Dong: Our valuation system is dynamic pricing, for example, if you sell a package, we will give the past transaction price of similar goods, and the system will show that if the list price is 1000 yuan, it may be sold in 7 days, and 900 yuan may be sold in 3 days. For example, if students like MK bags, when the inventory is urgent, the system will remind the retailer to raise the price. Once dynamic pricing is formed, matching efficiency will double upwards, and the seller's yield and buyer's user experience can be guaranteed.

Q: Where does the source of the heart come from?

Dong: There are two aspects, one is a professional trader, that is, a scalper, and the other is a pure individual. We choose to work with professional players at first, and then infiltrate individual sellers, because individual sellers need a long period of guidance and education. Why small B vendors are willing to cooperate with us, the original channels are more rigid in the circle of friends, or the area where the shop is located, subject to personal private domain traffic, the heart makes their circulation speed faster, the funds can also be turned around in time, the scale of transactions will expand, the current platform gathered 60,000-80,000 small B.

Q: How to empower small B?

Dong: Xiao B wants to do recycling needs a certain degree of appraisal ability and valuation ability, we will provide them with appraisal training courses, a week offline classes of 15,800 yuan, membership price of 12,800 yuan, the future may also solve their financial problems through supply chain finance.

In addition, in terms of traffic support, we will show the goods to more end consumers, and we will also provide value-added services such as maintenance. For example, some buyers will mind the color of second-hand items, the market maintenance price is 399 yuan, we may charge 99 yuan to help sellers deal with user experience problems.

Q: At present, do you have cooperation with the brand side, and what aspects of cooperation with Ali and NetEase are reflected?

Dong: At present, we have not cooperated with the brand side, but I think one day they will have to find us to cooperate. Because the second-hand stock price system has greater price guidance significance for the sale of new products, if some things are value-preserving products in the second-hand industry, then the price will be very firm when the new products are sold.

The cooperation with NetEase Koala is mainly in the supply chain, and the goods that Koala is invalid for seven days cannot be sold twice, and a cleaning channel is needed. At the Alibaba level, as a recycler and provider of quality supply chains, we mainly cooperate with Idle Fish Premium and Idle Fish Recycling Channel.

Why we have cooperation with integrated second-hand platforms, because we have valuation capabilities, which is different from appraisal capabilities. There is an appraisal ability to do recycling, and there is an appraisal ability that may not be able to do recycling, so I have repeatedly emphasized that the appraisal ability is our core barrier, and in the future, we will also intelligently price and achieve thousands of buyers.

"Don't consider opening an offline store for the time being"

Q: What is the proportion of the two sales models in the heart at present?

Dong: We mainly have a consignment model and a C2B2C self-service release model, the current self-service model accounts for 6-70%, which is related to the business attributes of our supply chain, small B is not willing to be locked by the platform inventory, unwilling to send directly to you. However, as we increase the number of individual sellers, the amount of consignment sales will also increase, and the two may be equally divided in the future.

Q: If the consignment mode, the platform will recycle the goods that cannot be sold out for 15 days, which is equivalent to passive recycling, compared with the active recycling business operated by the platform, what is the proportion of the two?

Dong: Now it is half a point, passive recycling is not particularly much, because we will open the guidance price, according to the guidance price, the probability of being sold out is very large, within 15 days most of the goods will be sold out.

In general, most of the categories of passive recycling are concentrated in the category of shoes and hats, because compared to bags and watches, shoes and hats have strict size requirements.

Q: To be honest, the second-hand bracelet may be accepted by the user, but will they accept the clothes, bags and other things that are taken away?

Dong: Our core products are more than 90% new, and they can't be seen as second-hand products when worn outside. If customers really mind the color, they can buy 99 new, but our data shows that most people don't mind and will choose 90% new or 95 new, after all, the price difference between 95 new and 99 new two gears may be half.

Q: 60% of the users on the heart come from first- and second-tier cities, and the e-commerce companies focus on the sinking market.

Dong: We are an online platform, we don't insist on saying that we must do that market, but we will use different commodity strategies and different channels to reach users. For example, for first- and second-tier cities, it may launch Small Red Book, and for third- and fourth-tier cities, it may reach users with the help of vibrato.

Q: Luxury jewelry e-commerce temple library, second-hand fashion e-commerce plum are opening offline stores, how do you think about it?

Dong: We have no plans to open an offline store for the time being. First, offline retail is a particularly complex business, and if your organizational ability has not grown to take care of both online and offline, we are not willing to distract ourselves.

Second, peers to do offline stores, to a large extent, to do brand promotion, but so far there is no non-chain offline stores, can form a brand effect, if you can not make a chain store on a large scale, can not have an enhanced effect on the brand.

We are also not opposed to doing offline, if the future online growth to the ceiling may also try, but will not take the offline as the main sales channel. Because what we do is a lone product, there will be physical space restrictions offline, and we must go online to allow users to get enough product views.

"We don't tend to take sides"

Q: What are the core business priorities in 2019?

Dong: The focus is on the improvement of the valuation system and performance capacity, and the establishment of transaction process SOPs and performance standard SLAs. This can ensure that different appraisers will not produce different appraisal results under the same appraisal link.

For example, we get a LV package, the process and the standard under each process are fixed, to see the lining of the bag, the line and other places, the line can be identified as new, the line is slightly starting from the ball is 90% new, especially standardized.

Q: What is the current performance data on your mind?

Dong: At present, the income on the heart comes from three blocks, commission income accounts for 70%-80%, commission rate is 12%, customer unit price is between 99-3000 yuan, mainly 2000-3000 yuan, in addition to self-operated recovery income and maintenance income. A full trading cycle is 4-7 days, and the cost of new customer acquisition is less than 100 yuan.

There is no profit in mind at present, but the cash flow is very good, there is no rush to raise funds, of course, we do not reject the financing opportunities proposed on the initiative, and we will also take the initiative to initiate financing after reaching our target value.

Q: There are giants behind idle fish, turning, patting & love recycling, will you consider taking sides in the future?

Dong: First, we are not inclined to take sides, if we can develop independently in the future, it is also a better choice; second, whether to take sides, the core depends on how big the interests of both sides are supplemented, and the large platform will be interested in our vertical subdivision companies, especially those who have supplements with them. At the beginning of the last round, we approached each family, and each one came to look for it, but mentally, I think that I still want to develop independently without a complete threat.

Q: What is your mental plan for the future?

Dong: First, I think there are many opportunities for sellers' supply chain finance and buyers' consumer finance; second, like the automotive aftermarket, luxury aftermarket services can also be done. In addition, after the implementation of the dynamic pricing model, our commission rate will not be constant, but a floating value, which will also scientifically increase our commission rate, I will not worry about the profitability of the project.