At Mexico's most popular street market, clothing stalls line the streets in rows, with neon signs reading "more expensive designer clothes" or "cheapest unbranded clothes" for as little as 5 pesos (29 cents). For many years, many informal street markets in Latin America have been dumping grounds for clothing brands’ overstocked inventory. Mid- to high-end brands and well-known mass brands from all corners of the world gather here, losing their halo and falling into the common fate of depreciation. They are sold in bundles by wholesalers to middlemen and then flow into street markets. Everyone is equal in the face of stagnant inventory. In the long battle line of cross-border e-commerce, goods go through countless complicated turnover procedures from the most advanced production factories in China to the hands of consumers at the end of sales. Even if they are successfully put on the shelves, they are always facing external risks such as out-of-season and lack of demand. When these products are not in demand due to various internal and external factors and become redundant inventory, it means that the subsequent sales of cross-border merchants will be shackled - low inventory turnover, asset depreciation, difficulty in cashing out, broken capital chain ... Many overseas merchants are gradually being strangled by the constraints of the "inventory curse". Cross-border e-commerce: From a distribution model to an inventory black hole In June, there were only a few employees working in the Shenzhen office of SAFU as usual. In sharp contrast to the deserted office atmosphere, there were dozens of debt collection suppliers blocking the door. The "culprit" of all this can be traced back to SAFU's parent company, the former No. 1 cross-border e-commerce company - K-Link. Back in 2014, Cross-border Communication, then known as "Baiyuan Pants", acquired Global Easybuy, which focused on export business, for RMB 1.032 billion. This transaction benefited both parties - the latter went public through a backdoor listing, and the former seized the second curve by taking advantage of the cross-border e-commerce dividend. However, the gambling agreement attached to this merger and acquisition case also laid the seeds for the decline of Cross-border Communication's export e-commerce empire many years later. Faced with the sword of judgment hanging over its head in the name of gambling, Global Easy Shopping started a model of violently burning money and frantically expanding its overseas business: adopting a strategy of casting a wide net, opening stores on e-commerce platforms such as Amazon and listing a large number of SKUs, turning the stores into a huge grocery store with hundreds of thousands of styles of products. In layman's terms, it is a tactic of flooding the market with goods, and there is always a product that can meet the needs of consumers. Judging from the financial report figures, Global Easy Shopping helped Cross-Border Link to join the 10 billion club in the process of product distribution, and reached its highlight moment in 2018 - peak revenue of 21.534 billion yuan . However, the specific number of SKUs behind the high growth is really amazing: Gearbest, the largest self-operated website under Global Easybuy, has as many as 996,000 SKUs. This is the crux of its decline. ▲ The picture comes from the Cross-border Communication Financial Report Global Easy Shopping’s main categories include “fast-growing and fast-dying” categories such as 3C electronics, clothing and accessories. The characteristics of these categories, such as fast iteration and short life cycle, also mean that the store faces huge inventory management challenges. More importantly, it practices a heavy asset buyout purchasing model. Once the sales trend is misjudged, it means that a large amount of inventory will be eliminated by the market and become unsaleable inventory. Obviously, Global Easy Shopping, which relies on the distribution model, has suffered a backlash from the huge number of SKUs. According to the annual report of Cross-border Link, its net inventory in 2018 was as high as 5.066 billion yuan, and the provision for inventory impairment reached 543 million yuan - this is the precursor of the avalanche. ▲ The picture comes from the Cross-border Communication Financial Report In 2019, Cross-border E-Commerce reached its darkest turning point: revenue fell by 16.99% and losses reached 2.708 billion yuan, of which Global Easy Shopping accounted for the bulk of the losses of 2.653 billion yuan.
The reasons behind this are mainly due to the decline in sales in the European and American markets, as well as the clearance of unsalable inventory and provision for inventory impairment in 2019. On a deeper level, the tight capital turnover of Global Easy Shopping during the peak season affected the promotion rhythm, and a large amount of inventory missed the best sales opportunity and accumulated. As of the end of 2019, the inventory amount of Cross-border Link was 3.037 billion yuan, and the provision for inventory impairment was 2.589 billion yuan. This means that the original total value of inventory of 3.037 billion yuan depreciated to less than 500 million yuan, which is equivalent to selling each item at 20% off. Under the pressure of unsalable inventory, the strategy of Cross-border Communication was to cut down the number of SKUs, among which the number of SKUs of Gearbest plummeted to 309,000. However, these products that were forced to be removed from the shelves were already outdated and outdated, and most of them were sold at a loss to various channels, such as the busy streets of Latin America. However, after the reduction of its burden, Cross-border Link was not able to move forward with ease as it had hoped. The huge inventory backlog was the first domino to fall, which led to a series of reactions such as inventory turnover obstruction, inventory depreciation, profit plunge, and capital chain rupture. Although Cross-border Link tried to move from a distribution model to a mainstream brand trend, the "inventory curse" dug a big hole, and it was too late to mend the fold after the sheep had been lost. As a result, Cross-Border Link, whose performance was deteriorating, was plagued by internal and external troubles. With a massive inventory backlog and difficulty in cashing out, Cross-Border Link fell into a cash flow quagmire in 2020 and was unable to pay the huge amount of money on time. It began a long tug-of-war with suppliers, which led to the scene at the beginning. Ultimately, Kuaishou, which started out as a distribution model, failed to establish core barriers in an industry environment where competition was escalating. Eventually, the hidden danger of massive SKUs broke out, and inventory management was completely out of control. It rose from the volume effect of billions of inventory, but was also crushed by billions of inventory. Counterattack against the inventory black hole: Youkeshu retreats, Yibai Network advances The tragedy of Cross-border Communication is also the tragedy of many big sellers in the industry. In that "grassroots" era, the volume-based model of using scale to exchange for growth was the basis for almost all older players. In the historical context of that time, spreading goods may be the common solution for many Chinese overseas companies, but with the surging wave of boutique products, it has become inevitable that they will be beaten to death on the beach. The merchants rely on the "sea of goods strategy" to bet on the best-selling products, and then turn them into gorgeous revenue data. However, the crazy sale of massive SKUs also feeds a bottomless money-sucking black hole, which continuously devours the inventory and the cash flow behind it. Compared with domestic e-commerce, cross-border e-commerce has a longer battle line and covers many complex links. Therefore, overseas companies often need to prepare goods in advance according to business planning and sales cycle. Once the market demand is misjudged or the best sales opportunity is missed due to logistics delays, it will cause negative effects such as unsalable inventory and capital occupation. And this is only one of the driving forces of inventory backlog. A major disadvantage of the distribution model is that the product lacks a solid moat and is difficult to form a differentiation barrier. In layman's terms, it is unable to distance itself from competing products - domestic manufacturers generally have weak product development capabilities and lack of innovation awareness, and are often accustomed to copying models, which in turn induces homogeneous competition. If a product cannot stand out, the risk of inventory backlog will naturally be imminent. Because of this, many big sellers who started out as distributors have fallen into a long period of transformation pain, just like Kuaishou. Youkeshu, which also broke out of the distribution track, saw its revenue drop by 56.11% last year and its net profit loss of 366 million yuan. The "culprit" is still the historical legacy of the distribution model. In 2022, Youkeshu had 190,500 SKUs on sale, with a total of 16.4833 million units. Although it was cut by nearly one-third compared to 2021, the pressure of high inventory has not been alleviated. The financial report shows that Youkeshu's inventory balance is about 557 million yuan, and the balance of impairment provision is as high as 368 million yuan. I still remember that in 2021, 400 Youkeshu stores were closed, resulting in a large amount of inventory being unsalable. In order to speed up the recovery of funds, it was forced to sell at a low price through offline channels. ▲ The picture comes from Youkeshu’s financial report At the same time, Youkeshu's main product categories such as 3C electronics and furniture have low technical barriers and have not yet formed an iconic independent brand. Therefore, the added value and brand premium of the products on sale are relatively weak. Due to the combination of various factors, Youkeshu is facing the pain of high inventory on the one hand and the pain of inventory depreciation on the other. However, while a number of big-selling products are gradually "fading away from the market", there is an outlier that is tenaciously going against the trend of boutique operations - Yibai Network. In 2022, Yibai Network will have more than 500,000 SKUs on sale, of which only 338 are for its boutique business. The number of its stores on Amazon alone is as high as 777. However, unlike its peers, Yibai Network has not been completely eroded by the inventory black hole, but has helped its parent company turn losses into profits. Why wouldn't such a big seller who sells a lot of goods be overwhelmed by the huge inventory? The secret to its stress resistance is to cultivate the internal strength of data-based operations. All aspects of the product rely on data to make decisions and the system to assist operations. Based on this, Yibai Network has built an IT system to achieve data-based management of the entire chain, including product selection, procurement, logistics, sales, and promotion. Taking its developed intelligent stocking system as an example, it can complete the full data calculation of millions of FB links and inventory, and more than 200,000 to 400,000 SKUs within 5-6 hours, greatly improving the operating efficiency of business processes. Inventory management is not limited to the stocking process and inventory management, but it optimizes and improves the entire supply chain network from the front-end raw material procurement to the end consumer. In the final analysis, the supply chain is divided into four flows: logistics, business flow, capital flow, and information flow. Yibai Network has achieved the integration of the four flows and the flexible operation of the four flows through its self-developed IT system, and continuously deepened its inventory management capabilities. The cases of big sellers directly show that inventory turnover rate is positively correlated with corporate profits. Excellent inventory management level is the internal driving force that keeps the whole carriage running wildly. In general, at the crossroads of the industry, Yibai Network chose to go all the way, because its solid digital armor gave it the confidence to withstand the inventory crisis; while Youkeshu and Kuailetong resolutely transformed and placed more weight on independent sites and brands, but under the burden of heavy historical inventory, they have not yet found the route that truly suits them. SHEIN: Master of excellent inventory management Looking back at the history of cross-border e-commerce over the past 20 years, Chinese companies going overseas have started with low-cost production and harvested overseas markets by relying on the traffic thinking of massive distribution. However, this cumbersome model can no longer keep up with the rapidly changing consumer demand, and the battlefield of overseas companies has begun to shift from traffic to supply chain, and finally to brands. Under this trend, the development direction of the supply chain should be more flexible, faster, more efficient, and driven by digital empowerment. This is exactly what many fast fashion brands are pursuing - an agile supply chain .
This means having end-to-end digital capabilities, transparent management systems, and efficient production channels, so as to quickly understand and respond to market demands and provide timely solutions to risks in any link. BCG Boston Consulting Group's research points out that agile supply chains face three major challenges: cost management, quality control, and end-to-end collaboration. Their solutions involve three models: smart push production, fast fashion pull production, and digital DTC production. Specifically, the core of intelligent push production lies in digitizing each operational decision-making link, accurately predicting market demand through artificial intelligence technology, and ultimately forming refined order parameters by analyzing factors such as inventory levels, product characteristics, and consumer evaluations on the operational side to push products to market. Fast fashion pull production is a common model in the fast fashion industry, that is, at the beginning of the launch of new products, data and a strong logistics network are used to support high-frequency and rapid replenishment. In layman's terms, it is to put small batches of products into the market for testing, and then quickly replenish them based on actual feedback. For example, ZARA practices this model, relying on a flexible supply chain and pull production to reduce inventory and meet consumer demand. For example, Yibai Network also follows a similar logic: digital processing of each link, close cooperation between multiple departments such as planning, development, and warehousing and suppliers, and ultimately implementation of the "small batch, multiple batches, low-cost and rapid trial and error" management and control strategy, thereby improving the overall turnover efficiency of products from development and launch, procurement and sales to inventory management.
Let’s talk about the digital DTC model again: leveraging the digital ecosystem and smart tools to balance product supply and consumer demand in real time, and enhance sales and price competitiveness. SHEIN can be said to be a very typical case. As the contradiction between supply and demand continues to escalate, overstocking has become a chronic problem in the fast fashion industry. SHEIN has provided an excellent solution: building a flexible supply chain and reducing inventory costs through a small order and quick response model. SHEIN tracks the search and social media trends in each region to determine the most popular elements, and then its global design team designs based on this information and quickly feeds back to the factory. It only takes SHEIN two to three weeks from the generation of design inspiration to the birth of the first finished product. The market response will be fed back in real time through the ERP system. If the sales volume is considerable, the factory will continue to increase production. Statistics released by data company Business of Apps show that SHEIN adds about 2,000 new products to its website on average every day. SHEIN Singapore's general manager once said in an interview that its "small order and fast reorder" production model "is based on the premise of reducing production waste and manufacturing on demand, and can identify trends and predict consumer demand more accurately than traditional forecasting models. Therefore, it can significantly reduce waste and excess inventory. One piece of data intuitively illustrates the superiority of this model: the average unsold inventory level in the same industry is between 25% and 40%, while SHEIN has reduced its inventory level to single digits. If SHEIN is viewed as a big tree with luxuriant branches and leaves, then the powerful supply chain is the root deeply rooted in the soil of fast fashion, the strong supplier resources together constitute the trunk, the strategy of small orders and quick response + Internet marketing is the branch reaching out to consumers, the digital information system is the veins connecting all parts, and the leaves and fruits are the consumers it harvests.
|
