After three visits to the Shenzhen Stock Exchange, Zhiou Home Furnishing finally passed the review and is only one step away from a successful listing. But this step seems to be a chasm. Multiple brands dominate Amazon BS list, Anker bets madly to become the second largest shareholder On March 17, Zhiou Home Furnishing updated its prospectus for listing. It plans to be listed on the Shenzhen Stock Exchange's Growth Enterprise Market and plans to raise 1.486 billion yuan to be used for the construction of R&D and design centers, warehousing and logistics systems, and to supplement working capital. According to the latest prospectus, Zhiou achieved revenue of 5.455 billion yuan in 2022, and net profit attributable to the parent company's owners was about 250 million yuan. At the same time, Zhiou expects that revenue in Q1 of 23 will decrease by 7.50% to 14.51% year-on-year, and net profit will increase by 41.92% to 61.36% compared with the same period last year. ▲ The picture comes from Zhiou’s prospectus Behind its steady and progressive performance, Zhiou is still guarding its dream of an IPO. The story of Zhiou began in 2010. The founder Song Chuan saw the business opportunities of going overseas through his study experience in Germany and the consumption life of Europeans and Americans. In 2007, Song Chuan tried some foreign trade business through eBay, which laid the groundwork for his return to China and establishment of Zhiou three years later. From starting with eBay Germany to sell home furnishings, pets and other categories, to establishing its first home furnishing brand SONGMICS and seizing Amazon's early dividends, Zhiou's tentacles have now extended to North America, Japan and other markets. With high cost-effectiveness, full home furnishing scenarios and fashionable design as its core features, Zhiou aims to become a home furnishing brand comparable to IKEA. Currently, it mainly sells home furnishings, furniture, pets and other series of products, involving 303 subcategories, with a product SPU of 3,335. ▲ The picture comes from Zhiou’s prospectus As one of the first cross-border companies to "take the lead" on Amazon, Zhiou quickly laid the foundation for development by relying on the platform's consumer base and traffic advantages, and expanded from the initial home furnishing brand to multiple brands such as VASAGLE and FEANDREA. During the reporting period, Zhiou achieved revenues of 2.849 billion, 4.044 billion, and 3.636 billion yuan on Amazon respectively. Many of its products have been on the Amazon Best Seller and Amazon's Choice lists for many years. In addition, Zhiou was also named "Amazon's Most Popular Brand Seller of the Year", and its brands SONGMICS and VASAGLE were selected as "Amazon Global Store China Export Cross-border Brands Top 100". ▲ The picture comes from Zhiou’s prospectus According to Statista data, from 2017 to 2020, the proportion of online sales in the global furniture market has increased year by year, and online channels have become a new engine for the development of the global furniture market. With the dividends of industry development, Zhiou has been soaring like a rocket. From 2018 to 2020, Zhiou's annual revenue was RMB 1.594 billion, RMB 2.326 billion and RMB 3.971 billion respectively, with an annual compound growth rate of 57.80%. The rapid growth has also attracted many investors. In the past three years, Zhiou's valuation has expanded from less than 1 billion to 8 billion yuan. Among them, Anker Innovations, another leading cross-border export company, has "high hopes" for it and has continuously invested in it to become the second largest shareholder of Zhiou. Fast forward to 2021, and Zhiou, whose performance was booming, joined the cross-border listing boom driven by capital - this timing was actually a bit subtle. As the effects of the epidemic weakened and Amazon banned accounts, the cross-border industry was in turmoil, and the market, shrouded in gloom, took a sharp turn for the worse, with shrinking performance becoming a common norm for cross-border merchants. In such an environment, Zhiou’s IPO journey has also been full of ups and downs. Valuation swelled by 7 billion in 3 years, but failed to get IPO
In June 2021, Zhiou submitted its first application for listing on the Growth Enterprise Market, but subsequently pressed the pause button three times due to reasons such as expired financial information. It was not until April 2022 that Zhiou launched another IPO. After updating its financial information, the Shenzhen Stock Exchange resumed its issuance and listing review, and then Zhiou finally passed the review in July. However, three months later, the GEM Listing Committee issued a "Registration Feedback Implementation Letter" to Zhiou Technology. As of now, it is still full of unknowns as to when Zhiou, which has experienced many twists and turns on its IPO road, will be settled. Why does Zhiou Technology, which has repeatedly attempted IPOs, always fall short of success? Although Zhiou's performance has been on the fast track of growth since 2018, and its rapidly soaring valuation has attracted a lot of capital in pursuit of profit, listing is like a double-edged sword. Regardless of success or failure, it is difficult to predict future losses or gains. In 2021, Zhiou confirmed its determination to go public, but it also ushered in an important turning point in the cross-border market. Amid internal and external troubles such as soaring freight rates and tightened platform risk control, Zhiou's performance also showed signs of decline amid the industry's gloom. In 2020, Zhiou's net profit attributable to shareholders of the parent company was 380 million yuan, but this figure dropped sharply to 239 million yuan in 2021, a year-on-year decrease of 9.63%. In 2022, Zhiou's revenue also showed a downward trend, down 8.58% from the same period last year. The fluctuation of performance is obviously a hidden worry for Zhiou, which intends to go public. Regarding the reasons for the fluctuations in revenue and net profit, Zhiou said that it was affected by unfavorable factors such as the continued rise in shipping prices and the downward fluctuation of foreign exchange. However, in addition to this, Zhiou's business model also has certain performance risks. The prospectus shows that from 2020 to 2022, Zhiou achieved revenue of 2.849 billion yuan, 4.044 billion yuan and 3.636 billion yuan on Amazon, accounting for 71.80%, 67.87% and 67.61% of the total revenue respectively. The sales share of nearly 70% also exposes the drawbacks of Zhiou's over-reliance on Amazon. ▲ The picture comes from Zhiou’s prospectus In an environment where Amazon's regulation is becoming increasingly stringent, if there are major adjustments to the platform's relevant policies and platform fees, the deep ties with Amazon are likely to have an adverse impact on Zhiou's operating activities and financial condition. Moreover, another calamity that may arise from over-reliance on Amazon is inventory crisis. According to the prospectus data, during the reporting period, the book value of Zhiou's inventory was RMB 859 million, RMB 1.052 billion and RMB 689 million, respectively, with the inventory amount accounting for a relatively high proportion. The large inventory level also increases Zhiou's inventory depreciation risk and capital occupation pressure. If it fails to optimize inventory management and reasonably control inventory scale, it is likely to lead to unsalable products, inventory backlogs, and even capital chain management. The prospectus shows that Zhiou had negative cash flow in 2020, but fortunately it turned positive again in 2021. It is worth noting that for the home furnishing industry, product quality and features are important factors affecting consumption, so it is crucial to pay attention to research and development. However, during the reporting period, Zhiou's research and development expenses were RMB 12.7693 million, RMB 24.5104 million and RMB 45.0106 million, respectively, which are lower than the average level of its peers. However, compared with its relatively "stingy" R&D investment, Zhiou's sales expenses have remained high for many years, exceeding 2.3 billion yuan in 2021, accounting for about 39% of total operating income. Overall, with multiple performance concerns such as halved profits, high inventories and lack of innovation capabilities, Zhiou’s IPO road may be destined to be more bumpy. The home furnishing market is on the fast track of development, and consumer demand is skyrocketing Zhiou’s ambition is to become the online version of IKEA. However, in the current industry environment where furniture exports are becoming increasingly fierce, Zhiou still has a long way to go if it wants to learn the essence of IKEA and become an industry benchmark. Since the outbreak of the COVID-19 pandemic, the furniture export industry has faced both daunting challenges and new opportunities. According to Statista data, the global furniture market will reach US$650.7 billion in 2027. Looking overseas, since furniture demand is affected by factors such as social economy, housing, and consumption capacity, different markets also show different development characteristics. For example, in developed countries such as Europe, America, Japan and South Korea, the urbanization level is high, the residents have strong consumption power, and consumers usually have high requirements for comfortable living conditions, so there is a stable demand for furniture. In emerging market countries, the urbanization process continues to advance, and the increase in urban population size has led to an increase in housing demand, and there is great room for growth in home consumption. Foreign research shows that although high inflation has severely weakened consumer confidence, a considerable number of consumers are still keen to invest in houses and gardens in the face of cost of living pressures. In 2022, global home furnishings sales increased by 3% compared with the same period last year, reaching 31.1 billion euros from January to October 2022, and surged around promotional events such as Mother's Day and Black Friday. With the rapid development of the home furnishing industry in major overseas markets, new and emerging hot trends have also put forward new requirements for overseas merchants. The first and most significant change is the evolution of consumers’ demand concepts. As work income and living standards continue to improve, consumers are no longer satisfied with the basic functions of furniture products, but instead pay more attention to product brands and user experience. In particular, the younger generation of consumers has gradually become the main force, and they pay more attention to the brand image, innovative design, quality and experience of the products. Changes in demand pain points and diversification of information channels have also given rise to new consumption patterns for the home furnishing market. Therefore, in order to adapt to the needs of consumers, strengthen brand image building and product innovation design capabilities, thereby continuously improving the beauty and user experience of products and increasing brand awareness in the minds of consumers, it has become a breakthrough for home furnishing companies to compete overseas. In addition to the branding development trend, energy conservation and environmental protection is also another major mainstream in the current home furnishing industry. With the improvement of people's quality of life and the progress of consumption concepts, the yearning for green and healthy life is increasing day by day. When decorating the home, on the basis of meeting the functional, aesthetic and personalized needs, more attention is paid to energy conservation and environmental protection. A foreign survey shows that 83% of consumers require home brands to provide sustainable environmental services. In the Netherlands, Spain, the United Kingdom, Belgium and Poland, 40%-50% of electrical installations involve consideration of sustainability factors such as energy efficiency, carbon footprint, recycled materials or compliance with regulations. To sum up, whether it is Zhiou or domestic home furnishing companies going overseas, establishing solid brand barriers and enhancing R&D and innovation capabilities to build a competitive moat are the only way for long-term development in the future.
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