Taobao store counterattacks and goes public, university dormitory leaves Amazon and sells hot products

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Looking back to 2008, the domestic e-commerce industry was booming, the market size successfully exceeded 100 billion yuan, and a virus called "online shopping" swept the country. Driven by the trend, countless entrepreneurs entered the market, including Hua Bingru, a sophomore at Anhui Chaohu University.

At that time, Hua Bingru, who was not satisfied with his studies, opened a Taobao store in his dormitory, distributing knockoff clothes and hats from Guangdong, Fujian and other places. However, this amateur Taobao merchant who had not yet entered the society unexpectedly stood out among a group of profit-seeking entrepreneurs, and within two years, his store became one of the top three Taobao stores.

While her classmates were busy interviewing and waiting for offers, Hua Bingru, who had tasted the sweetness of opening a Taobao store, resolutely devoted herself to the e-commerce field after graduation. Thus, in 2011, the current women's clothing cross-border store Zi Buyu was born in Hangzhou.

However, although Zi Buyu made rapid progress and its sales reached nearly 100 million yuan in the following year, relying on counterfeit and imitation products is not a long-term solution. In addition, the competition in the red ocean of clothing is becoming increasingly fierce. Hua Bingru unexpectedly seized the track of cross-border e-commerce.

After successfully testing the waters on AliExpress, Hua Bingru registered his first Amazon store in 2014. With the booming cross-border dividends, Zibuyu's performance doubled and it officially transformed into a cross-border e-commerce company.

From a dormitory copycat online store to officially establishing itself on Taobao e-commerce, and then to transforming into a cross-border e-commerce company, Zi Buyu has now transformed into a leading overseas women's clothing brand. In order to move towards higher goals, it has knocked on the door of IPO several times.

In 2021, CalorCapital and AloeTower invested US$21 million and US$5 million in Zibuyu respectively.

Although these two rounds of financing caused Zi Buyu's net worth to soar, with its post-investment valuation rising to US$516 million, it also had to bear a bet agreement: if it could not complete the listing within one year, Zi Buyu would have to repurchase the above shares and pay interest to the investor at an annualized simple interest rate of 8%.

Soon after signing the gambling agreement, Zibuyu resolutely embarked on the long road to listing. On June 30 last year, Zibuyu submitted its prospectus to the Hong Kong Stock Exchange for the first time. However, due to no progress after 6 months, the prospectus became invalid. On March 7 this year, Zibuyu submitted its Hong Kong listing prospectus for the second time, but still had no results as of September.

After two failed attempts, Zibuyu launched a new round of IPO on September 28. However, this time, the goddess of fate favored Zibuyu. On October 26, Zibuyu successfully passed the hearing and started the IPO from October 31 to November 4. It is expected that the shares will be listed on the main board of the Hong Kong Stock Exchange on November 11.

After many twists and turns, Zi Buyu finally entered the IPO door after several hesitations. But why did Zi Buyu not hesitate to take on the pressure of gambling and rush to go public?

The prospectus shows that Zi Buyu's performance has grown steadily year by year, with revenue increasing from 1.429 billion yuan in 2019 to 2.347 billion US dollars in 2021, and net profits of 81.1 million yuan, 114 million yuan and 201 million yuan in 2021 respectively.

However, behind the good trend of double growth in revenue and net profit lies the crisis of high inventory redundancy and deteriorating cash flow.

From 2019 to 2021, the total value of Zibuyu's inventory was RMB 178 million, RMB 256 million, and RMB 664 million, respectively. As of June 30, 2022, Zibuyu's inventory had reached RMB 761 million, equivalent to 60% of its operating income in the first half of the year. For Zibuyu, which is highly dependent on Amazon sales, large-scale inventory backlogs mean that it may face the risk of a broken capital chain at any time.

It can be seen that in 2020, Zi Buyu's net cash from operating activities was still 114 million yuan, but the cash flow expenditure in the following year was as high as 207 million yuan . Now as of the first half of 2022, Zi Buyu's net cash flow from operating activities is only 12.038 million yuan.

  ▲ The picture comes from Zibuyu's prospectus

ZiBuYu, which was in financial difficulties, urgently needed to find a "cash cow", so it embarked on the road of listing. Using capital transfusions to alleviate the current operating situation with tight cash flow became the optimal solution for ZiBuYu.

Now that Zibuyu has finally been listed after three attempts at an IPO, it may help it solve its urgent problems of capital shortage and sluggish operation. Zibuyu also stated that the proceeds from the share sale will be used to enhance the company's sales and brand promotion capabilities, improve the supply chain management system and enhance product research and development capabilities.

How did Zibuyu manage to go public in the fast fashion market? And how did it transform from a copycat Taobao store to a cross-border hit?

Since its transformation from Taobao e-commerce to cross-border e-commerce in 2014, Zibuyu won the sales champion of women's clothing category on AliExpress Brazil the following year, occupying 60% of the market share in this category. Driven by the dividend, Zibuyu has rapidly entered the fast lane of growth, with revenues of 1.429 billion, 1.898 billion, and 2.347 billion in 2019-2021, respectively, reaching 2 billion and becoming a big seller.

In terms of sales categories, Zibuyu, which started out as a women's clothing brand on Taobao, has expanded its reach to other niche areas such as footwear products. In terms of sales channels, Zibuyu believes in a multi-channel operation system, covering third-party e-commerce platforms such as Amazon, Wish, and AliExpress, and selling to markets in the United States, France, and Germany. In North America, Zibuyu's GMV ranks first in the women's clothing category.

Through a multi-line sales strategy and viral product category expansion, Zi Buyu has successfully built a huge brand empire.

It is said that it is not easy to create a hit product, and it is even harder to keep it alive. However, Zibuyu has become a hit product manufacturing machine, incubating hot-selling products of various forms for many years. Since its establishment in 2011, Zibuyu has cultivated more than 300 brands, including 87 hit products with annual sales of tens of millions, and a total of 1,089 clothing and footwear products ranked in the Amazon Top 100 Best Sellers.

In the first half of 2022, Zi Buyu's women's sweater brand Mily Bela sold 211,000 pieces, with a semi-annual GMV of more than 36.1 million yuan; after the sports brand Aurgelmir was created in 2019 , the brand's first ski suit ranked among the top five on Amazon's best-selling list of the same type in less than three months.

What is commendable is that Zibuyu's hit brands have a relatively long life cycle, maintaining stable sales and revenue growth within 3 to 4 years after launch. The reason why such a strong brand matrix can be created is inseparable from the efficient operation model.

Zibuyu has always been known as the "Chinese version of ZARA", and it also regards ZARA as its target. However, in terms of the speed of launching new products, Zibuyu has long been far ahead of ZARA. It is reported that Zibuyu can launch 10,000 new clothing products a year, and it only takes about 7 days to design a garment, while ZARA takes twice as long.

However, it is far from being able to gain a long-term foothold just by launching new products faster than others. Clothing is highly seasonal, and consumers are easily bored with the old and love the new, making it difficult to form brand loyalty. Therefore, the core logic of Zibuyu is high-cost-effective products + innovative design capabilities. As long as a large number of products with different styles and low prices are created, there will always be one that will catch the eye of consumers.

Behind Zibuyu's excellent design capabilities is an experienced design team with a keen sense of fashion. From 2019 to the first half of this year, the number of Zibuyu designers increased from 155 to 344. Zibuyu categorizes products and assigns different design teams to complete market research, fashion trend analysis, and product design evaluation in an efficient and comprehensive manner.

Of course, large-scale category expansion and brand fission cannot be separated from a solid supply chain moat. Zibuyu began to develop its own IT system in 2017, including ERP, SCM, warehousing and email management systems, to achieve effective control of the entire industry chain from product design to warehousing and delivery.

Currently, Zibuyu has established cooperative relationships with more than 200 OEM suppliers, using the EPR system as a communication hub for both parties to effectively place orders and complete rapid delivery. In addition, Zibuyu has also established various types of high-quality OEM supplier networks in major production bases in the Pearl River Delta region to achieve rapid response to orders.

Zi Buyu has achieved its counterattack from a copycat Taobao store to an Amazon hit-making machine through independent design + OEM model, small orders with quick returns, and a digitally driven supply chain system.

The fast fashion industry has seen the emergence of many overseas brands, led by SHEIN. However, under the main theme of breaking through the fast fashion market with independent websites, Zibuyu is deeply dependent on third-party platforms.

In fact, under the attack of the account blocking wave, cross-border companies have adjusted their routes in order to get rid of their dependence on Amazon. However, Zi Buyu did the opposite and tipped the balance of business towards Amazon.

From 2019 to 2021, Zibuyu's third-party platform sales revenue increased from 1.313 billion to 2.052 billion. Among them, Amazon platform revenue accounted for 31.5%, 32.4% and 71.2% respectively. In the first half of this year, Amazon's sales revenue accounted for about 90% of the revenue.

Despite the necessity of risk control in multi-channel operations, Zibuyu has opened up third-party platforms such as AliExpress and eBay, and started building its own website in 2018, but the performance contribution is basically low. The revenue share of third-party platforms other than Amazon and Wish has been decreasing year by year, while the revenue share of self-operated websites in the first half of the year has dropped by 9.9% compared with the same period last year, and the trend is not optimistic.

Shifting the strategic focus to Amazon has helped Zi Buyu alleviate performance pressure to a certain extent and improved gross profit margin, but it has also inevitably caused it to suffer from the "Amazon disease."

The most obvious symptom is inventory accumulation. Since the products sold by Amazon have a long shipping cycle and in order to respond to the ever-changing market demand in a timely manner, Zibuyu needs to ensure sufficient inventory levels. However, the inventory of clothing categories is deeply affected by factors such as seasonality and fashion trends, which makes it very easy to have unsalable inventory problems.

As mentioned above, Zibuyu's total inventory value increased from 178 million yuan in 2019 to 761 million yuan in the first half of 2022, accounting for nearly 60% of its revenue, while the inventory turnover days increased from 175 days to 442 days today.

In order to ensure sufficient inventory, Zi Buyu must spend a lot of cash to purchase products, which brings up another drawback - the problem of collection of payments.

Amazon's payment cycle is relatively long. If the product cannot be shipped in time to recover the purchase cost, it is likely to face the risk of capital shortage. As of June 30, Zibuyu still has 22.8 million yuan of receivables. Based on the characteristics of the third-party platform model, Zibuyu said that it may encounter difficulties in the payment process and cannot ensure that it can receive the payment on time.

The inventory backlog and poor inventory turnover have caused Zibuyu to continue to invest funds, and the slow collection cycle has further increased Zibuyu's asset burden, and its cash flow has become increasingly tight. In the first half of the year, Zibuyu's net cash flow from operating activities was only 12.038 million. At the same time, its total liabilities reached 712 million, and the huge debt pressure has become another constraint on Zibuyu's business development.

Although Zibuyu has achieved steady revenue growth after increasing the proportion of Amazon business, it is accompanied by the hidden danger of weakening profitability. As Amazon platform service fees continue to rise, Zibuyu's operating costs are also rising.

In the first half of 2022, Zibuyu's sales expenses and distribution costs reached 838 million yuan, of which the commissions and service fees paid to third-party platforms from 2019 to 2021 were 30.9%, 26.8% and 31.7% respectively.

▲ The picture comes from Zibuyu's prospectus

Of course, Zibuyu's own development model also contains certain challenges. For one thing, although Zibuyu has a wide global presence, its main sales come from North America. As of the first half of the year, its North American revenue accounted for as much as 95%. With frequent trade frictions between China and the United States and increasingly stringent regulatory policies, relying on the single North American market is tantamount to putting all your eggs in one basket.

▲ The picture comes from Zibuyu's prospectus

Secondly, while revenue has been growing year by year, Zibuyu's return rate has also been rising. In the first half of this year, Zibuyu's return rate reached 25.5%, and the total value of returns on third-party platforms was 404 million yuan.

▲ The picture comes from Zibuyu's prospectus

It can be seen that this cross-border seller that came out of a dormitory online store has many hidden development risks behind its impressive performance. Now that Zi Buyu has finally knocked on the door of IPO, with the protection of capital, it may be able to help it ease its operating pressure and explore new growth curves.

From a Taobao store, it has transformed itself into a cross-border seller worth 2 billion yuan. Now, it has opened a new chapter of listing. What kind of overseas story will Zi Buyu write in the future?