Hangzhou Zibuyu Group Listed On The Hong Kong Stock Exchange

On November 11, Hong Kong stocks ushered in the "first stock of cross-border footwear and clothing". Hangzhou Zibuyu group, one of China's largest cross-border e-commerce companies, is listed on the Hong Kong stock exchange.

The opening price on the first day of listing was HK $8.36, up 6.4% from the offering price. As of the end of the day, the share price rose 5.47% to HK $8.29, with a total market value of HK $4.145 billion (equivalent to RMB 3.758 billion).

Hua bingru, the founder of the post-85 generation, and his wife jointly hold 52.23% of Zibuyu's shares. The market value will reach 1.96 billion yuan on the first day.

Founded in 2011, Zibuyu, formerly a Taobao women's clothing store opened by Hua bingru, a sophomore, began to transform into a cross-border e-commerce in 2014. In 2020, Zibuyu became a Chinese seller of Gmv (total turnover) in the same category of third-party e-commerce platforms in North America in 2020.

But with the help of Amazon and other platforms to achieve rapid growth at the same time, the dependence on the platform has become a dilemma for Zibuyu. We try to build our own channel, but the effect is very little.

In the face of the downturn in the global fast fashion market, Zibuyu's performance has declined since the second half of 2021. Zibuyu, who relies too much on the North American market, has increasing inventory pressure and high return rate, is moving forward on the road of capital.

　　 Amazon's "addiction" deepens

Before the successful listing, Zibuyu had made an IPO three times. In June 2021 and March 2022, Zibuyu submitted the prospectus twice, but both of them were invalid. On September 28, 2022, Zibuyu submitted the prospectus for the third time and finally passed the hearing.

According to the latest information in the prospectus, Zibuyu's revenue in 2021 will be 2.346 billion yuan, with a year-on-year increase of 23.63%; In the first half of 2022, the revenue was 1.277 billion yuan, with a year-on-year increase of 16.07%.

Although the revenue continues to grow, its income structure is slightly single.

Different from the well-known cross-border clothing e-commerce sheen, Zibuyu mainly opens stores in the third-party cross-border e-commerce platforms such as Amazon, wish and express express. Compared with the self built independent station, the advantage of this is that it can save the cost of technology development and promotion and maintenance.

But relying on a third-party platform also means paying a large amount of service fee and commission every year. As of the first half of 2022, Zibuyu has paid 275 million yuan of service fees and commissions to third-party platforms, accounting for about 30% of sales and distribution expenses.

Platform dependence will not only affect the actual situation of enterprises, but also face various uncertain risks, especially for power sellers. Last year, Amazon was a typical example of a platform based brand.

I don't think about self-reliance. Since 2018, it began to build independent stations with its own brands. In the following three years, the scale of independent station brand revenue has been expanding, with the revenue of 100 million in 2019 and 360 million in 2020.

But it won't last long. In 2021, the revenue of its self operated websites dropped to 260 million, and its proportion in the total revenue also decreased significantly, from 19.1% in 2020 to 11% in 2021, and further dropped to 5.8% in the first half of 2022.

On the contrary, Zibuyu's dependence on Amazon has deepened. As of the first half of 2022, revenue from Amazon's online stores accounted for 90.6% of the total revenue.

　　 High concentration of North American market

According to the prospectus, Zibuyu's average price per order on its own website can reach 390.1 yuan, nearly twice that of Amazon (199.9 yuan). However, since 2021, the channel layout of Zibuyu new stores has gone the opposite way. No new stores will be opened on other third-party platforms such as wish, and new self-supporting websites have also stopped this year.

In fact, Zibuyu's growing dependence on Amazon may be a helpless move.

Although Zibu language sells to more than 80% of the world's countries and regions, its market concentration has been increasing in the past two years. In the first half of 2022, the U.S. market accounted for 95% of revenue, which is also the market focus of Amazon.

Zibuyu's share of revenue in Europe, another major market, fell to 3.6% in the first half of 2022. Previously, Zibuyu's revenue in Europe was mainly realized through wish platform. Now, the revenue reduction and its proportion decline also lead to the decline of wish channel revenue scale.

According to Eurostat data of Eurostat, fashion buying accounted for only 2% of European GDP in 2021, 4% lower than before the outbreak of the epidemic. Influenced by inflation, declining incomes and environmental protection, more European consumers are turning to the second-hand market and circular economy (i.e. recycling and reusing products to reduce resource waste and environmental damage).

The shrinking fast fashion market in Europe is not a problem for Zibuyu. It is reported that sheen, also affected by this situation, began to try to enter South America, South Asia, East Asia and other markets in order to make up for the losses in the European market.

The rapid development of e-commerce will not be shifted to Southeast Asia. Zibuyu said in the prospectus that he planned to focus on developing this market in the future and move part of the supply chain to Southeast Asia.

　　 High return rate, increasing inventory pressure

Zibuyu's profit is also unsatisfactory, which is only 61.3 million yuan in the first half of 2022, a decrease of 46.32% compared with the same period of last year. The explanation for this is that the purchasing power of American consumers has declined due to the impact of slowing economic growth and rising inflation on the exchange rate.

The rapid rise in the rate of returns is also one of the reasons. According to the prospectus, Zibuyu's online store return rate on Amazon has increased from 18.5% in 2019 to 19.8% in 2021, reaching 25.5% in the first half of 2022, which is equivalent to one piece of clothes returned for every four clothes sold.

The increase in returns has pushed up Zibu's inventory level. In the first half of 2022, Zibuyu's inventory balance is 761 million yuan, equivalent to 60% of revenue, accounting for 71.41% of current assets.

Among them, the cost of return accounts for only a small part, more is the backlog of unsold inventory. According to the prospectus, the inventory of manufactured goods in the first half of 2022 alone exceeded 800 million yuan, 3.47 times that of the whole year of 2019.

Inventory also affects Zibu's cash flow, making it record negative cash flow from operating activities at the end of 2021, which is more than 200 million yuan. As a result, sales will be accelerated in 2022 to improve cash flow. The change of this key indicator may indicate that Zibuyu, which has been developing rapidly all the way, has ushered in a turning point - either upgrading products or finding new growth channels, otherwise it is difficult to break through the current difficulties.

On the other hand, Zibuyu's inventory turnover days have increased from 175 days to 442 days, while Sheen's commodity turnover days are only about 30 days. This is perhaps more fatal to its sales strategy of winning fast.

Similar to the story of Sheen's start-up, Zibuyu has been rapidly gaining ground in the European and American markets by virtue of its "faster and more fashionable" advantages since its establishment in 2011. In 2020, Gmv on the third-party e-commerce platform ranked the third among all the cross-border e-commerce sellers in China, and the North American market was the third.

Zibuyu's Prospectus has disclosed that more than 10000 new models can be designed and launched each year. The fastest time from proofing to production is only 7 days, which is half of the new speed on Zara. "Speed up" will not be a burden.

Although in the process of impacting IPO, Zibuyu's performance has declined due to the impact of the international market environment, but the market still has high expectations for it before listing, which can be seen from Zibuyu's early completion of international placement. Whether Zibuyu can cope with many growth challenges with the help of capital in the future and realize huabingru's dream of rebuilding a "Zara" remains to be tested by the market.