The bet failed! Shenzhen's top seller has suffered losses for five consecutive years

Recently, Xunxing Co., Ltd., the parent company of Jiazhilian, released its 2022 performance forecast, and it is expected that the annual performance and net profit will decline significantly. The main reason is that the revenue of cross-border e-commerce business has declined significantly year-on-year, and the losses of its subsidiary Jiazhilian have increased.

In fact, since the bet with its parent company, Jiazhilian has been in continuous losses, from 2018 to 2022, it has been losing money for five consecutive years. The former general manager Gan Qingcao went abroad. Last year, he changed the password of the company's website, resulting in the inability to withdraw 8.91 million yuan. In addition, it was blocked by Amazon, and its former glory as a top-selling product is gone.

In 2022, the loss of the price chain will increase, and the loss is expected to increase by 50 million

According to the full-year performance forecast released by Xunxing Co., Ltd., the company's performance in 2022 is expected to decline significantly, with net profit attributable to shareholders of listed companies ranging from 57.58 million to 86.37 million, a year-on-year decrease of 54.35% to 31.52%. The decline in performance is mainly due to:

1. During the reporting period, affected by factors such as high inflation in the United States and Europe and sluggish consumption, cross-border e-commerce homogeneous competition intensified, resulting in a significant year-on-year decline in the company's cross-border e-commerce business revenue and an estimated year-on-year increase in losses of approximately RMB 50 million.

2. During the reporting period, due to the increase in losses of Shenzhen Jiazhilian Cross-border E-commerce Co., Ltd., the company's fair value change losses recognized due to performance compensation increased.

Xunxing Co., Ltd. has two main businesses: zipper business and cross-border e-commerce business. In the first half of 2022, the company achieved revenue of 1.091 billion yuan, a year-on-year increase of 12.16%; net profit attributable to the parent company's owners was 62.2078 million yuan, a year-on-year decrease of 14.82%. The cross-border e-commerce business achieved revenue of 201 million yuan, a year-on-year increase of 2.22%, but the net profit attributable to the parent company's owners was -22.8893 million yuan, a year-on-year decrease of 689.01%.

Jiazhilian was founded in 2008 and is a long-established large seller in Shenzhen with two major business systems: cross-border e-commerce and e-commerce services.

In terms of e-commerce business, Jiazhilian does not have its own sales platform and is mainly sold through third-party platforms such as Amazon and Shopify independent stations. The products it sells are all its own brands, and the categories cover household living supplies, 3C electronic products, health and beauty products, automotive peripheral products, other products and other fields.

In the first half of 2022, Jiazhilian achieved online sales revenue of 190.75 million yuan through third-party platforms, accounting for 94.88% of the total sales of e-commerce business for the whole year. The revenues of the above five categories were 90.400768 million yuan, 49.1068 million yuan, 29.1653 million yuan, 10.6794 million yuan and 11.3564 million yuan, respectively, accounting for 44.97%, 24.43%, 14.51%, 5.31% and 5.65% of the total revenue of e-commerce business in the first half of the year.

The parent company said that the loss of Price Chain was due to the high product promotion, logistics and warehousing costs that swallowed up profits. In the first half of 2022, Price Chain's expenses were indeed high!

First, more than 48% of its inventory is stored in Amazon FBA warehouses, and less than 5% of its inventory is stored in rented temporary turnover warehouses, and storage fees are paid according to the actual volume of goods stored and the number of days of storage. The storage fees incurred in the first half of 2022 amounted to 5.93 million yuan.

Second, Jiazhilian does not have its own logistics. The first leg of the goods is delivered by a third-party logistics company, and the second leg is delivered from the FBA warehouse and its own warehouse to customers. In the first half of 2022, a total of 27.6493 million yuan was incurred for the first and second leg logistics expenses;

Amazon accounts for the largest proportion of third-party platforms for Jiazhilian sales. To a certain extent, there is a reliance on the Amazon platform. If there are major changes in the platform's sales policies, sales and traffic distribution principles, etc., it will have an adverse impact on its business operations.

The bet failed, and the top seller has been losing money for 5 consecutive years

In 2022, Jiazhilian is still making losses, and this outcome seems inevitable.

In the first year of the bet between Jiazhilian and its parent company, Jiazhilian fell into the curse of losses. Under the impact of Amazon's account suspension, further increase in losses in 2022 is an inevitable outcome.

In 2017, Xunxing Co., Ltd. purchased 65% of the equity of Price Chain for RMB 1.014 billion. At that time, Price Chain had good performance, with revenue of RMB 457 million in 2016, a year-on-year increase of 232.7%, and net profit of RMB 58.17 million, a year-on-year increase of 564%.

At the beginning of the acquisition, Gan Qingcao, the former general manager of Jiazhilian, signed a bet agreement with Xunxing Co., Ltd. for a cumulative net profit of 510 million yuan in three years, with the net profit from 2017 to 2019 being no less than 100 million yuan, 160 million yuan and 250 million yuan respectively.

In 2017, Jiazhilian's net profit was 96.8696 million yuan, which failed to meet its performance commitments;

In 2018, Jiazhilian was in even worse shape. Gan Qingcao and Zhu Ling proposed to the parent company to reduce the performance commitment from 510 million yuan to 260 million yuan, but were rejected. The two then lost interest in operating the business and created a financial crisis that affected normal operations.

That year, Jiazhilian's net profit loss was 7,493.08 yuan, far from the promised profit of 160 million yuan. Xunxing Co., Ltd. stated in its annual report that due to the fact that Jiazhilian's cross-border performance was far below the performance commitment and the impairment of assets such as goodwill, the company's performance suffered a loss for the first time. The net profit loss was 650 million yuan, a year-on-year decrease of 646.02%.

In 2019, Jiazhilian still failed to get out of the loss, with a net profit loss of 58.582 million yuan. The three-year gambling agreement ended in failure.

In 2020, Jiazhilian’s net profit loss was 24.3994 million yuan; in 2021, after deducting 192 million yuan in performance compensation, the total profit loss was 9.8891 million yuan.

According to current estimates, losses in 2022 will increase by 50 million yuan year-on-year, and Jiazhilian's losses will be around 60 million yuan.

From 2018 to 2022, Jiazhilian suffered losses for five consecutive years, and the amount of losses in five years was approximately 230 million yuan.

Gan Qingcao is closely related to the loss of Jiazhilian. In 2018, he lost interest in the business and intended to transfer and evade performance compensation. He also transferred 53.27 million yuan of co-managed exclusive funds from the co-managed account to his personal account through malicious reporting of loss. After leaving the country, Gan Qingcao still controlled a large amount of Jiazhilian resources and modified the account password, resulting in the inability to withdraw a huge amount of money.

In June 2022, Xunxing Co., Ltd. issued a reply to the inquiry letter regarding the 2021 annual report, which mentioned two details.

1. Due to the adjustment of Amazon platform rules, some of the store operations of Jiazhilian were suspected of not complying with the platform rules, resulting in the temporary closure of some accounts on the platform. Some Amazon accounts were frozen, involving funds of approximately RMB 7.8975 million and bad debt reserves of RMB 2.3693 million;

Jiazhilian stated that it would communicate with the platform to recover the funds, but as far as most sellers are concerned, there is no sign of the account being unblocked, making it almost impossible to recover the funds.

2. The account passwords of multiple cross-border e-commerce service websites (software) were modified, resulting in the inability to withdraw approximately 8.91 million yuan. These service websites (software) include product selection (Unicorn), Amazon off-site promotion posting (VIPON), and other store operation software tools (STRIPE-AMZ, STRIPE-CCP).

The closure of Amazon accounts and the freezing of service websites resulted in a total loss of approximately RMB 16.841 million, and a provision for bad debts of approximately RMB 6.8557 million. This loss should be attributed to 2021.

In 2021, Jiazhilian's revenue was about 550 million yuan, and its loss was close to 10 million yuan. The financial report did not clearly mention the reason for the loss, but the above-mentioned Amazon account freezing and the modification of the service website payment account should have been included in the financial report. This part of the funds is bound to have a significant impact on Jiazhilian's net profit.

In 2022, we originally expected that the impact of Amazon’s account ban on Price Chain would be reduced, but the losses of this Shenzhen giant are still increasing.

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