The market is cold! Amazon's big sellers are expanding into new markets with restraint

In the cross-border e-commerce circle, Zhiou Home Furnishing Technology Co., Ltd. (hereinafter referred to as Zhiou), founded in Zhengzhou, Henan, is a unique and niche existence, but its reputation is not small.

Zhiou's operating model is different from that of cross-border e-commerce companies in Guangzhou and Shenzhen. It has grown steadily and become the largest home furnishing seller on Amazon in Europe. Several of the company's own brands have also become popular home furnishing brands among consumers in the European and American markets.

However, in the process of incubating the brand and expanding products, the Amazon seller also paid for quick money, resulting in the cancellation of all office desk product orders. It quickly changed its strategy to avoid pitfalls. At the same time, facing the complex market conditions, Zhiou insisted that cash is king. After careful evaluation and analysis, it will expand into new markets in "restraint" according to business strategies.

Relying on mature operating mechanisms and long-term business philosophy, Zhiou has carved out a niche for itself and won the favor of capital. According to the Shenzhen Stock Exchange's Growth Enterprise Market announcement in July, Zhiou successfully passed its initial public offering, which undoubtedly gave a shot in the arm to cross-border people in inland cities.

Yien.com talked with Key, COO of Zhiou , and conducted an in-depth study on the company's business philosophy and operating model. Cross-border sellers, please come and learn from him.

Get on the fast track of development with capital

In 2007, Song Chuan, who was in Germany, noticed the booming foreign trade in China and decided to use the resources he had accumulated from studying abroad to start a foreign trade business. At that time, he did e-commerce business through platforms such as eBay.

In 2010, e-commerce developed rapidly in China. Realizing that the time was ripe, Song Chuan returned to China and founded Zhiou Company in his hometown of Zhengzhou, Henan Province with two childhood friends, entering the German market with which he was familiar.

(Picture from Zhiou)

At the beginning of its business, Zhiou did not focus on home furnishing products. When expanding some categories and new businesses, the company gradually saw the demand for home furnishing products in the European market. In 2011, Zhiou began to fully deploy Amazon and entered the home furnishing category.

Riding on the favorable trend of cross-border e-commerce, Zhiou's development has entered the fast lane.

In 2014, Zhiou entered the North American market and achieved sales of over 100 million yuan. By the end of 2017, Zhiou had become the largest home furnishing seller on Amazon in Europe, with sales in five European countries accounting for more than half of Zhiou's total sales on Amazon. In the same year, Zhiou was awarded the title of "Amazon All-Round Seller" and began to enter the Japanese market.

Based in Europe, Zhiou's development is not limited to the European market. Later, the company has carried out business in 68 countries and regions around the world, becoming a major seller specializing in the research and development, design and sales of home products such as its own brand furniture, home furnishings, garden and pet series.

Since then, Zhiou's performance has seen a sharp increase. From 2019 to 2021, the company's operating income reached 2.326 billion yuan, 3.970 billion yuan and 5.967 billion yuan respectively; the net profit attributable to the parent company's shareholders was 108 million yuan, 380 million yuan and 240 million yuan respectively.

While developing rapidly, Zhiou has gained the favor of capital.

In 2018, Zhiou received joint investment from IDG Capital and Anker Innovations; in 2019, Zhiou obtained nearly 100 million yuan in Series B financing, led by Jiayu Fund and followed by the original investor IDG Capital; in November 2020, Zhiou completed a new round of financing, with investors including IDG Capital, Jiayu Fund and Qianhai Seed Fund.

The capital injection also boosted the positive cycle of Zhiou's performance. Of course, the iron must be hard to forge, from 0 to annual sales of nearly 6 billion, Zhiou's core competitiveness comes from its products and three self-owned brands.

Incubate brand matrix, focus on home furnishing category

Zhiou’s three own brands are SONGMICS, VASAGLE and FEANDREA. These three brands cover almost all products in the home scene and have been recognized in Europe, the United States and other places.

SONGMICS is Zhiou’s first brand, which is in the household products category. Its main business categories include storage, utensils and decorations.

In Key's view, the industry attribute of the home furnishing category itself is that the scenarios are aggregated but the categories are discrete. Although Zhiou focuses on the home furnishing industry, it has also expanded many product categories. As the product line gradually becomes richer, Zhiou began to have the desire to build a brand matrix.

In 2018, Zhiou launched the ironwood furniture brand VASAGLE and the pet products brand FEANDREA. In 2019, both SONGMICS and VASAGLE were selected as "Top 100 Chinese Export Cross-border Brands on Amazon Global Stores".

The incubation logic of the Zhiou brand is actually based on consumer demand. The company's second brand, VASAGLE, was created to focus on consumer demand at the time.

"At that time, we found that small furniture products on Amazon were more in line with consumer needs, so we wanted to separate it out and make this style more distinctive. At the same time, we gradually discovered that we could also expand pet-related home products in the home scene, and through testing we found that there was great potential. It was a hot spot at the time of research, and we had certain first-mover advantages."

Based on consumer demand, Zhiou's three major brands have gradually formed clear positioning. SONGMICS is a comprehensive brand of home furnishing products; VASAGLE is a modern small furniture brand with a certain focus; FEANDREA focuses on a large track in the home furnishing industry - the pet home furnishing track.

Zhiou’s three major brands have four main business products: furniture series, home series, garden series, and pet series.

(Picture from Zhiou)

From 2019 to the first half of 2022, the sales revenue of Zhiou's main business products was RMB 2.322 billion, RMB 3.967 billion, RMB 5.958 billion and RMB 2.774 billion, respectively, accounting for 99.86%, 99%, 99.85% and 98.80% of the operating income in the current period, respectively.

In recent years, Zhiou has continuously increased its investment in product research and development, and its product research and development is mainly divided into independent research and development, cooperative development and product selection models. From 2019 to the first half of 2022, the proportion of Zhiou's independently developed products increased from 17.34% to 28.21%.

(Picture from Zhiou)

At the same time, Zhiou also attaches importance to product innovation. The company explores the "mushroom model" theory of product construction, dividing the product research and development process into three stages: the first stage is the basic level, building a product component platform; the second stage is the combination and molding stage; finally, when the combined products are placed in the usage scenario, different product matrices are constructed, ultimately achieving the advantages of shortened product development cycle, raw material procurement and large-scale production.

From the perspective of scenarios, Zhiou products cover different scenarios such as bedrooms, kitchens, living rooms, foyers, courtyards, and outdoors, forming a multi-series product matrix including small household items, large indoor furniture, and courtyard outdoor furniture of different styles and materials.

The development of multiple product series poses considerable challenges to Zhiou in building its brand matrix.

Challenge 1: Sort and classify by product category, positioning, and core selling points. In the early days of Zhiou’s business development, there was only one brand, SONGMICS. Although it claimed to focus on the home furnishing industry, it also expanded more home furnishing sub-products, which outsiders would find complicated. So the company kept digging into the bottom layer, making abstract summaries and refinements based on the positioning and core selling points of each product and different product lines, and made corresponding classifications.

Challenge 2: Breaking through the product homogeneity perceived by consumers. When segmenting some key product categories, Zhiou invested heavily in R&D and design, and had outstanding selling points, but without publicity, it was not possible to let consumers know effectively. In order to break through the product homogeneity perceived by consumers, Zhiou needed to focus on creating differentiated selling points or differentiated positioning for some key product lines. This process also incubated other new brands.

In addition to the challenges, Zhiou also took some detours when incubating its brand and expanding its product line.

Key said that at the beginning of the epidemic, the number of people working from home in Europe and the United States increased sharply, and the demand for office computer desks soared. In order to cater to the market, we accelerated the launch of many new products at that time, and the square computer desk was one of them. Later, this product encountered major fluctuations.

Due to the short-term launch, unclear positioning of new products and unprominent selling points, at the beginning of 2021, the company decisively canceled some orders at the time and reduced subsequent orders, actively choosing to bear all losses. But even so, from the second half of 2021 to now, the company has been paying the necessary costs for this.

In terms of subsequent new product promotion, Zhiou learned its lessons and, starting from the second half of 2021, insisted on setting aside a whole day a week to plan new products. All senior executives of the company conducted product reviews and established mechanisms to prevent detours in new product development.

Zhiou's original intention of continuously expanding its product line was to achieve better development. Later, the company had greater ambitions and tried all products related to home furnishings and furniture in the home scene, and developed into whole-house furnishings.

Taking the pet home brand FEANDREA as an example, Key emphasized that Zhiou’s focus is not on the pet supplies track, but on pet home supplies.

Pet home products are different from other home products in that the users and buyers are absolutely separate. Pets cannot buy home products by themselves, they must be purchased by their owners, but they are used by both the owner and the pet . From this perspective, Zhiou's brand positioning is shared by people and pets, so in the process of product design and development, the key point is to consider the two key points of pet owners, the pet's own life , and the interaction between owners and pets at the same time.

Zhiou’s three own-hand brands also helped it become one of Amazon’s top sellers.

Highly dependent on Amazon, and mutually beneficial with the platform

However, as it grew into a big seller on Amazon, Zhiou was also questioned for being highly dependent on Amazon.

It is understood that from 2019 to 2021, although Zhiou’s sales share on Amazon has decreased year by year, in 2021, 77% of its revenue still came from the Amazon platform.

In this regard, Key said frankly that Amazon is Zhiou's most important strategic partner, no doubt about it. Although Zhiou's size cannot be compared with Amazon, the two sides have achieved more together.

"As a brand, we certainly hope to reach consumers more directly or comprehensively, and we also hope that consumers can more conveniently know the Zhiou brand and purchase Zhiou products. On the other hand, we hope that our channels can be diversified. More fundamentally, we hope that Zhiou can have the opportunity to grow together with Amazon and continue to let Amazon help us reach more consumers more comprehensively and deeply . " Key said.

As Key said, Amazon can reach more consumers. As the world's leading e-commerce website, Amazon has natural traffic.

Key believes that selling on Amazon is actually the same as offline sales, which is all about traffic management. In addition to natural free traffic, some paid traffic is also needed. For Zhiou, as long as the input-output ratio is worthwhile, it will make a greater investment on Amazon.

Daisy, brand manager of Zhiou Technology Group , said that Amazon Advertising will provide brands with some tools on the site, which will make the analysis and tracking of traffic more explicit and accurate, so we are more willing to use it to obtain traffic.

In terms of acquiring traffic, Zhiou is actually quite willing to explore new marketing channels. For example, Amazon Live, which has been promoted by Amazon advertising recently . At present, among domestic cross-border enterprises, Zhiou should be one of the brands that uses Amazon Live the most and has the best content quality. The content and the overall planning are relatively detailed, and the live broadcast duration and frequency are very high. Therefore, it has shown a rapid growth effect in acquiring traffic and orders.

Not only the Amazon Live project, but also in other aspects, Zhiou cooperated well with Amazon Advertising, actively tried, followed the platform rhythm, and created many products that dominated the Amazon bestseller list. However, its road ahead also faced the inevitable problem of many sellers - declining profits.

In 2021, Zhiou's revenue was approximately 5.967 billion yuan, and its net profit attributable to parent company shareholders was approximately 240 million yuan. Compared with revenue of 3.971 billion yuan and net profit of 380 million yuan in 2020, Zhiou's sales scale increased significantly, but its profits were declining.

Among the factors affecting profits, the reasons publicly stated by Zhiou include: the impact of repeated global epidemics, a sharp increase in shipping costs, a corresponding increase in the company's main business costs, exchange rate fluctuations, etc.

Apart from external factors, Zhiou is also looking for internal reasons. Key analyzed the reasons as follows:

First of all, Chinese brands that have expanded overseas and operated globally generally expanded new product categories before and during the epidemic, and Zhiou was no exception. In 2021, we have been doing systematic category planning and sorting. There have been advances and retreats in products. There is no doubt that there are more retreats than advances. We are confident that we can significantly improve the quality of operations this year and next year.

Secondly, Zhiou is still a fast-growing entrepreneurial company. We have been working hard to improve our business, organizational and talent capabilities. The outbreak of appropriate problems just speeds up our pace of transformation and improvement.

Finally, our approach to improvement is to carry out refined operations, measure work goals, processes, and evaluation results in a more refined and digital manner, and do what we should do well, which can bring great enhancement and improvement to the business.

Cash is king. Restrain the expansion of new markets and integrate online and offline

While making adjustments, Zhiou will also face complex market conditions this year. Zhiou started out in the European market and its main sales area is also in Europe.

Public information shows that from 2019 to 2021, Zhiou's sales in the European market have been as high as about 60%, the highest share.

(Picture from Zhiou)

The overall situation in Europe this year is not optimistic. The euro and pound have depreciated, and inflation and energy crises have hit one after another, causing the eurozone consumer confidence index to fall to a record low. Consumers have tightened their belts and reduced spending on non-essential items, and cross-border sellers have seen a sharp drop in orders, and have begun to compete for market share through price wars.

The sudden deterioration of the market environment has also had an impact on Zhiou's sales. Key said frankly that all cross-border e-commerce companies are inevitably affected by this situation. However, Zhiou's average product pricing has not dropped, but has increased to a certain extent, because the overall tightening of the European consumer market has put pressure on our business scale. However, Zhiou has made two responses to this situation.

First, we are looking for structural opportunities in Europe. Although the overall consumer confidence index in Europe is declining, Zhiou still observes that the home furnishing market is very large and firmly believes that there are structural opportunities in it. We are looking for breakthroughs.

Second, we will continue to develop business in other markets. Zhiou has nearly 40% of its business in the North American market, and we will strategically increase our investment in the North American market this year and next year. At the same time, Zhiou also follows the cash-is-king strategy at this time, and takes a more restrained and prudent attitude to expand new markets because the overall tightening of the European consumer market has put pressure on our business scale.

As a cross-border e-commerce seller, Zhiou, like its peers, is looking forward to sales during the holiday season in the fourth quarter of this year and has made active preparations in anticipation of a surge in orders during the peak season.

Daisy said: "We definitely pay more attention to the Christmas season. Amazon's Christmas promotion starts in November and lasts until the New Year, which is early January, for nearly two months. At this time point, we use different Amazon advertising strategies in a rhythmic manner according to different categories and the needs of the three brands to make an integrated marketing plan."

Along the way, Zhiou has continued to grow and develop. When asked about the key to success, Key believes it is long-termism and hard work.

Key said that Zhiou's long-termism is reflected in two aspects: first, the team is down-to-earth and reliable. The founder Song Chuan is particularly serious, down-to-earth, humble and sincere. The team is willing to follow the boss to do something, and the company also provides employees with an atmosphere of equal communication. Moreover, from the first day of the business, none of the three founders' relatives worked in the company. Second, the company can stick to the bottom line and insist on absolute compliance operations.

In terms of doing things seriously, Zhiou's team directly influences its partners. In the early days of Zhiou's development, the product managers and purchasing managers of the Zhengzhou company were almost all fresh graduates. They had to work with suppliers on product development and procurement delivery. Sometimes, in order to meet a delivery date, they would take over the labeling, loading and shipping of the suppliers. As a result, many suppliers have established long-term and stable cooperation with Zhiou.

Over the years, Zhiou people have continued to work hard and adhere to long-termism. The company has also achieved excellent results, continued to grow and develop, and was finally successfully listed on the GEM.

Subsequently, Zhiou plans to use the raised funds to build three core competitiveness. The first is the core competitiveness of products, and strengthening investment in product research and development is the first priority; the second is integrated marketing capabilities, which is not just about burning money, but about spending within one's means and looking at the return on investment; the third is to lay out a global supply chain system.

Building these three core competitiveness is also Zhiou's short-term development layout. Speaking of long-term development plans, Key introduced that Zhiou wants to integrate online and offline, but even if it is integrated, the efficiency of online supply and demand categories must be higher, so online will still be our competitiveness.

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