Shenzhen's top seller is going bankrupt? Tell suppliers to move goods to pay off debts

The reshuffle of cross-border e-commerce continues.

In recent days, a Shenzhen cross-border e-commerce leader has reported bankruptcy, and notified suppliers to compensate in kind. Entering the industry correction period, not only sellers are having a hard time doing business, but also service providers associated with their business are facing a cleanup. A product selection tool also experienced abnormal operation, and all employees were suspended and their salaries were reduced in July.

After the industry dividends have been reduced, business adjustments are inevitable. Sellers have increased their R&D efforts or transformed their businesses, hoping to maintain profits in the short term and survive in the long term, but their overall development depends more on the general trend of the industry. Recently, Amazon, Walmart, Shopify and other industry giants have successively announced layoffs. What signals do these send?

A major seller in Shenzhen is on the verge of bankruptcy

This week, a supplier revealed that a major seller in Shenzhen was going out of business. “The purchasing department called this afternoon to inform us if we needed the shelves and leftovers.”

The editor asked him for further information. "The purchasing department called and asked us to see if there were any shelves we could use and move them to compensate for the loss." The supplier said that he still had 200,000 yuan in outstanding payments, and when he heard such news from a big-selling customer, he was a little panicked. The team of the seller in question, which was located in another city, was also transferred from the Shenzhen company. Now only a few operators are left, and the rest have left.

Previously, the seller's annual sales volume reached billions. During the Amazon account blocking wave last year, hundreds of his company's accounts were blocked, a large amount of funds were frozen, and the operation was already stretched to its limits. Now the company has collapsed, and naturally there are more than one or two manufacturers who owe money. Public information shows that after the account blocking incident, he has been involved in multiple sales contract disputes.

Suppliers believe that the seller’s capital chain has long been in trouble, so it’s no surprise that it’s going bankrupt now. Another manufacturer is still worried: “We only did one order with this company, and we almost didn’t get it back. Anyway, we didn’t dare to do it again. I heard that he now owes a lot of money.”

If the news that the big seller is on the verge of bankruptcy spreads, there will inevitably be another wave of disputes over the repayment of outstanding debts in the industry.

Since the benefits of the epidemic faded, the cross-border e-commerce industry, which had been on a roller coaster ride, has fallen from the clouds. Some poorly managed sellers have quietly withdrawn, and service providers that complement the sellers' business have also entered a reshuffle season. After several bankruptcies in logistics, problems have begun to arise with operation-related service providers.

In recent days, there has been a lot of news about the abnormal operation of a certain product selection tool. Public information shows that the tool's business covers big data product selection, intelligent advertising, AI store reports and one-stop advertising and marketing services. However, according to sellers' feedback, the tool's server has been crashing frequently recently, and it is impossible to log in on weekends, and the community seems to be unmaintained.

At the end of June, the company had issued an announcement on "Salary Adjustment During Difficult Periods". The announcement stated that due to the company's declining revenue, insufficient income, continuous losses over the past year, and tight capital turnover, the company could not continue to operate normally under the existing system and decided to temporarily suspend operations during difficult periods. In order to maintain the survival of the company, it plans to adjust the salaries of all employees on July 1, 2022.

The company will reduce expenses such as office space, promotion costs, and R&D server costs. At the same time, all employees will be temporarily suspended from work during the salary adjustment period. A fixed salary plan will be implemented during the suspension period, which will be issued at 2,000 yuan/month, and floating salaries such as performance, commissions, and bonuses will no longer be calculated.

According to an insider, the reason for the collapse was the departure of key staff, the company's expansion too fast after receiving the money, and the disappearance of industry dividends, the change in sellers' awareness and the decrease in customers. "With fewer sellers, there are fewer leeks to be harvested. Now everyone is tight in their pockets and is unwilling to pay." A seller said it well.

Two months ago, there were still promotions about this tool in the industry, and some sellers were looking for service providers of this tool, hoping to get preferential quotes. Now its operation is abnormal, and some people hope that the company can support it for a while until its fees are due, while some sellers are lucky to have escaped a disaster: "It's terrible, I almost paid a few weeks ago."

The software crash shocked many sellers, but the selection tool is highly replaceable, and the impact on the entire group is limited except for paying sellers. If a similar situation occurs with ERP software that accumulates a large amount of data, it will undoubtedly cause a thousand ripples.

Sellers abandoning the original rough product selection model is also one of the reasons for the service provider's retreat. The needs of its customer groups have changed beyond its own business scope. Industry sellers analyzed that as the dividends of cross-border e-commerce fade, the industry has gradually entered a stage of real competition in products and operations. This kind of tool for selecting products through so-called "big data" is bound to be unsustainable.

Several factors stir up cross-border transactions, and sellers begin to adjust

Chen Bo, marketing director of Newegg China, believes that merchants need to get rid of the original idea of ​​simply following or operating at a low price, and truly make differentiated and high-quality products, which requires an overall transformation from the supply chain to the operation end. At present, the multi-factor impact faced by the cross-border e-commerce industry has accelerated this adjustment.

In its 2022 semi-annual report forecast, Giant Star Technology mentioned that the company faces three major unfavorable factors - sharp fluctuations in the RMB exchange rate, repeated domestic epidemics, and continued high international logistics costs.

As of May 31, 2022, the average exchange rate of the U.S. dollar against the RMB is slightly lower than the same period last year. At the same time, international logistics costs remained high in the first half of the year. Due to the increase in long-term contract prices and rising wages in the United States, Giant Star Technology's logistics costs and port costs have risen sharply compared with the same period last year. Although its production capacity in Vietnam, Thailand, and Cambodia in Southeast Asia is normal, the international shipping capacity in northern Vietnam and Cambodia's West Port is obviously insufficient. In April and May, the operation of some domestic ports was restricted. International logistics is still a major risk for product delivery.

The pain of freight and exchange rate was widely mentioned by sellers. Zhongtai International Securities analyzed that VeSync, a major seller of small appliances, expects its gross profit margin to be under pressure in the first half of the year and will continue the low level in the second half of last year, because although the year-on-year growth rate of China's export container freight rate index slowed down from the beginning of the year to June, Amazon was in the period of clearing inventory from the fourth quarter of last year for most of the first half of the year, and the company will still record higher transportation expenses in the first half of the year.

In the first quarter of this year, Leckey's revenue increased by 15.83%, but its profit decreased by 43.64% year-on-year. In addition to the huge investment in product research and development, building independent sites and own brands, another reason is the unfavorable macro factors.

Among them, shipping costs have skyrocketed and are at a high level. The weighted average price of 40HQ high cabinets has increased from approximately US$6,000/container in the first quarter of 2021 to approximately US$15,000/container in the first quarter of 2022. In the first quarter, shipping costs accounted for 14.45% of the company's cross-border e-commerce business revenue, an increase of 8.43%; at the same time, the renminbi exchange rate continued to appreciate at a high level, the average US dollar exchange rate rose from 6.51 to 6.36, and the average euro exchange rate rose from 7.86 to 7.12. Although Lejia has made moderate price increases, it still cannot cover these impacts.

During this period, due to the long-term impact of the epidemic, Jihong's cross-border e-commerce business advertising fees, logistics fees and other expenses increased, and the net profit attributable to the parent company decreased by 53.56% compared with the same period last year. Due to the year-on-year increase in operating expenses such as advertising fees for e-commerce business during the period, the company's cash payments related to other operating activities increased by nearly 50% year-on-year.

Driven by factors such as exchange rates, shipping costs and the cooling of e-commerce, sellers have begun to invest heavily in seeking new growth points by increasing R&D investment and business transformation.

From January to March, Anker Innovations invested 207 million yuan in R&D, a year-on-year increase of 69.50%, higher than the growth rate of operating income; the absolute amount of R&D investment increased by 85 million yuan year-on-year; during the same period, due to increased investment in R&D projects such as the e-commerce business SAAS platform, Jihong’s R&D expenses increased by nearly 1.4 times compared with the same period last year, and Yinzhijie and others are also continuing to increase investment in R&D.

Some sellers are also leaning towards value-added services. Last year, VeSync transformed to Amazon's VC channel. In fiscal 2021, its VC sales accounted for 74.5%, and it is expected to increase to around 78% this year. This channel does not require the company to pay for delivery fees. Expanding sales will help reduce expenses and will not affect net profit.

Giant Star Technology encountered an opportunity. In the first half of the year, global demand for tools rose steadily, and most products such as lockers and woodworking tools in the North American market remained relatively prosperous; the demand in the European market recovered slowly, but due to the conflict between Russia and Ukraine, the production capacity of some of its competitors dropped sharply, and the demand for tool imports increased. The company increased its efforts in product research and development and investment at this time, and it is expected that the profit in the first half of the year will be between 655 million and 800 million; with the help of product line expansion and global e-commerce layout, it also achieved a growth of more than 50% in cross-border e-commerce business.

To a certain extent, sellers can “change the fate” of their companies by adjusting their strategies, but their development depends more on the fortunes of the industry. This is because the traffic dividend may not have a significant effect in the short term. Next, sellers need to cultivate their brands and supply chains.

Affected by the epidemic and inflation, foreign consumer demand is declining. Last year, cross-border exports developed well overall, largely because overseas retailers were replenishing their inventories. Therefore, this year, overseas retailers have high inventories and are more conservative in placing orders. Large retailers such as Walmart and Target are clearing their inventories. Recently, Amazon and Walmart have announced a large number of layoffs.

Walmart, Amazon and others are laying off employees

Walmart, the US retail giant, confirmed on Wednesday that it had begun laying off employees. In a statement to the public, Walmart said the layoffs were a way to "better position the company for a strong future."

Walmart did not disclose the exact number of layoffs or the affected departments. In fact, there have been rumors of layoffs at this giant for a long time. Foreign media have previously reported that Walmart will cut hundreds of corporate positions during the restructuring. People familiar with the matter said that Walmart began to notify employees at its headquarters and other offices in Bentonville, Arkansas, which will affect various departments including sales, global technology and real estate teams.

According to Walmart's external communications, the company is still hiring in its growing businesses, including supply chain, e-commerce, health and wellness, and advertising sales.

Walmart is the largest private employer in the United States, with nearly 1.6 million employees in the United States. This wave of layoffs may affect many people.

Walmart's layoffs came a week after it lowered its earnings guidance. After the market closed last Monday, Walmart lowered its quarterly and full-year earnings guidance, causing its stock price to fall 8% after the market closed. Walmart also expects its operating profit margin to be about 4.2% in the second quarter.

Walmart also said that inflation has led to consumers spending more on necessities such as food, while spending less on goods such as clothing and electronics. Previously, Walmart also cleared out a large amount of inventory, choosing to discount slower-selling items to make room for high-demand items. Like Walmart, Macy's and Target also have similar activities. Target said that the company plans to reduce the number of orders for products and optimize redundant inventory by reducing prices.

More than one large retailer is clearing out its inventory, and Walmart is not the only one laying off employees. Its competitor Amazon is also going to lay off nearly 100,000 employees.

Last week, Amazon said it was adding jobs at the slowest pace since 2019. After relying on natural attrition to screen employees, Amazon now has about 100,000 fewer employees than in the previous quarter. It is understood that the main reason for the sharp reduction in employees is that Amazon has implemented layoffs in its warehouses and delivery network.

In April this year , Amazon announced that it had an overstaffing situation after adding staff during the pandemic and needed to cut staff. Amazon has also been subletting some warehouse space and has suspended facility development for office employees, saying it needs more time to determine how much space employees need for mixed work. Obviously, Amazon is determined to control costs and focus on profitability.

At the end of July, Canadian e-commerce platform Shopify also announced that it would lay off 1,000 employees, accounting for 10% of its total global workforce.

Shopify founder and CEO Tobi Lutke said the company will cut jobs in recruiting, support and sales. The company will reduce over-specialized and duplicated positions, as well as some teams that are not closely involved in developing products.

After the outbreak of the COVID-19 pandemic, Shopify's online sales surged, and the company predicted that the pandemic would accelerate Shopify's e-commerce sales growth by 5 to 10 years. In order to meet sales expectations, the company has been expanding its scale, but the bet has obviously not paid off. Lutke admitted that he made a mistake in his decision and now has to make layoffs.

The main reason for Shopify's layoffs was that it was too optimistic about its performance during the epidemic, and only then did it find that it was declining after the explosive growth.

In fact, Amazon and Walmart, which also laid off employees , were like Shopify. They had great confidence in the explosive growth under the epidemic. Amazon rented many warehouses and hired a large number of warehouse workers; Walmart purchased a large amount of goods, but finally found that in the post-epidemic era, the explosive growth did not continue, but instead experienced an unexpected decline.

In fact, the experience of many cross-border e-commerce sellers is similar to that of Amazon and Walmart. With explosive growth, everyone would make optimistic predictions about the future of online sales channels, but the results were not the case. In addition, the arrival of high inflation once again defeated consumers' enthusiasm for buying.

The current European and American economies are facing the risk of stagflation, and the inflation rate remains high. Stagflation is the result of the combined effects of slowing economic growth and high inflation. On the one hand, the economic growth rate has slowed to a level far below the trend, and the unemployment rate has continued to rise; on the other hand, the inflation rate remains high. In June, the US inflation rate reached 9.1%, and the European inflation rate reached 11%. These all indicate that the current inflation level in Europe and the United States has reached a nearly 40-year high.

The soaring inflation has hit consumers' purchasing power. The growth of personal income has not kept pace with the rise in prices, resulting in many European and American consumers having almost nothing left in their pockets after paying for their daily necessities. They have no money to buy other non-essential goods.

A wave of cross-border e-commerce service providers may go bankrupt

Consumer demand in Europe and the United States has declined, and even Amazon and Walmart have been affected. Domestic cross-border e-commerce sellers have naturally been deeply affected as well.

This year, the revenue and profits of many cross-border e-commerce sellers have declined, and even the top sellers in the industry have not been immune. When the cross-border e-commerce industry is hit, the surrounding suppliers, logistics companies and other service industries will not have an easy time either.

An industry insider bluntly stated that the cross-border e-commerce industry continued to be sluggish, and there will be a wave of suppliers, logistics companies, and comprehensive service providers going bankrupt.

The recent news of the collapse of Dongguan Cooper is very sad. Cooper mainly produces electronic products and is an important supplier behind the industry's leading seller Zebao. One of the reasons for its collapse is that it was owed money by cross-border sellers such as Zebao.

It is understood that Cooper has been the second largest supplier of Zebao for many years. After Zebao encountered the crisis of account suspension, the purchase volume of major products has been greatly reduced, and the purchase volume of big sellers has dropped sharply. The supplier must have a hard time. The Cooper incident once again put the risks of cross-border supply on the table. At present, some factories that supply the cross-border e-commerce industry have been affected. Some factories have a sharp drop in orders and are struggling to survive, while others have to face the dilemma of closing down due to a long period of no orders.

Even manufacturers that supply leading cross-border sellers were not spared, let alone some relatively smaller factories?

An industry insider said that many small factories are having a hard time. Those with a solid foundation are living off their old capital, while those with a weak foundation are struggling to survive. However, they feel that the risk of switching to another industry is too great, so they simply drag their feet. These factories may have added too much leverage before, and now it is difficult to get out. They survive on loans and borrowing . As long as they can maintain cash flow, they are willing to make a profit even if there is no profit.

In this situation, the factory owners inevitably reduce the salaries of their employees in order to save money, and tell their employees that they cannot survive without a pay cut, resulting in strikes and disturbances in the factories. Once the cross-border sellers tied to the factories reduce their purchases in large quantities, the factories will face great risks.

Not only factories, but also cross-border sellers’ business performance has a direct impact on various surrounding service industries, such as the product selection software mentioned above. According to people familiar with the matter, some logistics providers, service providers that provide fake order services, and service providers that provide data analysis software are also being affected, or some have already been affected.

The business of cross-border e-commerce sellers involves the development of the entire industry. At present, both sellers and service providers in various industries are looking forward to the peak season in the second half of this year. Previously, some industry insiders also predicted that the entire market industry will gradually improve in the second half of this year, and sellers' performance will pick up. At present, some sellers have seen the light of hope.

Recently, some sellers reported the good news of a rebound in performance in July. One seller said that the sales in July were the highest since the company was founded, and the inventory turnover and replenishment methods were further improved, and the company's cash flow was more abundant. Another seller also said that the sales in July reached a record high. It seems that during the Prime Day promotion, some sellers have seized the opportunity to achieve explosive orders and made a good start for the peak season in the second half of the year.

Perhaps, the peak season in the second half of this year will bring surprises to more cross-border sellers!

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