A major supplier collapsed due to being owed money by several big sellers including Zebao!

Cross-border sellers and suppliers are interdependent!

On July 18, Dongguan Cooper Electronics Co., Ltd. (hereinafter referred to as Cooper) announced the suspension of production and closure of business, which caused sighs among its peers.

Cooper mainly produces electronic products, and manufactures Bluetooth headsets for cross-border brands. It is an important supplier behind the industry's top seller Zebao. One of the reasons why it could not survive was that cross-border sellers such as Zebao owed it money.

As the industry environment cools, sales and profits of many cross-border sellers have declined, and asset-heavy suppliers in the industry have also begun to decline. According to people familiar with the matter, a large number of suppliers have gone bankrupt in the past two years . In order to reduce risks, many manufacturers have shortened their payment terms or asked sellers to pay part of the payment first. In addition, many manufacturers are facing a crisis of overstocking and have begun to actively ask sellers whether they want to place orders.

Obviously, the cross-border e-commerce industry has a certain influence on surrounding companies . In addition to suppliers , logistics companies have also been greatly impacted . Such news has caused more concerns .

Dongguan Cooper suspends production and closes business due to Zebao's default on payment

On the 18th, Cooper issued a notice of suspension of production and closure with its official seal. This notice circulated in the cross-border e-commerce circle, causing heated discussions among many suppliers and sellers.

According to the notice released by Cooper, the general background of its suspension of production is that the outbreak of the COVID-19 pandemic has caused an unparalleled impact on the global economy and trade. The specific reasons are mainly the following aspects:

1. Many cross-border e-commerce sellers owed money for goods, and a large number of finished products were piled up in warehouses, creating a vicious cycle;

2. There is a serious disconnect between domestic and foreign orders, which is falling off a cliff;

3. In recent years, production and operation have been losing money year after year and are difficult to continue;

4. The sudden outbreak of the war and the impact of the overall environment directly caused the company to suffer a great impact and the market was extremely severe.

Cooper is owed money by multiple cross-border e-commerce sellers, of which Zebao is the most famous. On the 19th, Wei Yongning, the majority shareholder and actual controller of Cooper, told the media: "Cross-border e-commerce seller Zebao has defaulted on the company's payments." An industry insider said that according to what he heard, the amount of money owed by Zebao to Cooper is not small.

Zebao is a well-known cross-border e-commerce seller in Shenzhen, mainly selling consumer electronics on the Amazon platform. According to public information released by Zebao, Cooper is the main supplier and has been its second largest supplier for many years. The company mainly purchases Bluetooth headsets from Cooper. In 2017, Zebao purchased products from the top five suppliers for RMB 371 million, accounting for 40.35% of the total purchase amount. Zebao purchased products from Cooper Electronics for RMB 82.443 million, accounting for 8.96% of the total purchase amount.

It can be seen that the amount of money involved in Zebao's purchase of products from Cooper is very large, and the two parties have a close relationship. A former Zebao employee also confirmed that Cooper is indeed one of Zebao's major suppliers.

Last year, Amazon launched a compliance rectification campaign and blocked the accounts of some sellers that violated regulations. Zebao also encountered a crisis of account blocking, and several main accounts and brands were affected.

In 2020, Zebao's sales revenue on the Amazon platform accounted for 93.40% of its total revenue, which shows that it is highly dependent on Amazon. Affected by the account suspension incident, the purchase volume of Zebao's major products has been greatly reduced since the third quarter of 2021. When the purchase volume of big sellers drops sharply, the suppliers will definitely have a hard time!

"This was once a prosperous company with a thriving headphone business that had survived for more than a decade, but now it's suddenly closed down! " lamented a fellow manufacturer!

According to the notice released by Cooper, the company officially stopped production and closed down on July 18, 2022, and all employees were dismissed ahead of schedule. After the labor contracts of all employees and the company were terminated, they could file complaints and resolve them in accordance with the National Labor Law and other relevant laws and regulations.

Cooper was founded in 2010 and is a professional IT peripheral manufacturer dedicated to the development, production and sales of audio products. The company's current core products include: portable card-enabled headphones, Bluetooth wireless headphones, 2.4G digital wireless headphones, USB-enabled headphones, 5.1 gaming headsets, anti-noise headphones, etc. The company's main customers also include many well-known domestic and foreign brands.

According to insiders, this factory was once a relatively well-known headphone manufacturer in Dongguan, with thousands of employees, mostly female. A netizen who claimed to be near the factory said that the workers' wages could not be paid at present.

Is the payment period the culprit that slows down the factory?

In fact, due to the impact of the market environment and the cross-border e-commerce industry, factories like Cooper are not the only ones that are currently struggling to survive .

One netizen revealed that he, like Cooper, was dragged down by Zebao for millions of dollars, and this year was very difficult. Now many factories are moving forward under heavy burdens.

"I received a call from a junior high school classmate and was told that the factory had laid off all employees on the entire production line due to lack of orders and the boss could no longer hold on," said a seller in the industry.

A factory worker said that a nearby factory went from producing 2 million units a month to 200,000 units, and production was slashed to the ground. Now the factory is not doing well, and sometimes the boss's wife needs to collect rent to maintain the factory employees' wages.

There may be many factories like this. Many manufacturers believe that one of the reasons why factories are difficult to support is the issue of payment period. Almost everyone is dragged down by the payment period. Now they dare not give payment period to cross-border e-commerce companies because the risk is too great!

Since the beginning of this year, many manufacturers have begun to shorten their payment terms in order to reduce risks. Many factories have shortened their payment terms from three months to one month, and some even do not provide any payment terms at all, requiring payment and delivery at the same time.

Some factories ask sellers to pay in advance. One seller said that he received a call from a supplier asking if he could pay part of the payment to ensure that the money is used for the intended purpose. This payment will be used for our orders. Recently, there are many cases where factories require payment in advance . The general situation reported by many sellers is that in the bad environment, factories want to be more stable and have been asked to pay in advance by many manufacturers recently.

Industry insider Dawei said frankly that suppliers and cross-border sellers are deeply bound. Factories are asset-heavy enterprises. Developing and manufacturing a product requires a lot of manpower, R&D, time and other costs. In addition, in the past few years, when factories were involuntarily competing with each other, many factories would give cross-border sellers a certain credit period. If they are long-term cooperative customers, some factories will give 1-3 months of credit period, and some will even give half a year.

If a factory's cross-border seller has problems, product sales are blocked, or there are problems with the account, the seller's cash flow is no longer sufficient, the OEM factory has an inventory backlog, and the payment is slow, then the crisis will come. The manufacturer's initial investment funds are likely to be in arrears, and being owed a large amount of funds is undoubtedly a fatal blow to a factory with heavy assets.

Regarding the suspension of Cooper production, some netizens made sharp comments: " It was dragged down by multiple cross-border e-commerce sellers. Many orders were placed but could not be sold, resulting in a large amount of inventory and a broken capital chain. "

In fact, in addition to supplying goods to cross-border sellers such as Zebao, Cooper also does online business himself.

In August 2020, Cooper publicly recruited Amazon operations, requiring majors in marketing and English, and more than one year of Amazon platform operations experience; independent operation of the Amazon platform, familiarity with Amazon's operating environment, transaction rules, operation and promotion ROI, paid advertising, and familiarity with European and American overseas markets.

In September 2020, Cooper also recruited Alibaba operations personnel to be responsible for operating Alibaba's e-commerce platform, editing, uploading and updating products in the background, and optimizing rankings.

In addition, Cooper has also recruited e-commerce artists, data analysts, new media operations specialists, etc. It can be seen that this factory is not just doing OEM, it also has another identity - a cross-border e-commerce seller.

One of the reasons for Cooper's closure is that domestic and foreign orders are seriously out of sync, and have fallen off a cliff. The orders here should not only be orders from cross-border sellers such as Zebao, but also orders from its overseas customers.

As the epidemic in Europe and the United States becomes normalized, many consumers tend to make rational purchases. They spend their money wisely to buy daily necessities or low-priced products. The information index of consumer purchases continues to decline, which has greatly affected the orders of cross-border e-commerce sellers.

After the Amazon account ban wave broke out, 3C sellers were the first to be affected, and ZEBO's orders and sales were also seriously affected. As a supplier of ZEBO, the products sold in Cooper's online store must be related to 3C, and its overseas customers and online orders may also have been greatly affected.

So, there must be more than one straw that broke the camel's back!

As suppliers standing behind cross-border sellers, factories and sellers share weal and woe. When cross-border demand is strong, orders are flying in. When products are unsalable, they face the problem of goods backlog and payment collection. Now, they are beginning to bear more pressure from the cross-border circle.

Bound sellers and suppliers

After Amazon banned their accounts, many top sellers fell from grace and have not recovered since then. At the same time, the rising operating costs and fierce price wars since the beginning of this year have repeatedly compressed the profit margins of sellers, and the banned sellers are under attack from all sides.

Recently, Tongtuo's parent company Huading Holdings released its performance forecast for the first half of 2022, and it is expected to achieve a net profit attributable to shareholders of listed companies of 360 million to 510 million yuan in the first half of the year. Compared with the same period last year, it will increase by 188 million to 338 million yuan, a year-on-year increase of 109.29%-196.49%. This result looks quite impressive.

However, it is estimated that the non-net profit attributable to shareholders of listed companies in the first half of this year will be between -240 million and -140 million, which will be a decrease of 273 million to 373 million compared with the same period last year, a year-on-year decrease of more than two times.

The sluggishness of the main business is an important reason affecting the current performance. In the first half of the year, Huading shares' cross-border e-commerce sector was still in a loss-making state, mainly due to a significant year-on-year decrease in cross-border e-commerce revenue, and a large amount of asset impairment provisions were made due to the PayPal incident.

Obviously, the sequelae caused by the account blocking cannot be avoided, especially since Tongtuo has stepped into the two deep pits of account blocking on third-party platforms and independent sites one after another.

From mid-to-late July to early August last year , 54 Amazon stores involving multiple brands of Tongtuo were closed, and funds of RMB 41.43 million were suspected of being frozen, accounting for 4.27% of the company's monetary funds at the end of 2020. Although this dealt a heavy blow to Tongtuo, its operations on other platforms and self-operated websites were not affected at that time, and these business segments were still operating normally.

In order to avoid the impact of Amazon's account suspension, Tongtuo increased its sales share on third-party platforms such as eBay on the one hand, and increased its investment in its own website on the other.

According to the main operating data of Huading Co., Ltd. in the fourth quarter of 2021, its export of cross-border e-commerce digital, clothing, and home products had a total revenue of 5.35 billion in 2021. This year, Tongtuo's export revenue from self-operated websites (including mobile terminals) in these three categories was 110 million. From January to September, the net sales income of independent stations accounted for 3.48% of the total sales revenue in the same period, and the annual visits to the self-operated platform also reached 71.5 million.

After the account suspension incident, sellers have regarded independent sites as safe havens, and have placed high hopes on them and are willing to invest heavily in them, including Tongtuo. However, at the end of March this year, Huading Co., Ltd. issued an announcement: PayPal deducted funds from 29 of the PayPal accounts bundled with Tongtuo Technology's independent sites. As of March 28, 2022, the deduction amount totaled RMB 54.245 million; 6 accounts were sued for trademark infringement due to the products sold by the bound independent sites, and funds of RMB 24.246 million were frozen, totaling RMB 78.491 million, accounting for 8.09% of the company's audited monetary funds at the end of 2020.

The successive account blocking and fund freezing have had an indelible impact on Tongtuo's operations and profits. The company's capital turnover is inevitably constrained. Can the service providers cooperating with it remain calm at this time?

When a cross-border seller goes bankrupt, no cooperating company can stay out of it. When the news of the ban came out last year, the suppliers who cooperated with the seller were on pins and needles. Many companies inquired about the company of the seller or went directly to ask for payment. The one that caused the greatest psychological trauma to the cooperating factories was the former Global Easy Buy.

According to previous disclosures by Global Easy Shopping employees, the company owes money to more than 3,000 suppliers , with a total debt of approximately RMB 450 million, and also owes logistics companies approximately RMB 300 million, totaling more than RMB 700 million.

Due to long-term overdue payments, Global Easy Shopping has been blocked by suppliers many times, the biggest of which was in June last year. Een.com has collected information on some of the suppliers who were collecting debts at that time. They were located in more than a dozen cities including Shenzhen, Guangzhou, and Foshan, and the amount of debts owed ranged from tens of thousands to millions. In order to get back the payment, most suppliers went to the scene to collect the debts at least five times, and some merchants even went more than 30 times but still did not get the payment.

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After this incident, many suppliers drew a safety line, saying that they would carefully select cross-border e-commerce customers in the future and would no longer easily grant credit terms. This was a downgrade in the trust of the entire cross-border e-commerce industry.

Now, Cooper’s factory has been shut down due to the arrears of payment from cross-border e-commerce sellers, which has once again exposed the risks of cross-border supply. In the past one or two years, as cross-border business has become more difficult, sellers’ costs have increased, low prices have been sold, and profits have fallen. Uneasy emotions have begun to spread from sellers to partners, and service providers are on pins and needles: Will my customers make mistakes? Will I have to pay for them?

Cross-border business becomes more difficult, and service providers have a hard time

Since the beginning of this year, Amazon sellers have generally reported high advertising costs, slow inventory turnover, and falling product prices. In order to maintain rankings or promote new products, sellers have been desperately pushing up CPC under the platform's high suggested bids, and ACoS has remained high. When reviewing their performance, many sellers found that they sold more goods but made less money, which has affected sellers' confidence to a certain extent, but more seriously, it has had a direct impact on profits.

A seller who has been in the business for three years caught up with the development of cross-border e-commerce. He has been going smoothly and making positive profits every month. However, when he reviewed his performance in June, he found that he had suffered a loss for the first time, which made him anxious. Judging from the current situation in July, the performance has not improved significantly, so the seller set ensuring a balance between income and expenditure as his next development goal.

On the other hand, internal competition has become more serious this year. When sellers ignore profits and engage in price wars, suppliers in the rear can no longer sit still.

Last week, a seller found that a factory he saw when selecting products on 1688 had marked "The cross-border price of this product must not be lower than **" on the details page. Is this because the company also does cross-border retail? However, the customer service told him that the company only serves the domestic market and limits the cross-border sales price in order to make every customer profitable. At the same time, they will complain about products on cross-border platforms that are sold at prices lower than this limit. A few sellers are willing to sacrifice profits to offer low prices, forcing suppliers to rectify the Amazon market.

In fact, if the seller cannot balance the income and expenditure, both the company operation and the business cooperation will be dragged into the quagmire, and Cooper is a vivid example. But if there is a problem with the seller's operation, it is not just the supplier that will be implicated.

A logistics professional lamented: We are also very nervous when we work with these big manufacturers and sellers as freight forwarders. Although the shipment volume is large, the payment period is often several months or half a year. If Amazon does not sell well, it means that they have to keep clearing out the inventory, and the payment period is delayed again and again! "You want money? I will pay you after I sell all the goods! Withhold the goods? You can deduct it, anyway, you have to rent the warehouse!"

When news of logistics companies going bankrupt frequently comes out, sellers in the industry are deeply afraid of stepping on landmines. Similarly, when cross-border platforms or payees rectify illegal sellers, logistics companies are also worried that their own seller customers will be hit. If the latter's operations are hindered or their capital chain is interrupted, their service fees will be difficult to recover.

This involvement comes from the structure of the current cross-border e-commerce model.

Some netizens said that many foreign trade companies nowadays are just making money out of nothing. Once they have a certain amount of volume, they can pressure suppliers to pay for goods and logistics companies to pay freight, and they only need to pay the company's basic expenses. This kind of operation has messed up the industry.

For smaller sellers, suppliers and logistics companies can simply refuse the credit period. However, with the current reduction in shipments and the continuous decline in logistics prices, many sellers directly ask if there is a credit period. If not, there will be no follow-up. In order to secure goods, logistics companies can only give in and allow the credit period, which also brings certain uncertainties to their own operations.

The same is true on the supply side. If product sales are hindered, cross-border sellers' cash flow is no longer sufficient, OEM factories have overstocked inventory, and the collection cycle is extended, a crisis will come.

Industry insiders believe that the risk on the market side is beginning to shift to the supply chain side, which is a very dangerous signal. "If the collapse of the big seller only freezes and loses a large amount of funds and goods, these funds and goods are either investors' principal or suppliers' payment. Cross-border e-commerce is almost asset-light, with almost no fixed assets except for rented sites and computers, and these smart people who hold the password to traffic can start over at almost zero cost by changing their vests."

The manufacturing industry, which passively accepts the transmission of risks, will face the crisis of further amplification of risks, and related upstream and downstream companies will inevitably be affected, thus forming a domino effect. Judging from the feedback from the industry on the Cooper incident, such a thing is happening.

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