Massive layoffs! Youkeshu has more than 500 employees supporting 10,000 stores

Not long ago, Youkeshu's parent company Tianze Information released its 2021 financial report and 2022 first quarter report. Last year, it suffered a loss of 2.68 billion yuan, and its cross-border e-commerce business revenue was 1.588 billion yuan, a year-on-year decline of nearly 70%. Its gross profit margin was only 5.46%, which attracted an inquiry letter from the Shenzhen Stock Exchange.

Before the account was blocked, Youkeshu experienced a period of aggressive expansion, but it began to significantly reduce its business scale last year. Currently, it has more than 500 registered employees, and its office space has been reduced from 24 at its peak to 4. Adhering to the pan-category and multi-platform strategy, Youkeshu now has more than 10,000 stores, and its parent company is also optimistic about its development in the next five years.

More than 500 employees VS more than 10,000 stores

In 2020, the sudden outbreak of the epidemic brought huge dividends to the cross-border e-commerce industry. Practitioners were pleasantly surprised and optimistic that this situation would continue into the second year, so they actively stocked up in preparation for the next good year.

Tianze Information, the parent company of Youkeshu, is no exception. In 2020, its cross-border e-commerce business revenue was 4.75 billion, a 20% increase over the previous year. The company's confidence has increased greatly, coupled with concerns about the instability of logistics and supply chains, in order to prevent shortages, Youkeshu began to stock up in large quantities in the second half of 2020, especially for the Amazon platform.

At the same time, because the subsequent development of the industry is highly optimistic, Tianze Information has also implemented a more aggressive development strategy and expanded the office space of its business headquarters. In 2021, the company's rental expenses reached 7.41 million, an increase of nearly 80% over the previous year. But the situation took a sharp turn for the worse this year, with a large number of Youkeshu's Amazon sites blocked and over 100 million yuan of funds frozen.

Starting from the second half of last year, Tianze Information has significantly reduced its operating scale and minimized non-essential expenses.

On the one hand, the company reduced its inventory by clearing out its warehouses at low prices, and on the other hand, it reduced its staff . At the end of 2020, the company had more than 3,000 cross-border e-commerce business personnel, but by March this year, there were only more than 500 people left. Offices were also being removed. At the end of 2020, Tianze Information had 24 office locations. Last year, it gradually relinquished the leases, and at the end of the year, it still had 6,000 square meters of office space, which was still 40% more than at the end of 2020. In March this year, the company had only 4 office locations left. As of yesterday, the office area of ​​the business headquarters had dropped to about 4,000 square meters.

After some downsizing, Youkeshu's business scale has matched its current revenue scale.

After the account suspension incident, Youkeshu also adjusted its business strategy. On the one hand, it continued to rely on platforms such as Amazon to focus on the mainstream markets in Europe and the United States and strive to restore the competitive advantages of the original main platforms; at the same time, it also deepened its presence on other platforms such as Shopee and continued to explore blue ocean markets such as Southeast Asia and emerging platform businesses, hoping to increase the diversity of operating platforms and regions and reduce the adverse effects of changes in the policy environment of platforms such as Amazon on the company's subsequent operations.

As of March 31 this year, Youkeshu operates on more than 10 platforms including Amazon, AliExpress, eBay, Wish, Shopee, etc., and has more than 10,000 stores in operation. These stores need to be managed by the more than 500 employees currently retained.

Youkeshu's main operating platform has changed. Last year, its top five operating platforms were Amazon, AliExpress, Shopee, Wish, and Walmart. Compared with 2020, Youkeshu's revenue from Amazon dropped from 1.5 billion to 520 million, but its revenue share was still about 32%; AliExpress platform revenue dropped from 770 million to 320 million; Wish platform revenue dropped from 600 million to 100 million. Shopify and eBay withdrew from the top five platforms and were replaced by Shopee and Walmart. Last year, the revenues from these two platforms were 210 million and 63.32 million respectively, which shows the extent of the shrinkage of its independent station and eBay business.

( Top 5 platforms for Tianze Information's cross-border e-commerce business in 2021)

Previously, Youkeshu's sales areas were mainly concentrated in Europe and the United States. After the Amazon incident, the company's sales revenue in Europe and the United States fell from 80% to 64%. With increased investment in blue ocean markets such as Southeast Asia, Youkeshu's sales revenue in Asia and Africa has increased, and the results of expanding new markets are beginning to show.

But the pain of being blocked has not yet passed. In 2021, Tianze Information's revenue and profits fell sharply, attracting inquiries from regulators.

After three consecutive years of declining performance, how can Youkeshu's parent company stop the decline?

In the past three years, Tianze Information's performance has continued to decline. From 2019 to 2021, the net profit attributable to shareholders of the listed company after deducting non-operating expenses was -1.31 million, -910 million, and -2.68 billion yuan, respectively. In the first quarter of this year, its revenue also fell by 71.13% year-on-year. From an analysis point of view, the losses in 2019 and 2020 were due to the losses in the company's original main business of software and information technology services, which resulted in goodwill impairment; in 2021, it was mainly due to the collapse of the cross-border e-commerce business.

Last year, Tianze Information's cross-border e-commerce sales revenue was 1.588 billion yuan, down 66.55% year-on-year, and its gross profit margin was only 5.46%, down 34.30% year-on-year. In comparison, ST Huading (Tongtuo)'s gross profit margin last year was 24.57%, Xinghui Shares (Zebao) was 29.85%, and Huakai Creative (Yibai) was 39.34%.

In fact, this year Youkeshu's online channel revenue was 1.536 billion, and the gross profit margin was 36.69%. Although there was a decline, the change was not significant; but the offline channel revenue was about 52.6 million, the operating cost was as high as 530 million, and the gross profit margin was as low as -907%, which lowered the gross profit for the whole year.

Since the offline channels are suffering such heavy losses, why doesn’t Youkeshu abandon them?

B2C online business is the core of Youkeshu, and offline B2B business revenue has always accounted for less than 5%. After the Amazon account was blocked, Youkeshu's sales channels narrowed and a large amount of inventory was unsalable. In order to reduce inventory management costs and recover cash flow as soon as possible, Youkeshu, like in the past, sold at low prices through offline channels to clear inventory. He bluntly said that in the past two years, the company's offline business has mainly been to quickly clear inventory for online B2C business, which is not sustainable in itself, but commercially reasonable. Offline business will be compressed in the future.

Since 2019, cross-border e-commerce export business has become Tianze Information's only core business. The account blocking incident has had a huge impact on it. In addition to a sharp drop in revenue and profits, the company is also facing a series of losses, including provision for inventory impairment of approximately 771 million yuan, provision for goodwill impairment of approximately 724 million yuan, and provision for impairment of frozen account funds and related platform deposits of approximately 104 million yuan.

In response to the current loss situation, Youkeshu has taken a series of measures:

1. Plan to adjust the category development strategy, focusing on prioritizing the expansion of categories that are still in the blue ocean market, have a relatively long product life cycle, and are relatively slowly updated;

2. Further strengthen cooperation with high-quality and core supply chains, and carry out branding construction in an orderly manner to form differentiated competition with other companies in the industry.

3. Learn from the product development model of outstanding companies in the industry, implement the management and control logic of "small batches, multiple batches, low-cost and rapid trial and error" in product development and supply chain management, and improve the overall turnover efficiency of products from development and launch, procurement and sales to inventory management;

4. Strategically shrink the business scale, abandon product lines with small marginal contributions, and adjust the manpower to business teams with greater development potential;

5. Sort out the management system, implement flat management, reduce management costs, and reduce cost losses caused by internal information blockage.

As an experienced seller with more than ten years of experience, Youkeshu is likely to be able to smoothly get through the trough period. In the reply letter, it mentioned its many core competitive advantages, including efficient IT system integration, comprehensive coverage of e-commerce platforms, and a relatively safe pan-category operation model.

Sellers have been arguing over whether it is better to sell goods in bulk or to sell high-quality goods. Some sellers believe that selling goods in bulk does not require any technical skills and that the human-wave strategy is unsustainable; others insist that it does not matter whether the cat is black or white, as long as the model that can make money is the good one, and the choice should be made based on one's own situation.

Youkeshu believes that the company's pan-category business model is light and covers a wide range of products. It increases consumers' repurchase stickiness through the richness of SKUs. It does not rely heavily on a single category or product, and can also avoid the situation where the continuous operation is affected by the sudden drop in sales of a single category of products. At present, its main products cover categories such as home building materials and household goods, electronic products, mobile communications and game accessories, sporting goods and toys, health products and daily necessities, with hundreds of thousands of SKUs in stock.

Nearly a year after the account suspension incident, Youkeshu has gradually stopped its decline. In the first quarter of 2022, Tianze Information's cross-border e-commerce business revenue was about 180 million yuan, and the net cash flow from operating activities has turned from negative to positive, up 104.66% year-on-year, and the operating income in the second quarter has shown signs of stopping falling.

However, due to the previous continuous losses, Tianze Information's cash and cash equivalents have also been greatly reduced.

As of the end of 2021, Amazon still has nearly 90 million yuan of funds frozen for Youkeshu

In 2021, the cross-border e-commerce operating performance of Tianze Information declined sharply, with B2C online sales revenue falling 67.66% year-on-year. Cash inflows from operating activities also decreased, and the platform's capital balance at the end of the year also decreased accordingly.

Affected by the "account blocking incident" on the Amazon platform , a large amount of Youkeshu's store funds on the Amazon platform were frozen. According to the announcement released in July 2021, Youkeshu's restricted funds on Amazon increased significantly, and the known suspected frozen funds among the restricted funds were approximately 130 million.

As of December 31, 2021, the balance of funds in Tianze Information's platform account was RMB 47.8447 million, a decrease of 89.83% from the beginning of the year. The basic situation of the company's platform funds is as follows:

The reason for the reduction in platform funds is that the sales scale of Youkeshu in 2021 has decreased significantly compared with the previous year, and the platform fund balance has also decreased accordingly, and the funds retained in Amazon stores and Paypal accounts have decreased. After hundreds of accounts were blocked, as of December 31, 2021, Youkeshu's fund balance on the Amazon platform was approximately 117 million yuan, of which 89.6727 million yuan was frozen.

As of the end of 2021, Youkeshu’s funds frozen on the Amazon platform cannot be withdrawn normally. The company is still appealing and has already made provisions for bad debts for the frozen funds. This means that the big sellers have a premonition that the frozen funds may not be recovered!

In 2019, Tianze Information's acquisition of Youkeshu generated goodwill of 867 million yuan. Youkeshu's performance in 2019 and 2020 did not meet the target. At the end of 2021 , it made its first provision for goodwill impairment of 724 million yuan.

Tianze Information mentioned that in 2021, Youkeshu experienced Amazon's permanent closure of a large number of top seller accounts and freezing of funds, which led to a sharp drop in its revenue scale, redundant inventory, and tight cash flow. This incident happened for the first time in Youkeshu's operating history and was unpredictable, so it is impossible to consider the impact of this incident on Youkeshu's overall future operating conditions.

After more than half a year of crisis management, the company actively appealed, and a small number of stores and frozen funds were unblocked. After the Amazon "account blocking incident", Youkeshu disposed of redundant inventory and reduced staff and business premises.

In fact, Youkeshu’s experience is also a microcosm of sellers in the cross-border e-commerce industry.

The favorable conditions in the cross-border e-commerce industry in 2020 attracted many new sellers to join the market, and some foreign trade factories and domestic e-commerce companies also turned to overseas markets. According to Finbold data, Amazon added 295,000 new sellers from January to March 2021. The influx of new players inevitably seized resources such as logistics, traffic, and FBA storage capacity. Since the second quarter of 2021, the industry has seen the "account blocking incident" on the Amazon platform, and the platform has strengthened its control over Chinese sellers.

In the second half of 2021, the industry is generally facing challenges from many unfavorable factors, such as repeated domestic and foreign epidemics, continued high cross-border logistics costs, frequent fluctuations in the RMB exchange rate, and changes in European VAT policies. Against this backdrop, a large number of small and medium-sized sellers are selling off their inventory at low prices to clear excess inventory and accelerate capital recovery, which intensifies market competition and affects the overall profit margin of the industry. At the same time, they are gradually losing out in the competition with the top sellers who have more advantages and experience in capital and supply chain, and have left the market one after another.

Because of the account suspension, Youkeshu's ability to sell products normally has been greatly reduced. Combined with other unfavorable factors, the inventory backlog is serious. To alleviate this situation, it sold a large amount of inventory at a discount. On the date of the goodwill impairment test, the book value of inventory was reduced from more than 1 billion yuan at the beginning of 2021 to about 250 million yuan at the end of the year. By the first quarter of 2022, Youkeshu no longer had a serious inventory backlog problem.

How much inventory does Youkeshu have in stock? According to Tianze Information's reply, all of Youkeshu's inventory can be divided into several categories , including health products, electronic products, clothing, shoes and bags, and toys. The total number of inventory items is 11.4283 million, and the value of the inventory items is 636 million yuan .

All of Youkeshu's inventory is products that will be sold on major third-party e-commerce platforms, and are stored in warehouses rented by the company in Dongguan, China, the United Kingdom, the United States, Russia, France, Australia, and in warehouses owned by e-commerce platforms such as Amazon, Jumia, Lazada, and Shopee. Among them , there are many products that are 2-3 years old, with health care products and daily necessities accounting for 34%; clothing, shoes and bags accounting for 43%; and sports goods and toys accounting for as high as 64%.

Products that are more than 2 years old may not be worth much! With such a huge backlog of inventory, Youkeshu decided to sell it at a low price to quickly recover cash flow, and the company also made provisions for inventory depreciation . Many products sold through B2C on third-party e-commerce platforms will be sold through B2B, and the product prices will definitely be the disposal prices.

At the end of 2021 , the provision for inventory impairment of Tianze Information's cross-border e-commerce business was 61.4% relative to the book balance , which was higher than the provision ratio of similar inventory goods by comparable companies in the same industry. Analyzing the reasons, it mentioned that in 2021 , a large number of Youkeshu's stores on the Amazon platform were closed down and large amounts of store funds were frozen. In addition, the competition in the cross-border e-commerce industry has become more intense, the sales scale of cross-border e-commerce business has dropped sharply, and a large amount of inventory is facing the risk of unsalable backlog.

Obviously, after Amazon banned the account, There’s a tree that was seriously injured. What will happen to its subsequent development?

Will Youkeshu’s revenue grow steadily in the next five years?

In 2021, a tree "stumbled" on Amazon , but Tianze Information believes that this is only a temporary "inadaptability", the overall trend of the industry continues to improve, and there is no major uncertainty in the company's ability to continue operating.

Previously, Youkeshu suffered losses. In addition to the fluctuations in some business operations due to the epidemic and platform policies, it was also affected by other factors . However , by the first quarter of 2022, the net cash flow generated by Youkeshu's operating activities had turned from negative to positive, and there was no major uncertainty in subsequent operations. Moreover, Youkeshu's future development is sustainable, as shown in the following points:

1. The cross-border export industry continues to improve . In 2021, global online retail sales reached 4.938 trillion US dollars, an increase of 16.2% over 2020, accounting for 19.6% of global retail sales; it is expected that by 2025, global online sales will increase to 7.39 trillion US dollars.

2. The top five customers have been relatively stable in the past three years. In the past three years, the top five customers of Youkeshu accounted for more than 70% of the company's revenue , and independent station platforms represented by Shopify have squeezed into the company's top five customers. In 2021, in order to reduce the adverse impact of Amazon's policy changes, Youkeshu has focused on strengthening blue ocean markets such as Southeast Asia and the development of new sales platform businesses. Shopee became the third largest customer in 2021.

3. Diversification of sales regions. Youkeshu's business is mainly concentrated in Europe and the United States. From 2019 to 2021, sales revenue in the Americas and Europe accounted for 81.15%, 80.23% and 64.61% respectively. After being blocked by Amazon in 2021, its sales share in Europe and the United States has declined. The company began to deploy platforms such as Shopee and Jumia, explore blue ocean markets such as Southeast Asia and Africa, and maintain diversified development in sales areas.

4. The cooperation with major customers is stable and sustainable. After the Amazon "account blocking incident" occurred, Youkeshu made timely rectifications, effectively avoiding similar incidents from happening again on a large scale, and the freezing of funds and the blocking of stores did not continue to deteriorate. Currently, Youkeshu also pays more attention to platform policies and business risk analysis, improves operating efficiency under the premise of compliant operations, and continues to maintain a good cooperative relationship with platforms such as Amazon and Shopee.

5. Ability to operate sustainably. In 2021, when the cross-border e-commerce industry was experiencing twists and turns , Youkeshu still had a revenue of nearly 1.6 billion yuan, and had the foundation for sustainable operation.

In addition, Tianze Information also made a detailed forecast of Youkeshu 's operating income in the next five years based on Youkeshu 's historical revenue growth, recent operating conditions and management's expected development trends, combined with the growth of the cross-border e-commerce export industry: except for the negative growth rate in 2022, Youkeshu's revenue has shown positive growth since 2023, and its annual revenue has increased steadily.

In terms of gross profit margin, Tianze Information predicts that in the next five years, Youkeshu's gross profit margin will increase from 31.55% in 2022 to 44.25% in 2024, and the gross profit margin will remain at 42.55% from 2024 to 2026. After 2026, the gross profit margin will remain unchanged at the 2026 level.

After being banned by Amazon, Youkeshu has taken a series of actions to save itself, including clearing inventory, laying off employees, reducing office size, and actively exploring new sales channels. According to the parent company, Youkeshu has now emerged from the haze, the situation has improved, and the performance forecast for the next five years is also impressive. However, we still have to wait and see how Youkeshu performs.

There is a tree

title