Continuing losses! Cross-border sellers are closing some businesses

After the Amazon incident, Tongtuo built three pillars

Huading shares' annual report shows that in 2021, the company achieved revenue of 8.654 billion yuan, a decrease of 11.36% from the previous year; the net profit attributable to the parent company was a loss of 607 million yuan, and the loss further expanded. The decline in revenue and net profit was mainly affected by multiple factors such as the reduction in sales revenue of the cross-border e-commerce sector and the platform's VAT withholding policy.

The company in charge of cross-border e-commerce business is Tongtuo Technology, a subsidiary of Huading Group. Data shows that Tongtuo Technology's cross-border e-commerce export revenue last year was 5.347 billion yuan, a decrease of 1.6 billion yuan from the previous year. Among them, the revenue from home products was 4.36 billion yuan, a year-on-year decrease of 19.04%; the revenue from digital products was 933 million yuan, a year-on-year decrease of 30.81%; the revenue from clothing products was 53.78 million yuan, a year-on-year decrease of 72.51%.

Tongtuo's order volume, number of ordering users, and number of active buyers also declined to varying degrees; the total merchandise transaction volume was 6.05 billion yuan, a decrease of 1.378 billion yuan from 7.428 billion yuan in 2020; the average order value also dropped from 197 yuan to 185 yuan.

Its independent station revenue also decreased compared with 2020. Data shows that Tongtuo Export Independent Station (including mobile terminal) had a revenue of 110 million yuan in 2021, a year-on-year decrease of 12.32%; the number of visits also dropped from 75 million to 71.5 million.

Last year's Amazon incident caused setbacks to Tongtuo Technology's business. According to Huading Shares' announcement, in the account blocking incident, Tongtuo Technology was banned from selling and closing a total of 54 stores, possibly because inappropriate reviews of some products were suspected of violating Amazon platform rules, and funds were frozen for 41.43 million yuan. As of March 30 this year, the balance of frozen funds was 21.36 million yuan, accounting for 3.23% of the company's monetary funds at the end of 2021.

Youkeshu was also affected by the account suspension incident. According to Tianze Information's report, due to the slow progress of unfreezing the frozen funds of Youkeshu on the Amazon platform, Tianze Information made a provision for bad debts of 104 million yuan for the receivables involved based on factors such as the suspected reasons for the freezing, the time limit for appeals, and past unfreezing experience.

The Amazon incident has caused a major reshuffle in the cross-border industry. Amazon's global vice president Cindy Tai revealed in September last year that a total of 600 Chinese brands and 3,000 accounts were closed in this operation.

At the same time, Amazon will also block low-performing sellers who have not placed orders for a long time or have been vacant for a long time (20 days or more). AliExpress and Shopee platforms have also issued new regulations to conduct a thorough investigation of inactive stores and clearly define the assessment and rectification targets for sellers' sales, turnover rate and service capabilities.

While maintaining the existing cross-border trade model, Tongtuo Technology also relies on its 18 years of experience in the cross-border e-commerce industry to add a "platform service e-commerce" module to create a development model with three pillars: "talent training + project incubation + investment fund".

In addition, Tongtuo Technology will also focus on risk prevention, such as observing industry trends to adjust sales strategies; strengthening the linkage between all parties, operating with low inventory, and implementing a "fast-in, fast-out" product operation model; improving accounts receivable control, reducing unnecessary expenses, maintaining sufficient cash flow, and enhancing the ability to resist risks brought about by market uncertainties.

Youkeshu also said that it will further improve the construction of its internal control system. While seeking to unblock stores and unfreeze funds, it is also adjusting its business strategy in a timely manner. While deepening its presence on mainstream third-party platforms such as Amazon and AliExpress, it is also actively developing emerging platforms such as Shopee and Lazada.

Excessive advertising efforts lead to losses, and some independent websites are closed

While some people are doing "addition", others are doing "subtraction", such as ZeShang Technology.

Due to the company's losses caused by the continuous investment in advertising fees for the independent station business, the cash flow is insufficient to support the continuous investment in the independent station business. In 2021, ZeShang Technology will close all independent station businesses except CHOIES.

Under the influence of factors such as the closure of some independent sites, changes in the policy environment of the Amazon platform, and fierce competition in the European and American markets, Zeshang Technology's cross-border e-commerce operating performance last year fell sharply, from 297 million yuan to 63.91 million yuan.

ZeShang Technology's predecessor specialized in OEM production for foreign mid-to-high-end clothing brands. It is an integrated industrial and trade enterprise with 16 years of experience in clothing brand design and processing. When it first went public, its goal was the same as SHEIN's - to become a fast fashion brand.

Zeshang Technology's fast fashion brand is CHOIES. CHOIES hopes to impress consumers with the most fashionable and competitive prices. Its clothing prices range from about US$10 to US$40, mainly targeting customers aged 18 to 25.

In 2016, Zeshang Technology vigorously developed cross-border e-commerce business, especially third-party cross-border e-commerce, and optimized and enriched the company's product line. As a result, Zeshang Technology also ushered in a double increase in revenue and net profit.

Since 2017, ZeShang Technology has begun to adjust its company's business, mainly including three aspects: changing sales channels, changing product selection concepts, and changing product supplier selection concepts.

First, we will significantly reduce the sales of low-priced products on platforms such as Wish and AliExpress, and focus on strengthening sales on channels such as Amazon and Shopify. We will also make every effort to reduce the number of SKUs, and control the number of SKUs sold across all channels from more than 20,000 to around 2,500;

Secondly, the company shifted from a single clothing category to multiple categories such as outdoor and home furnishings where Jiangsu and Zhejiang regions have supply chain advantages, and from general customer products with low profit margins to "niche products" with higher added value.

Third, in the newly expanded product lines, we will adopt methods such as joint operations with foreign trade factories.

Zeshang Technology's e-commerce product line has also gradually developed from a single women's fashion to multiple categories such as outdoor, home, and office stationery. The sales channels are mainly CHOIES's independent website and third-party platforms such as Amazon and eBay.

Through the adjustments in the past three years, Zeshang Technology has gradually shifted from a large and comprehensive broad market to a precise and in-depth niche market. In 2019, Zeshang Technology turned losses into profits.

In 2020, Zeshang Technology's operating income increased by nearly 100 million yuan from the previous year to 297 million yuan, but its net profit attributable to the parent company was a loss of 7.311 million yuan. During the reporting period, Zeshang Technology's sales expenses increased by 89.47% from the previous year, mainly because the e-commerce platform business and advertising business increased compared with the previous year, and advertising expenses also increased accordingly. In addition, financial expenses increased by 593.71% from the previous year, mainly due to increased exchange losses.

Today, Zeshang Technology has closed some of its independent station businesses, which can be regarded as its second "subtraction". However, with the substantial increase in cross-border logistics costs, intensified competition in the industry, and the further increase in the proportion of exchange losses, Zeshang Technology still lost 3.104 million yuan in 2021.

In the past year, sellers have experienced a lot, such as Amazon's account suspension incident and rising logistics costs. In order to seek development, companies like Tongtuo and Zeshang will make changes based on their own conditions. What kind of sparks will burst out after the changes? We will wait and see.

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