With annual revenue of nearly 6 billion, the big seller disclosed a lot of business details

In 2021, Zhiou expects its annual revenue to reach about 5.967 billion. This week, Zhiou disclosed more operating details in response to the Shenzhen Stock Exchange's inquiry letter , including product optimization, upcoming platform expansion and other content that sellers are more concerned about. We will present them one by one.

Contents of this article:

1. Zhiou’s product distribution and moat

2. Product and price differentiation and revenue share of Zhiou on different platforms

3. Suppliers behind Zhiou

4. Comparison of revenue from cross-border e-commerce sales during the epidemic

Focus on polishing, Zhiou perfects its product skills

Zhiou specializes in the research and development, design and sales of home products such as its own-brand furniture, home furnishings, garden and pet series. Its three own-brand products, SONGMICS, VASAGLE and FEANDREA, have been recognized in Europe, the United States and other places.

As of the end of last year, Zhiou products involved 257 subcategories, each of which had multiple SPUs and SKUs, with the number of product SPUs reaching 3,025. The main products are distributed according to usage scenarios as follows:

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 of small household items, large indoor furniture, and courtyard outdoor furniture of different styles and materials , which can meet consumers ' one-stop purchasing needs .

It is generally believed in the industry that focusing on product polishing can make new products stand out more than skilled operational skills.

Zhiou attaches great importance to product innovation. The company explores the "mushroom model" theory of product construction , which divides the product development process into three stages:

The first stage is the basic level, building a product parts platform, which includes a large number of standard general parts and a moderate amount of non-standard parts; the second stage is the combination and molding stage, that is, forming a variety of products through different arrangements and combinations of parts; finally, when the combined products are placed in the use scenario, through the rich changes of CMF (Color, Material & Finish), different product matrices are built, and finally the advantages of shortening the product development cycle, raw material procurement and production scale are realized. Its VASAGLE farmhouse series products are representative of this approach.

Most home furnishing products are large in size and require installation, which leads to inconvenient transportation and storage, and difficult installation for consumers. In order to provide buyers with a good experience in product installation and use, and to ensure the economic benefits of the products, Zhiou will be different from traditional furniture products and requirements in terms of product design, production process, packaging volume and box drop standards. On the premise of maximizing the use of container volume, adapting to the platform storage and delivery fee charging size standards and long-distance transportation, we will carry out product, structure and process innovation.

For furniture and home products that are larger in size and weight, Zhiou adopts a detachable structural design and a flat packaging material design that is resistant to impact and drop, and conducts integrated innovation through research and development from the perspectives of modular components, detachable assembly, and flat packaging.

For example, one of its leisure reclining chairs with sun visors can meet consumers' needs for stepless adjustment of the sun visors when they are lying down for leisure after being improved, and the installation-free design saves users the installation pain points. Another portable hammock has an improved hammock wooden stick assembly structure, which reduces the volume and increases portability ; the wooden sticks are also changed from straight sticks to curved sticks, which reduces the risk of rollover and improves the safety of the hammock.

A diamond-shaped side table produced by Zhiou gained recognition in a short period of time after it was put on the market, and its sales volume increased rapidly. Without affecting the appearance of the product, the company compressed the packaging size of the product through structural optimization, thereby reducing logistics costs.

Zhiou has continuously increased its investment in research and development, and its product research and development is mainly divided into independent research and development, cooperative development and product selection models. In 2018, 2019, 2020 and the first half of 2021, the number of independently developed product design styles newly added by Zhiou each year was 604, 612, 1587 and 681 respectively , of which the number of product styles finally finalized for production was 214, 274, 582 and 255 respectively. The proportion of revenue brought by independent research and development results was 11.99%, 17.35%, 26.19% and 27.64% respectively , and the proportion increased year by year .

During this period, Zhiou's R&D expenses were RMB 4.1632 million, RMB 10.4295 million, RMB 12.7693 million and RMB 11.5735 million, respectively , with an annual compound growth rate of 75.13% from 2018 to 2020.

As of June 30, 2021, Zhiou and its subsidiaries have 314 patent technologies. But in general, furniture and home furnishings are traditional consumer products, and Zhiou 's core technologies or patent technologies in product design are mostly appearance patents, with relatively low technical barriers and the risk of being copied and imitated.

From 2018 to the first half of 2021, Zhiou had 48 cases of appearance patent infringement where its product designs were imitated on platforms such as Amazon. The imitated products included smoky gray cat climbing frames, triangular splicing picnic mats, round mirror dressing tables, PU office chairs, imitation rattan laundry baskets, etc. After it successfully complained to the platform, the site removed the relevant infringing products.

Zhiou has also infringed on third-party product designs. During the above period, Zhiou infringed on third-party product designs 9 times. In such cases, after the company receives a notification from a third-party platform or a lawyer's letter and confirms that the product is indeed infringing, it will immediately stop selling the relevant product and prevent similar products from infringing again.

During the reporting period, the revenue from products involving infringement was RMB 1.2026 million, RMB 1.2722 million, RMB 756,100 and RMB 2.3179 million, respectively, accounting for 0.08%, 0.05%, 0.02% and 0.07% of the current operating income, respectively. The amount and proportion were relatively small.

High customer unit price becomes a revenue advantage for Europe

Zhiou 's products are mainly sold on e-commerce platforms such as Amazon, ManoMano, Cdiscount, eBay and Kaufland. The total revenue of these five e-commerce platforms accounted for 99.90%, 99.43%, 96.39% and 94.01% of the company's online B2C channel sales revenue respectively in each period.

In 2012, Zhiou started to operate on Amazon; in 2017, it started to operate on the ManoMano platform; in 2016, it started to operate on Cdiscount; in 2012, it started to operate on eBay; in 2018, it started to operate on Kaufland.

According to the different situations of each platform, Zhiou's product structure on each platform is also different. Its product categories sold on Amazon are the most complete, including large and high-priced products such as office desks, electric lifting tables, gaming chairs, sofas, chests, dressing cabinets, sofa sets, garden sets, etc., as well as a large number of small and low-priced products such as storage racks, storage boxes, jewelry boxes, clothes hangers, coat hooks, hammocks, bicycle racks, cat and dog beds, etc.

ManoMano is an e-commerce platform that focuses on DIY home decoration and gardening markets. Zhiou also focuses on promoting and selling garden series products and related outdoor products on the platform. Since the overall value of garden and outdoor products is large, the proportion of high-priced orders on the platform is relatively high.

In general, Zhiou's average order value on several e-commerce platforms is relatively high. Taking ManoMano as an example, during the reporting period, Zhiou's single orders of more than 500 yuan accounted for more than 65% , and increased period by period, and single orders of more than 1,000 yuan accounted for about 30%. The single order prices on several other platforms are also very high. On Amazon, eBay and other platforms, the price range of Zhiou's products with a relatively high proportion of single orders is 500-1,000 yuan.

During the reporting period, the amount of a single order was set at 500 yuan. In 2021 and 2022, the amount of single orders of Zhiou Home Furnishing on Amazon, eBay and other platforms was that orders greater than 500 yuan were higher than those less than 500 yuan. Such a per-order price is what many cross-border sellers dream of!

(Transaction amount and proportion of each platform stratified by order amount)

Zhiou’s products have a high average order value and a relatively long usage cycle, and are mainly durable furniture and household items, so the product repurchase rate becomes a problem.

For durable consumer goods, it is unlikely to expect a quick conversion from a single marketing campaign. How to open up the marketing chain? Liu Mingliang, Vice President of Sales at Zhiou, shared their approach on the Amazon platform as follows:

1. Deeply cultivate social platforms and cooperate with KOLs to strengthen content marketing . Zhiou has set up accounts on 7 mainstream overseas social media platforms such as Facebook, Instagram, and Youtube to facilitate wide dissemination and accurate understanding, and has created a resource library of more than 2,500 overseas KOLs. In 2021, the number of cooperating overseas KOLs reached 1,500+. Through long-term and in-depth cooperation with social media KOLs, it continuously influences the minds of consumers, thereby enhancing brand stickiness.

2. Create a scenario-based brand flagship store . After completing off-site promotion, Zhiou hopes to eventually attract traffic to Amazon to achieve sales conversion. Then apply brand visual standardization to the flagship store brand page and offline product packaging to form a consistent brand impression. By creating virtual scenes, displaying serialized and visual product elements, and launching scenario-based videos, consumers can imagine the actual use of the scene, thereby improving the conversion rate.

Precise marketing has made a significant contribution to Zhiou’s revenue. At the same time, its relatively high average order value has also enabled it to demonstrate a certain degree of “resilience” when facing changes in platform fees .

In recent years, some e-commerce platform fees have had a certain impact on sellers' revenue and profits. However, for Zhiou, changes in the fees of several major e-commerce platforms have not had any impact on it.

For the Amazon platform where sales to Europe account for a relatively high proportion, on June 5, 2019, the sales commission rate for products sold on the UK site with a sales price exceeding 175 pounds and on other European sites with a sales price exceeding 200 euros will be reduced from 15% to 10%; on February 18, 2020, the North American site will integrate outdoor furniture into the furniture category, and the sales commission rate for the portion of the total sales price of the furniture category that exceeds US$200 will be reduced from 15% to 10%.

Because Zhiou focuses on the sales of furniture and home products with relatively high unit prices, Amazon's segmented management of the sales commission rates for the furniture category will help the company increase the profit margins of products with high unit prices or high sales volumes.

In addition, many European sellers did not register VAT in compliance with regulations . When the platform forced them to collect VAT, they felt that their profits dropped sharply. Since the beginning of sales, Zhiou has been registering Amazon accounts through overseas legal entities with VAT tax numbers and paying taxes in accordance with local tax laws, without the need for additional VAT charges.

Platform fees also include some listing fees. During the reporting period, the total number of SKUs on sale by Zhiou on Amazon reached approximately 10,800 , so there are no large-scale listing fees involved.

From the above points of view, the series of platform fee adjustments announced by Amazon will not have a significant adverse impact on Zhiou’s operations.

The fee rates of several other e-commerce platforms such as ManoMano, Cdiscount, eBay and Kaufland have not changed much. The sales commissions of some platforms have been increased to a certain extent, but Zhiou's sales on these platforms account for a small proportion, and sales revenue has increased significantly. Therefore, since the company started its business on these major e-commerce platforms, there has been no major adverse changes in the platform's business model and operating strategy.

Supply chain resources behind the big sales

In addition to third-party platforms, Zhiou has also expanded its independent website, mainly for online sales of all categories of products in Europe and the United States. During the reporting period, the sales revenue of the company's self-operated independent website accounted for 0.02%, 0.05%, 0.85% and 1.60% respectively .

(The establishment and operation of Zhiou’s independent sites in Europe and the United States)

The company's operations in the EU, the UK and the US in a self-operated independent station model comply with the relevant laws, regulations and regulatory requirements of the relevant countries or regions.

In the future, independent sites will also be one of the channels that Zhiou will consider continuing to expand. Zhiou's sales channels have always been relatively concentrated. Regarding the addition of new sites and subsequent preparations, Zhiou stated that from June 30, 2021 to mid-March this year, the company has not added new sites, expanded other e-commerce platforms and sales channels, but will consider expansion plans in the future. The plan mainly includes the following channels:

1. Third-party platform sales channels: In 2022, the B2C platform sites that Zhiou plans to enter mainly include AliExpress France. Other B2C platforms under investigation also focus on the national markets that the company has already covered.

2. Independent station channel : Zhiou mentioned that it will carry out an overall upgrade of its own independent stations to build a user community, enhance the stickiness of loyal users, and increase product repurchase rate.

3. B2B sales channels : In terms of online B2B, Zhiou will continue to develop well-known online self-operated platforms such as Amazon Vendor and Wayfair, and is currently negotiating with Wayfair to expand its Canadian market; further expand offline supermarkets and other large customer channels, such as Target, The Home Depot, E-mart and other customers.

In recent years, a number of cross-border independent station brands in the industry have emerged as leaders in the field of brand expansion overseas. With continued intensive cultivation of overseas markets and the blessing of long-termism, the future of Zhiou is promising.

The supply chain resources behind the continued development of a cross-border seller or brand are also worth exploring.

Judging from the information disclosed by it, during the reporting period, Zhiou had cooperation with 14 major suppliers with a short establishment history, a short period of cooperation, or which mainly provided services to the company.

What are the backgrounds of these suppliers who can supply the hot-selling products? It is understood that some of these 14 suppliers are newly established companies under the same control as suppliers that have cooperated with the company for many years, and some suppliers have strong new product R&D and design cooperation capabilities, and can share the win-win results brought by the hot sales of new products with the company.

(To some suppliers in Europe)

Most of the 14 suppliers mentioned above are located in Guangdong Province, followed by Zhejiang Province. During the reporting period, Zhiou's purchases from suppliers with a short establishment period, a short cooperation period, or mainly serving the company were RMB 114 million, RMB 282 million, RMB 636 million, and RMB 322 million, respectively, accounting for 23.27%, 29.38%, 31.92%, and 26.01% of the total purchases in each period.

Zhiou and relevant suppliers mainly establish cooperative relationships through contact with Alibaba International Station, business acceptance by companies under the same control, introduction by friends, unilateral proactive contact, etc., and there are no abnormal circumstances. The relevant suppliers and their shareholders have been engaged in the production and manufacturing of furniture and home products for a long time.

With revenue of nearly 6 billion in 2021, Zhiou continues to make efforts

Over the past two years, the epidemic has repeatedly recurred in Europe, the United States and other regions. Countries have repeatedly implemented epidemic prevention measures such as home isolation, city closures and store closures. Shopping demand has shifted to online, and the penetration rate of e-commerce in overseas markets has increased rapidly. In 2020, the proportion of e-commerce channel retail sales in the world, Europe and the United States to the total retail sales of each region increased by 4.4 % , 4.2 % and 2.7 % respectively compared with the previous year , all higher than the year-on-year growth rate of each region in 2019.

The development of the epidemic has directly driven the revenue growth of cross-border e-commerce companies.

In 2020, Zhiou 's operating income increased by 70.75% year-on-year , higher than 45.83% in 2019. The average year-on-year operating income growth of other domestic cross-border e-commerce sellers was 85.73%, which was also significantly higher than 39.93% in 2019.

In the first half of 2021 , Zhiou's revenue increased by 105.02% compared with the same period last year . It is expected that the annual revenue scale in 2021 will reach about 596,737.95 million yuan, a year-on-year increase of 50.27%.

While the epidemic has driven performance growth, it has also increased operating costs.

After the global epidemic broke out, freight rates on major international shipping routes rose significantly, resulting in a substantial increase in the proportion of shipping costs in Europe's main business costs, from 6.83% in 2020 to 14.00% in January-June 2021. The cost of main business increased significantly, resulting in a substantial increase in the company's operating income in the first half of 2021, but net profit showed a downward trend.

In order to cope with fluctuations in shipping prices and foreign exchange markets, Zhiou has formulated a series of measures.

In order to obtain a stable supply chain guarantee, the company adopts long-term agreements to mitigate risks. It has a long-term agreement basis with shipping agents, and has a good performance record in previous years and has a scale advantage in shipments. Therefore, compared with the spot market price, Zhiou expects to obtain relatively low shipping prices in 2022. In addition, Zhiou will also hedge the market volatility risk by controlling the weight allocation of cargo volume between long-term agreements and spot market prices to optimize the average freight cost.

In the face of exchange rate fluctuations, Zhiou has reduced the impact of single currency exchange rate fluctuations on operations through multi-currency settlement in sales and procurement; and flexibly used foreign exchange forward contracts, foreign currency loans and other methods to deal with exchange rate fluctuations.

Despite many external uncertainties, the overseas online furniture and home furnishing market has grown steadily, and the vast market space gives companies great confidence.

According to Statista data, the revenue of Europe's furniture and supplies e-commerce channel increased rapidly from US$25.673 billion in 2017 to US$37.234 billion in 2020, and is expected to reach US$51.964 billion in 2025; at the same time, the revenue of the United States' furniture and supplies e-commerce channel will also reach US$61.212 billion in 2025.

In the long run, the prospects for Europe are promising.

Big Sell

Operation details

To Europe