Inventory of 880 million yuan, Shenzhen's big sellers are scrapped every year

There is less than a week left until the end of 2023.

The year-end summaries of various styles in the cross-border e-commerce circle are finally here. Not long ago, someone summarized the top ten buzzwords of cross-border e-commerce this year: 1. Brands going global; 2. Social e-commerce; 3. Full trusteeship; 4. AIGC; 5. Overseas warehouses; 6. Localization; 7. Compliance; 8. Southeast Asia; 9. Consumption downgrade; 10. Panama congestion.

Whether these are really the 10 most popular terms is still in doubt, but many sellers must have experienced the hurricane of full trusteeship. In addition, sellers should also have a deep understanding of the market pain brought about by "consumption downgrade".

Because of this, Yien.com noticed that many sellers mentioned inventory in their year-end summaries . This is also the "heartache" of many big sellers .

Savi has 880 million yuan in inventory, waiting for a peak season

At an investor event not long ago, Suntech, which has been listed for less than half a year, was asked, "As of the end of the third quarter of this year, the company's inventory was 880 million. Can we break down the inventory structure?"

In this regard, Savitech did not seem to respond directly, only saying that the high inventory amount was mainly due to the temporary impact of stocking up for the peak season in the fourth quarter, and the proportion of inventory with a long age of more than one year was very low. In addition, it also stated that as the peak season digests the inventory, the inventory level at the end of the year is expected to drop significantly.

This is consistent with what it disclosed earlier in its third-quarter financial report: inventory value was 877 million yuan, an increase of 44.93% from the beginning of this year , due to stocking up for the peak season.

At the end of the first half of this year, the inventory value of Savi Times was 593 million yuan. At that time, it stated that the main reason was due to increased inventory for the membership day in the third quarter and the continued inventory clearance of non-clothing accessories in the first half of the year.

Whether the peak season in the third and fourth quarters is really beneficial to its inventory , and whether the increased inventory value between each quarter is new or accumulated due to returns, etc. , there is no answer . The high inventory value of Savi Times is not a special case this year.

In the past three years ( 2020-2022), the original value of inventory of Suntech Power at the end of the year reached 935 million yuan, 909 million yuan, and 636 million yuan respectively.

At the same time, we should also note that the focus of Savi Times has always been the clothing category. This can also be explained by its revenue share. In the first three quarters of this year, Savi Times' total revenue was 4.374 billion yuan, while the revenue of clothing and accessories was 3.079 billion yuan, accounting for 70%.

Therefore, it can also be inferred that the inventory value of the clothing category may account for the majority.

But therein lies the problem: clothing categories have always been the hardest hit by returns.

On domestic e-commerce platforms, the return rate of clothing has reached 40%. On overseas e-commerce platforms, although the return rate of this category is slightly lower, some cross-border clothing sellers said that it is also 20%-30%. "This year's return rate is even higher. If you are not satisfied with the product, you will return it immediately. Clothing sellers are losing a lot of money this year."

It can be seen from the previous prospectus of Savi Times that although the return rate of its products is not as high as 20%-30%, it has been rising in recent years.

From 2020 to 2022, the overall return rate of Savi Times climbed from 8.23% to 14.71% . Among them, the return rate of the clothing category increased from 11.02% in 2020 to 14.11% in 2021 and 17.77% in 2022 , and the number of returns also increased from 2.3635 million to 3.3372 million, and then to 4.0932 million .

In addition to the characteristics of clothing products, the sales share of Savi Times on Amazon has increased after 2021, and Amazon's relaxed return policy is also one of the reasons for the increase in Savi Times' return rate.

Returns will largely lead to the problem of inventory backlogs , which in turn leads to more operational risks.

The amount of scrap remains high

The higher the inventory value, the higher the risk of price decline. After all, the market is not static, and who knows what will happen suddenly.

In the past three years ( 2020-2022), Savitech's inventory impairment provision reached 83.7358 million yuan, 17.4794 million yuan, and 30.8249 million yuan, respectively . Although it seems lower than in 2020, it has shown an upward trend again. In the first half of this year alone, its inventory impairment provision has reached 30.6057 million yuan .

Even if the price drops, you have to clear the inventory, and every penny saved is a penny earned. Discounts and promotions are essential at this time.

In order to quickly deal with the inventory that was short-term stockpiled during peak consumption periods, Savi Times' revenue and gross profit margins have suffered a certain impact in the past few years.

But discounts and promotions are not enough. Many returned products cannot be put on the shelves because customers damage the packaging or the products, so Savi Times can only scrap them.

The prospectus shows that in the past three years, the amount of scrapped products of Suntech Power reached 124 million yuan, 133 million yuan, and 64.8143 million yuan respectively .

In 2020, due to the increase in overseas online consumer demand, which led to tight overseas warehouse capacity and the clearance of unsaleable inventory by FBA warehouses, Savi Times had a large amount of scrapped inventory in overseas warehouses and FBA warehouses.

Among them, the amount of scrapped overseas warehouses reached 75.3274 million yuan, mainly due to the increase in sales of large products such as department stores, home furnishings, sports and entertainment, and digital automobiles and motorcycles, while the demand for overseas warehouse capacity was tight. At the same time, changes in the overseas market environment have exacerbated the difficulty of sorting and shelving clothing and accessories products, so some clothing and accessories products were scrapped.

The amount of scrapped goods in the FBA warehouse was 26.9637 million yuan. This was because the goods could not be put on the shelves after being returned because of packaging or product damage. The FBA warehouse listed them as "unsaleable inventory" and therefore had to be scrapped.

In 2021, Savi Times' scrapped products are still mainly clothing and accessories. In the overseas market, FBA warehouses are still the largest source of scrap, with a scrap amount of 45.8985 million yuan. The reason is still that returns cause products to become "unsaleable inventory."

In order to reduce the losses caused by the scrapping of FBA warehouses, since 2020, Savi Times has increased its investment in the construction of self-operated overseas warehouses, and the number and area of ​​rented warehouses have been increasing.

The prospectus shows that in Savi Times' overseas self-operated warehouses, the inventory of clothing and accessories products with extremely high return rates is increasing.

In the Western United States warehouse, the inventory quantity of clothing and accessories products increased from 192,500 pieces in 2020 to 370,300 pieces in 2022, and the amount also soared from 8.8439 million yuan to 58.5266 million yuan.

In the East Coast warehouse, the inventory quantity of this product increased from 82,000 pieces in 2020 to 409,000 pieces in 2022, and the amount soared from 1.7411 million yuan to 18.9947 million yuan.

But even so, the problems of inventory backlog caused by return rate and consumption downgrade have not been fundamentally solved.

In the third quarter , the inventory was 880 million yuan. Savitech was waiting for a peak season, but the peak season has passed. The sellers have their own judgment on how big the splash will be. Even if its current sales are good, the return problem cannot be ignored. The inventory problem and the huge amount of scrap are still a mountain weighing on Savitech's operations.

In conclusion:

According to QUICK FactSet data, the Nikkei recently counted 4,353 companies around the world and concluded that signs of excess inventory continue .

The data shows that in September , the inventory of measurable companies reached 2.12 trillion US dollars , 30% higher than before the outbreak . The inventory figure of 2.2 trillion US dollars at the end of March this year hit a 10-year high .

Although the supply chain is gradually returning to normal, and companies have been able to sell and reduce inventory as usual, the global economic slowdown has made inventory reduction progress very slow. Some experts say that the time required to digest inventory may hit a historic length , which is not a positive message for cross-border sellers.

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