As cross-border e-commerce race heats up, another Chinese online retailer went f...

As cross-border e-commerce race heats up, another Chinese online retailer went for Hong Kong IPOCross-border Ecommer

As cross-border e-commerce race heats up, another Chinese online retailer went for Hong Kong IPO

Aron Chen

posted on November 27, 2022 10:23 pmEditor : Wang Boyuan

Also known as China's Zara, the Hangzhou-based Zibuyu is one of the cross-border e-commerce pioneers in China.

Chinese cross-border e-commerce site Zibuyu Group is actively seeking to raise cash for expansion via a Hong Kong IPO, as the race to bring made-in-China goods to Western consumers via online stores is heating up.

Known as China's Zara, Zibuyu has been relying on third-party e-commerce platforms, including Amazon, AliExpress, and Wish, to sell China's made garments and shoes to overseas consumers, with 90% of its product selling to the U.S.

At a glance, Zibuyu doesn't look much different from other e-commerce platforms exporting affordable goods from China, whether it's Amazon, Alibaba's AliExpress, or Wish. Its landing page on Amazon features a collection of competitively priced products, from a $2.77 blouse to a $1.39 soap holder.

Zibuyu started as a small online store selling cheap women's clothing to Chinese consumers on Alibaba's Taobao marketplace. It gradually diversified sale channels and shifted focus in 2014 to cross-border e-commerce targets at consumers in Europe and America by opening online stores on other E-commerce platforms, mainly Amazon.

Alongside women's clothes, Zibuyu was also selling Shoes, which later became the key to its success. The Shenzhen-based company dropped the sourcing model and started selling its own designs manufactured by factories in China after realizing the risks of copycats.

As it focused on Amazon starting in 2014, Zibuyu's revenue from the U.S. e-commerce giant jumped from 31.5 percent of its total in 2019 to more than 70 percent in 2021.

Zibuyu's growing reliance on Amazon and the U.S. market are shown in its IPO prospectus filed with the Hong Kong Stock Exchange, with the U.S. share of its revenue rising to 95% in the first half of this year from just 58.8% in 2019.

Zibuyu has grown the number of Amazon stores to 392. Since it opened the first one on the platform in 2014, Amazon has become the most significant source of revenue for Zibuyu, accounting for more than 80% of its total in 2021.

Amazon has both pros and cons for Zibuyu.

Amazon is one of the largest seller platforms in the world, with 6.3 million total sellers and 1.5 million active sellers in 2021, according to Marketplace Pulse, an e-commerce research firm.

Amazon's global reach and surging popularity have helped Zibuyu to grow revenue by 64 %, from 1.43 billion yuan in 2019 to 2.35 billion yuan in 2021. The profit has also grown at a steady rate over the same period.

But while its revenue and net profit were rising, the cash from operating activities was deteriorating. Zibuyu's cash from operating activities turned from a net inflow of 81.96 million yuan in 2019 to a net outflow of 207 million yuan in 2021. This big reversal was mainly due to a 30 million yuan squander last year to build up its inventory three times more than a year earlier.

This increasing inventory has hurt Zibuyu's profitability as the company had to take longer to sell obsolete goods. According to its IPO prospectus filed with the Hong Kong Stock Exchange, Zibuyu's profit dipped 46.3% to just 61.3 million yuan in the first half of 2022. Revenue growth slowed to just 16% year-on-year to 1.28 billion yuan.

Zibuyu's profit is also being undermined by higher marketing and advertising expenses due to rising advertising charges on Amazon.

In addition, weakening U.S. consumer power due to high inflation and Amazon's flexible return policy resulted in a significant increase in the return of goods for Zibuyu's Amazon business. By June, the company's return rate jumped to 25.5%, up nearly six percentage points from 19.8% at the end of 2021.

Since Amazon.com Inc. began cracking down on paid reviews and other violations that removed tens of thousands of Chinese merchants from its platform last April, Chinese sellers have searched for alternative ways to reach millions of American consumers.

Alibaba's AliExpress, Wish, Shopee, and Walmart's marketplace are some alternatives for Chinese sellers exiting from Amazon. Other options, such as investing in their own Shopify-based web stores also encourage Chinese merchants to sell made-in-goods overseas

Like many others, the challenges have prompted Zibuyu to diversify sales channels beyond Amazon as it has been actively seeking IPO to fund its self-hosted website to reduce its dependence on Amazon.

However, it is tough for sellers with no brand identity, supply chain competitive advantages, or marketing budgets to diversify sales channels.

According to Marketplace Pulse, the number of new Chinese sellers added to the Amazon platform recorded double-digit growth in 2021 despite Amazon's crackdown on Chinese sellers due to paid reviews and other violations.