Zibuyu passed the hearing of the Hong Kong Stock Exchange, how can cross-border clothing e-commerce break through?

In 2022, the trend of cross-border e-commerce will continue to blow.

In September this year, Pinduoduo launched the cross-border e-commerce platform “Temu” once again. Temu’s main target customers are overseas female users, and its products are mainly concentrated in clothing, shoes, luggage and other categories, with low prices. Similar target customer groups, product categories, and ultra-high cost-effective strategies, the market generally believes that Pinduoduo cross-border e-commerce platform is the target of Shein.

As more and more giants enter the market, the competition in the cross-border e-commerce field tends to intensify, setting off waves of IPOs. Recently, the cross-border e-commerce company Zibuyu sprinted to be listed on the Hong Kong Stock Exchange. Like Shein and Pinduoduo Temu, Zibuyu also sells clothing and shoes.

So, for the segmented track of cross-border clothing e-commerce, where giants are competing for layout, where are the future development opportunities? According to the disclosure of the Hong Kong Stock Exchange on October 26, Zibuyu has passed the listing hearing. What are the chances of Zibuyu passing the listing hearing? 

Solid sales growth, outperforming Amazon’s apparel market

Zibuyu is one of the largest cross-border e-commerce companies in China, mainly selling apparel and shoes through third-party e-commerce platforms.

Fulfill product sales. Among them, clothing sales are Zibuyu’s largest source of income, accounting for 79.6% of revenue in 2022H1, and 20.2% of footwear revenue.

According to Frost & Sullivan, in terms of GMV in 2021, Zibuyu ranks third among all platform sellers in China’s cross-border B2C e-commerce apparel and footwear market, occupying a market share of 596.5 billion yuan 0.4% market share. In terms of GMV generated in North America in 2021, Zibuyu ranks first among all platform sellers in China’s cross-border B2C e-commerce apparel and footwear market.

The ability to independently design and create popular models is a major advantage of Zibuyu. From a business model perspective, Zibuyu designs apparel and footwear independently, purchases products based on its designs from OEM suppliers, and then sells these products. As of the track record period, Zibuyu has cultivated a number of brands, 87 of which are popular brands, each with an annual sales of more than 10 million yuan.

Figure: Zibuyu business model; Source: Prospectus 

Zibuyu is targeting mid-to-high-end consumer groups through the sales of Amazon and independent websites, which is in line with the tonality of the Amazon platform. Therefore, Zibuyu gradually shifts the focus of third-party e-commerce sales platforms to Amazon. 2022H1 comes from third parties E-commerce platform revenue accounted for 94%, of which Amazon accounted for 90.6%.

In terms of sales market, the United States, Germany, France, the United Kingdom, Italy and Spain have always been the main markets for China’s cross-border B2C e-commerce apparel and footwear exports (measured by retail sales value), of which the United States brings the highest retail sales value, through The sales value of apparel products sold to the United States through e-commerce channels has increased from $57.6 billion in 2017 to $87.7 billion in 2021. North America is Zibuyu’s largest sales market.

In terms of performance, benefiting from the rapid expansion of the cross-border e-commerce industry under favorable policies, Zibuyu’s revenue continued to grow. According to Frost & Sullivan, in terms of GMV in 2021, the overall market size of China’s cross-border export B2C e-commerce market is approximately RMB 2,738.4 billion. In 2019-2022H1, Zibuyu recorded revenue of 1.429 billion yuan, 1.898 billion yuan, 2.347 billion yuan, and 1.278 billion yuan respectively.

It is worth noting that in the first half of this year, despite the high inflation and rising interest rates in the United States, which led to conservative overall consumption, Zibuyu still maintained sales growth. As of the first half of 2022, its revenue from Amazon has grown by more than 80% year-on-year, outperforming the year-on-year growth rate of the Amazon apparel sector, showing strong sales resilience.

How to break through the cross-border clothing e-commerce?

Apparel and footwear categories are key tracks in the cross-border e-commerce industry. According to Frost & Sullivan, in terms of GMV, the market share of apparel and footwear in the cross-border B2C e-commerce market has increased from 17.4% in 2017 to 27.4% in 2021. It is the largest component of the B2C e-commerce market for overseas exports, and is expected to further grow to 33.2% in 2026, with broad room for growth.

At present, Europe and the United States are the main markets for cross-border apparel and footwear e-commerce. Such a highly prosperous track has attracted many players to enter the game, the industry concentration is low, and the competitive landscape is highly fragmented. In terms of GMV generated through third-party e-commerce platforms in 2021, the overall market share of the top five players in China’s cross-border export B2C e-commerce apparel and footwear market is only about 1.8%.

In the face of fierce competition, how should cross-border clothing e-commerce companies break through?

From the perspective of the industry structure, cross-border clothing e-commerce can be divided into platform sellers and independent station sellers according to the business model. Platform sellers mainly sell products through third-party e-commerce platforms such as Amazon, eBay, AliExpress, Wish, etc. Independent website sellers refer to companies that sell products to overseas customers through their own websites, such as Shein.

Comparing the two, platform sellers rely on third-party e-commerce platforms represented by Amazon to sell their goods. The advantages are large traffic scale and complete supporting services, which are especially friendly to small and medium-sized sellers in the initial stage, but the disadvantage is that they pay commissions to the platform. And advertising expenses lead to a compression of profit margins. The advantage of independent website sellers is that they have high autonomy and enjoy brand premium space, but it is difficult to obtain traffic and the expansion speed is slow.

According to the above characteristics, for platform sellers, since the traffic comes from the distribution of third-party platforms, the business focus should be on increasing sales through brand power and product power, and increasing marketing investment, so as to obtain higher platform priority. level to increase exposure. 

What are the competitive advantages of Zibuyu?

The cross-border apparel e-commerce market has expanded rapidly in recent years and is expected to maintain a growth trend in the next few years. According to Frost & Sullivan, the market size of China’s cross-border export B2C e-commerce apparel industry has increased from 122 billion yuan in 2017 to 607.9 billion yuan in 2021, and is expected to reach 1,486.3 billion yuan by 2026. The CAGR to 2026 is 19.6%.

It is not easy to occupy a place in this trillion-scale market. Where is Zibuyu’s core competitive advantage?

First, compared with other competitive products that focus on cost-effectiveness, Zibuyu’s target customer group is positioned as mid-to-high-end customers with strong spending power, forming a differentiated competition with the former. In the first half of 2022, the average selling price of Zibuyu apparel products was 159 yuan, and the average selling price of footwear products was 284 yuan.

On the basis of differentiated competition, Zibuyu’s pricing power has also continued to rise. The overall average selling price of its products has risen from 92 yuan in 2020 to 144 yuan in 2021 and 175 yuan in the first half of 2022.

From 2019 to 2022H1, Zibuyu’s gross profit margins were 69.8%, 72.6%, 75.2%, and 75.9%, showing an upward trend year by year. In addition, with the decline in logistics costs, it is expected to bring more room for improvement in the gross profit margin of Zibuyu.

Second, placing the strategic focus on third-party e-commerce platforms and focusing on Amazon also laid the foundation for the rapid development of Zibuyu.

First of all, from the perspective of customer groups, the Amazon platform is dominated by mid-to-high-end customers with strong spending power, which is in line with the brand positioning of Zibuyu.

At the same time, Amazon’s dominant position in the US shoe and apparel e-commerce market is conducive to Zibuyu’s business expansion in the United States, its largest sales market. According to Frost & Sullivan, Amazon’s market share in the U.S. footwear and apparel e-commerce market is expected to increase from 48.7% in 2021 to 51.3% in 2026, while the other two major players in this market (Walmart and eBay) will only hold a combined market share of 23.0% in 2026.

Thirdly, Zibuyu plans to establish a large-scale independent self-operated website, which will be developed in coordination with third-party e-commerce platforms. 

Zibuyu started operating a self-operated website in 2018, and the self-operated website mainly focuses on the sales of footwear products. As mentioned above, the competitive focus of the independent station boutique strategy is brand power. In recent years, Zibuyu has accumulated more experience in cross-border sales of apparel products, as well as strong independent design capabilities and supply chain management capabilities, which will provide guarantees for its brand enhancement and lay a foundation for expanding its independent station business. 

In conclusion, the positioning of mid-to-high-end consumers has built a differentiated competitive advantage for Zibuyu. At the same time, in terms of sales channels, Zibuyu is deeply engaged in third-party e-commerce platforms, and plans to further establish a large-scale independent self-operated website strategy will help it. Faster and more stable development.