Zibuyu zooms in

The apparel firm’s website

The question of when SheIn is going to list on the stock market has been floating around for some time. Early this year, the ultra-fast fashion firm was said to be valued at $100 billion in a fundraising round. There were rumours too that its founder Chris Xu was considering Singapore citizenship to bypass the tougher rules for offshore IPOs in China.

While SheIn waits for a more favourable moment to go public, its smaller rival Zibuyu has completed an IPO of its own in Hong Kong. It did so on November 11 – also known as Singles’ Day in China ­– raising almost HK$200 million ($26 million) in the initial public offering.

It was Zibuyu’s third attempt at selling shares in Hong Kong after the first two efforts in June last year and March this year went nowhere. Even after pricing the offer at HK$7.86 – the bottom end of the range – its shares had dropped to HK$6.75 as of this Wednesday.

Zibuyu got its start in a dorm room. Founder Hua Bingru opened a virtual storefront on Taobao when he was a second-year student in Chaohu University in Anhui province, selling women’s apparel and footwear. By the time he graduated, the entrepreneur was one of the three largest sellers in the apparel category on Taobao, Alibaba’s consumer platform.

In 2011 Hua moved to Hangzhou. Together with his wife Yu Feng, he expanded the business by starting up a virtual store on Tmall, Alibaba’s higher-end sales channel. Calling it Youchu, the couple hired their own designers and built out a factory line.

The company changed strategy again when it needed to find ways of selling off unsold stock. Hua turned to AliExpress, another of Alibaba’s consumer platforms, which targets overseas shoppers. To his surprise, his remaining inventory quickly sold out. The strong sales prompted him to pivot into cross border e-commerce, targeting platforms like Amazon, eBay and Wish.

According to its prospectus, Zibuyu’s revenues grew from Rmb1.4 billion in 2019 to Rmb2.4 billion (around $360 million) last year, with net profit up from Rmb81 million to Rmb200 million during the same period. To put that in perspective, SheIn reported $16 billion in revenues in the first half of the year.

In the lead-up to its IPO, Zibuyu’s profits fell, however, dropping 46% year-on-year in the first six months of 2022 to Rmb61.3 million. The company blamed rising interest rates in the US for crimping consumer confidence.

Shoppers have not only cut back on their spending, but have also increased their rates of return of goods. According to the prospectus, the return rate at Zibuyu’s stores on Amazon, the main sales driver for the company, has risen significantly to 25.5%, which was up nearly six percentage points from the end of last year.

Insiders blame choosier consumers, who are more likely to return an item as unwanted when they aren’t feeling as well-off.

But in other words, one in every four products was being sent back to Zibuyu with a refund request.

“The increase in return rate has pushed up Zibuyu’s return cost and inventory level, and the backlog also weighs heavily on cashflows. As clothing continues to stack up in the warehouse, so does the pressure on Zibuyu’s long-term prospects,” TMT Post warned. “In short, in the first half of the year, Zibuyu grew the topline but not the bottom line.”

Other risks to Zibuyu include its reliance on Amazon as a sales platform, where it derives as much as 90% of its total revenue. Last September, Amazon cracked down on cross-border traders over allegedly fake product reviews and the e-commerce giant has been raising its advertising fees, which contributed to an increase in Zibuyu’s marketing expenses in the first half of the year.

Zibuyu has been trying to broaden its distribution beyond Amazon, but without significant success. In 2018 it launched its own self-operated website Jolimall, which specialises in footwear, but it hasn’t been a great success. Four years on, it contributes just 6% of Zibuyu’s sales.

Meanwhile, competition has continued to intensify. In addition to rivals like SheIn and DHgate, e-commerce giant Pinduoduo launched a similar cross border e-commerce platform called Temu last month.

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