Can the only product chestnuts?

China's brand discount website, the only product, has recently submitted an IPO supplement to the US Securities and Exchange Commission, which will issue 11.2 million shares of U.S. depository shares at a price of USD 8.5 to USD 10.5 to raise up to 120 million U.S. dollars. According to the price range, the market value of goods will be about 463 million dollars. In the Aihongbianye stock, the only product will be as a power provider, ready to break the Chinese company to the U.S. listing deadlock, is undoubtedly very eye-catching.

Can the only product chestnuts? A positive factor is that the big atmosphere in the US stock market is more favorable, and there are some signs of a jump. But an enterprise to be in the capital market high man, ultimately to see the competitiveness of enterprises. Let's take a look at the business model of the sole product Council first.

Only products will be through direct cooperation manufacturers, staggered season procurement, far below the retail discount low price (generally lower than the market price 50%-70%), through the "flash sales" mode of sale ("Fast sales", similar to the form of group purchase), the rapid sale of goods. Most of the goods sold for outdated products and styles, two or three-line brand after the majority of packaging brands. Concrete, starting 10 o'clock in the morning every day to push the discount merchandise, 15 brands a day, the next day the 15 brands fell on the 第16-30 booth, the third day to become 第31-45 booth, and so on, every day nearly 100 brands of rolling display. At the same time, the purchase of low-cost goods with purchase restrictions, a limit of 2 items per person, one shopping cart limited to 20 pieces of merchandise, each brand product purchase has a time limit, most of the 3-5 days.

The business model is characterized by: tail goods, low prices, limited-time snapping, two or three-line brands, a large number of brands, a single brand volume less.

Inventories are the enemy of the apparel industry, and Mattel and Van Gogh have recently been plagued by surging inventories. If only the goods will be able to successfully help eliminate the apparel industry inventory, there will be a huge increase in space.

But how far is reality from the ideal? Let us analyze the operation and financial situation of the enterprise according to the data disclosed by the products.

2009-2011, only the goods will revenue of 2.8048 million, 32.582 million, 227 million U.S. dollars, 2011 growth of 597%. In these three years, the company gross profit margin is 8.2%, 9.8%, 19.1% respectively. In the case of revenue rise 6 times times, gross margin can double, it is not easy.

Can the profit of the only goods will continue to rise? There are two ways to increase profits: lower costs and increase sales.

Cost decomposition

The cost of the electric dealer has two big parts: logistics and purchase. At present, only the logistics cost of goods will be maintained at about 20%, taking into account the initial storage fixed capital investment in the future there will be a certain decline in space, but this depends on external factors, that is, the development level of domestic logistics industry. And only goods will sell products mostly small goods, customer unit price is low, to achieve the same sales, the corresponding logistics needs and logistics costs will be higher. Therefore, the only product will be in the business model, to reduce logistics costs is not easy.

The scale advantage of the electric dealer and the large-scale purchase can let oneself have very strong bargaining ability in front of the supplier, but this is not easy for the only product. Because only the goods will be sold for the enterprise remnants of the tail goods, the original size is small, and only products will do is a large number of brands, each brand is limited goods. Although for the enterprise, the tail goods are not sold things, as long as you can earn a little money back, enterprises are willing to a very low price of the tail goods to the only product will be. But the product will now rely on a large number of small brands to maintain, and does not have a large volume of shipments of the brand. And in order to find such a small supplier, and constantly small bulk purchase, it is inevitable to spend a lot of operating costs.

Sales breakdown

Another way to raise profits is to increase sales. Only goods will be 2011 sales of 227 million U.S. dollars, supporting this sales is about 1900 of the cooperation brand, each brand in the only product sales days for 3-5 days. It is easy to calculate that the average price of each brand through the only product will be sold around 120,000 U.S. dollars, or 750,000 yuan sales. Is this a level? At home, a clothing entity store sales are generally seven hundred thousand or eight hundred thousand yuan annual sales, a good point can reach more than 1 million yuan. Therefore, for a brand, from the point of view of sales, only the goods will bring sales basically equivalent to an ordinary clothing entity store a year to bring sales. And if the purchase price is calculated, the amount paid by the supplier is even less.

From a sales point of view, the only product will be the business model is actually "for a large number of small businesses to clear inventory." In this mode, how to improve sales? Only product sales can be broken down into: Number of Merchants x each brand daily sales x each brand sales days. First, the number of days per brand is determined by the business model of the only product, which cannot be enlarged. If the increase, not only with the goods will be their own business model breaches, and flash purchase need to store the sharp increase in the goods, will give only goods will bring unprecedented inventory pressure.

Second, there is little room for future growth of sales per brand, unless there are three scenarios:

(a) The enterprise is to produce and sell tail goods to survive, obviously this is unreasonable.

(b) Increase the unit price. Only products will be more than 1900 popular brands, most of the midrange consumer goods, the average customer price of about 200 yuan/bit. At present, Taobao customer price of about 100-150 yuan/bit. In other words, only the goods will be more high-end than Taobao, it is difficult to increase the unit price.

(three) Large brands are settled in, the huge shipments. But this inevitably hurts the value of the brand. Only the product will CEO Shenya once this explanation: "If only the product will be on the impact of the brand's products under the line channel How to do?" In fact, this is the unique feature of the limited-time snapping: up to 6 activities a year, only lasts 5 days at a time, and are over season products. Not only does this not conflict with the brand's offline channels, nor does it conflict with their flagship store on Taobao, which is simply walking on two legs. "It would be nice to do that without hitting the brand, but it also limits sales." In other words, the only product will be the current model can not attract visitors, the United States and other businesses.

In this way, the only product will increase the main channel of sales, will be to expand the number of cooperative brands. As we mentioned earlier, expanding the number of cooperative brands requires a lot of management and operating costs. In addition, we might as well make an exaggerated assumption, assuming that the only product will be the cooperation of the brand can reach the industry giants of the order of magnitude, to the million count, estimate the only product will be able to do how much sales. Under 10,000 cooperative brands, assuming that each brand's daily sales and brand sales days are unchanged, the sales will reach 1.2 billion U.S. dollars.

Since its inception, only the goods will increase the annual sales of 10 times times and 5 times times respectively. In other words, if only the goods will be able to maintain a 2011-year high growth, then 2012 sales will reach the existing mode of growth limit! So the current rapid growth is not sustainable for a long time.

Financing Thirst

Their own hematopoietic mechanism has not kept up, investors do not want to continue to invest, it is bound to affect the operation of enterprises. As of December 31, 2011, the cash balance of the goods will be about 45 million dollars. However, its suppliers to deal with the procurement of 88 million U.S. dollars, in addition to nearly 30 million U.S. dollars in procurement commitments. And at present only the goods will fund is not enough to pay so many suppliers to purchase money.

Accounts payable It is interesting to say that only the accounts payable in 2009 and 2010 were basically the money owed to vie, that is, two companies are identical shareholders, so such arrears are not actually owed. By the year 2011, the situation had changed dramatically. A large amount of debt has shifted from 100% per cent of its liabilities to supplier liabilities (mainly for the goods owed to suppliers, accounting for nearly 60% of total liabilities). On the surface, the debt rate of only three years is decreasing, 156.57%, 159.02% and 89.08% respectively. However, after deducting the funds exchanged with VIE, the actual liability rate of only three years should be 0%,0.16%,76.53%.

Such an increased level of accounts payable has led to a sharp rise in the number of accounts payable turnover days to 96 days. This means that the only product will start to extend the payment of the payment of supplier payments. This way has been the United States such as Gome and other big-level retailers skilled use, but for the only product will be such a rookie, is undoubtedly thirst.

If we calculate the cash cycle of the only products (that is, inventory turnover days plus accounts receivable turnover days, minus the turnaround days of accounts payable to measure the average amount of time an enterprise has to pay cash to receive cash in its operations, we can see that the cash cycle is showing a shorter and smaller appearance. However, if we peel off the only goods and VIE funds in the accounts payable, the company's cash cycle is getting slower.

More bluntly, the cash flow is becoming more and more tense, the trend of financing gap becomes more and more obvious.

In order to meet the financing gap, only in 2011 to China Merchants Bank (600036, shares bar) six loans 80 million yuan, are semi-annual and one-year period. In fact, fast-growing companies do not favour debt financing because stiff external repayments squeeze high output capital. Amazon, for example, founded in 1994, listed in 1997, after the listing began to have debt financing, before the external financing has been the form of equity. There are two possible uses of bank loans: growth into the platform period, or VCs unwilling to invest more. Either way, it's not good news for institutional investors who are going to buy the only stock on the market.

The author is an associate professor of finance and an undergraduate majoring in finance of Tsinghua University