Orchid Pavilion Set Potential Investment Research report: The most understand the internet marketing of the electrical business users stickiness Difference

Orchid Pavilion founder Guo to disease, Stanford University MBA, successively in Microsoft, Google, Amazon office. 2007, when the Google China Chief strategic officer Guo to disease, and founded a blog China's literary heart, excellent former vice President Liu, when and excellent supplier Zhang Liang, in the field of E-commerce to reach a consensus, decided to start a multinational company, "LightInTheBox" so born.

At the end of 2008, Guo was officially chairman and CEO of the Orchid Pavilion set. Among the four founders, he is responsible for strategy, financing and so on, President Wencen is responsible for marketing, Liu is responsible for the operation, Zhang Liang is responsible for purchasing. Thanks to the background of the founding team, the company is particularly adept at marketing through the Internet, and is keen to pursue a higher return on investment.

In the early days of entrepreneurship, LightInTheBox won the angel investment of New Oriental co-founder Xiaoping and Google early American employee Zhou Zhe, and in 2008 the first round of investment in the United States (Ceyuan Ventures) was 5 million dollars; 2009 Ventures, a second round of investment in 11.27 million U.S. dollars from the joint venture and Jinsha Venture, was awarded the third round of $35 million in 2010 by the joint venture, the Jinsha Venture and the Trust Bridge.

Orchid Pavilion 98% of the revenue from overseas users, the main market in Europe and North America. May 24, 2010, Orchid Pavilion has acquired a consumer website for Chinese consumers of Europe cool mall, the total acquisition price of 2.167 million U.S. dollars, the acquisition is mainly to expand the company's brand to the Chinese market, and with the existing foreign trade business to form a synergistic effect. In addition to operating its own web site, the Orchid Pavilion is also in the Amazon, EBay, and Taobao, such as the high flow of E-commerce platform sales, 2012 from the external site revenue accounted for 8.6% of net income.

Nowadays, the Orchid Pavilion has developed into a well-known foreign trade Web site offering 220,000 choice of goods and serving global customers through 17 main languages. The company's number of users grew from 36,000 in 2008 to 2.48 million in 2012; net turnover rose from 6.3 million U.S. dollars in 2008 to 200 million dollars in 2012, and began to turn around in the fourth quarter of 2012 and will be traded on the NYSE on June 6, 2013.

I will interpret the pavilion's business model, financial data, industry, risk, corporate structure and equity structure, valuations, etc. to enhance investor understanding.

I. Business model

Foreign trade, as the name suggests is to be produced in China's domestic goods, sold to the hands of overseas individual users, but the Orchid Pavilion set in the supply chain management and marketing practices unique, the following will be analyzed from these two angles:

(a) Unique supply chain management model

Orchid Pavilion Set Potential 2010 gross profit margin of 22.12%, 2012 up to 41.77%, the following figure, margin is far higher than the overall level of the electricity quotient, 2012 Amazon gross profit margin of 24.8%, only goods will be 22.3%, Dangdang for 13.9%. Behind the Gaumauli is a short supply chain and cheap production cost advantages.

Orchid Pavilion Set trend of the beginning of the line, the main foreign trade category is electronic products, gradually open the foreign trade market, the Orchid Pavilion will begin to reach a higher margin of the category, such as clothing, electronic products accessories, home gardening and so on. At present, electronic accessories have risen to the first large orchid pavilion category, accounted for 39.1%, clothing category accounted for 30.7%.

Orchid Pavilion Set the potential to use a variety of Chinese-made "cottage" electronic products and cheap wedding dresses, opened a corner of the overseas E-commerce market, in 2012, the number of users has more than 2.47 million, a total contribution to the revenue of 200 million U.S. dollars, on average, each user in the LAN pavilion consumption of 81 dollars. Low prices drive overseas users in the Orchid Pavilion set the main factors, take the wedding dress, according to the Wedding Report, Inc survey, 2011, the United States region, the average price of each wedding in 1166 U.S. dollars, while the Orchid Pavilion set the average price of wedding dress is only 209 U.S. dollars.

The core of the pavilion is that it can achieve such a high level of margin at such a low price level, with its considerable cost advantages and a significant reduction in the supply chain. We should be familiar with the pricing of domestic mobile phones or brand-free clothing, a 100-yuan "Chinese-made" even if the price of the unit directly into dollars, for some of the overseas "cock Wire" group, prices are still very attractive, this is the power of Chinese manufacturing, you can even say it is "profiteering", of course, This is also the advantage of most Chinese foreign trade enterprises. More unique is that the Orchid Pavilion set potential greatly shortened the supply chain of foreign trade, up, LAN Ting bypassed the layer of intermediate trade links, the current 70% of goods directly from the factory purchase, to save the purchase cost of the purpose; Orchid Pavilion directly to these low-cost Chinese products to overseas market pricing standards directly to the C-end customers, access to the advantages of high margin.

Orchid Pavilion is currently in the country has a total of 6 procurement offices, as a result of category expansion needs, as well as Orchid Pavilion's foreign trade channels are more and more wide, orchid Pavilion constantly in the country to find more suppliers partners, the current number of suppliers from 2010 to 600, increased to 2012 2000. As the goods are mainly sold to overseas markets, orchid Pavilion on the supplier's production capacity also has a relatively high demand, for example, to be able to meet a certain amount of procurement, the overseas market needs to be sensitive, even to know how to design and production of many "shanzhai" at the same time, to avoid stepping on the red line of overseas intellectual property rights ... In addition to these brand-name products, some local brands, including Newman, Patriots, founder Technology, Yadu, Shenzhou computer, etc. also joined the lightinthebox.com sales platform, becoming the company's suppliers. can refer to the Orchid Pavilion set potential official website investment standards. In addition, the Orchid Pavilion also set up a design team, to build its own brand, rich product diversity, clothing own brand including three Seasons/ts brand.

In addition to the high margin, the Orchid Pavilion set potential inventory turnover speed is also quite alarming, 21.7 of the inventory turnover rate is also higher than the average e-commerce level, Amazon's inventory turnover of about 9.3, only the goods will inventory turnover of about 5. Orchid Pavilion Set potential inventory turnover speed can do than the General Electric business also faster, behind the special supply chain management model decided.

1 customization of personalized products, but highly efficient

Orchid Pavilion Set potential of custom-made products are mainly wedding dress category, customers can be based on their own stature and like the color of personalized customization. The Huqiu of Suzhou is the main source of the wedding dress, it is said to occupy the national wedding production 70% of the market share, but here are scattered small workshop production mode, production and management level is not high, to meet foreign trade standards, first of all to find ways to standardize their product quality and improve production efficiency, LAN Pavilion set up a dedicated in-house team of experts, directly into the production line, is responsible for guiding suppliers to improve production efficiency and improve product quality, so that they can in the shortest possible time, to achieve personalized products and standard product mass production standards. In order to ensure sustainable production and supply capacity, orchid Pavilion is usually signed with suppliers for a one-year supply agreement, including product types, unit price, quantity, delivery time and so on.

For custom goods of clothing, orchid Pavilion set potential usually after receiving orders, daily update orders to suppliers, suppliers on demand, due to the team has reached a process of production and coordination capacity, suppliers are usually able to receive orders within 10-14 days of the time to complete production and delivery of goods to the Orchid pavilion set potential warehouse For standard products, suppliers are usually able to deliver the goods to the Orchid Pavilion warehouse within 48 hours.

Orchid Pavilion has set up a more efficient supply chain management mechanism, not only to ensure timely processing of orders, at the same time, customized production processes, can help suppliers to reduce waste, the corresponding also enhanced the supplier and orchid Pavilion set potential cooperation. This procurement system can make the orchid Pavilion set potential to maintain a low inventory level, at the same time, due to the daily timely update to the supplier order information, but also allows the Orchid pavilion to maintain a high order performance rate.

2 standard goods in advance, but no inventory risk

The relationship between Orchid Pavilion and supplier has undergone a unique change in the fourth quarter of 2011, since then, the Orchid Pavilion began to require some suppliers to stock up in advance, stocking needs to be stored to the pavilion's own warehouse, and this part of the stocking does not count into the inventory of the Orchid Pavilion, only when the user orders, this part of the assets of the ownership only transferred to the Orchid Pavilion set potential , accounting for the revenue and cost of the collection of Orchid Pavilion. Obviously, through the supplier "advance stock", orchid Pavilion set potential to improve the efficiency of order processing, while effectively avoiding inventory risk. Not only that, the Orchid Pavilion can also be based on the popularity of goods, require suppliers to increase the stock of specific goods, or at any time to require suppliers to sell poor merchandise inventory, and in 90 days to take the remaining inventory of goods, the whole process of stocking, Orchid Pavilion is only responsible for the provision of warehouse space and to pay the supplier to the remaining inventory of logistics expenses.

The prospectus revealed that in the 2011 and December 31, 2012, the "stock in advance" value of the pavilion was 1.5 million and USD 3.9 million respectively, while the total value of the Orchid Pavilion was 4.96 million and 5.75 million respectively, and the proportion of "stocking in advance" increased significantly. At the same time, as the proportion of "stock in advance" rises, the proportion of the purchase amount paid by the Orchid Pavilion to the suppliers is gradually decreasing, 2010, 2011, 2012 are 71.4%, 68.1%, 65.1% respectively, the proportion of the purchase amount to the first large supplier decreases more obviously than that of the sales cost, The ratio of the same period was 6.3%, 5.6% and 3% respectively.

To sum up, the Orchid Pavilion set potential in the supply chain management mode, with other electrical business site has a great difference, on the one hand can be directly from the manufacturer to shorten the supply chain, to achieve a higher level of gross profit; On the other hand, for custom-made products and products, orchid Pavilion and suppliers have established a unique mode of cooperation, in order to ensure the production efficiency of the Foundation, Can effectively reduce inventory risk, and achieve a very high inventory turnover.

Supply chain management model of the unique, so that the Web site in the vast foreign trade market opened a special business channel; the next question is, how to make this channel bigger and wider, orchid Pavilion set potential unique marketing means plays a key role.

(b) Companies that know best about internet marketing

The company is through what means to bring traffic to the site, the goods to overseas consumers, as well as the power of the pursuit of high repeat purchase rate, as a foreign trade of the Orchid Pavilion is able to achieve?

First look at a group of data, 2010, 2011, 2012 Orchid Pavilion Set potential sales and market costs (or marketing costs) are 22.6 million, 38.46 million, 53.41 million U.S. dollars, the proportion of net revenue in the same period accounted for 38.5%, 33.1% and 26.7% respectively. Compared to do the local electric business-oriented web site, amazon 2012 marketing costs accounted for 3.9%, only the goods will be 4.7%, Orchid Pavilion set potential marketing costs a little scary, so, the Orchid Pavilion's gross profit margin again how high, overall look also "not high"! This is the Orchid Pavilion in recent years the explosion of revenue scale growth, gross profit margin, but failed to achieve profit reasons. In 2012, the net loss to the shareholders of the Orchid Pavilion was 4.2 million US dollars, the fourth quarter of the quarterly profit, net earnings of 1.11 million U.S. dollars.

The logic of e-commerce is to achieve large-scale operation by adding users and heavy purchase, thus reducing the variable cost on the basis of scale, producing the continuous cash flow, supporting and investing, forming the ecological circle. Amazon, for example, accounts for only 3.9% of the cost of marketing, because Amazon has gained a large number of loyal users through a constantly improving user experience. Amazon in 1999 has achieved 73% of the repeat purchase rate, at present, the domestic electric power website only product will also achieve more than 70% repeat purchase rate. As consumers have formed a good reputation, with a relatively strong user stickiness, they do not need to obtain new traffic or order volume, matching the same proportion of marketing expenditure.

With these local electric companies as the core of the company compared to the Orchid Pavilion set potential in the marketing is really more alternative, on the one hand, money to do marketing "no stingy", on the other hand, the user stickiness "no improvement." Orchid Pavilion Set potential marketing costs where exactly?

Orchid Pavilion Collection potential mainly through search engines, display ads, Alliance advertising, mail marketing, and social marketing methods to promote. It can be said that the Orchid Pavilion in recent years, the explosive growth, mainly thanks to the team to excel in Internet marketing. Interestingly, Lan Ting's marketing practices and the domestic another "heavy marketing" of the electric business site where customers are very different, where the customer is more in the brand marketing, enhance the channel itself brand awareness and influence, and Orchid Pavilion is keen to pull sales can play a direct role in marketing tools, such as search marketing, can directly bring traffic and orders, On the contrary, the establishment of channel brand is not enthusiastic. Specifically:

Search----CPC pay

In the United States, for example, the overall situation of the electricity market, from the search engine traffic as high as 40%, and about half from the SEO, that is, natural search, the other half is paid marketing to bring traffic. Similarly, search engines are the first big flow entrance of the orchid Pavilion, according to Hitwise data, in March 2013, in North America, more than 45% of the traffic came from Google, followed by social networking site Facebook about 3% of its traffic, including ebay, Yahoo! Search, Bing, ask, Yahoo! Mail, Amazon and other sites to bring about 2% of the traffic.

For the launch of search engines, LAN Pavilion pay according to the CPC, that is, according to the cost per click, when users use a specific keyword search, in the search results click on the Orchid Pavilion set of ads, or when the user clicks on the Web page when the search engine matching contextual ads, Lan Ting will follow each click, Pay a fixed fee to a search engine or affiliate website. According to the prospectus, at present, the Orchid Pavilion in Google and other search engines in 17 languages, at least millions of of the keywords.

Affiliate distribution----Pay by sales

Orchid Pavilion Set potential set up the Alliance marketing program, and to provide partners to attract user access to the content and tools, when users through the Orchid Pavilion's Alliance website to visit and purchase the Orchid Pavilion set potential merchandise, the Orchid Pavilion collection potential in accordance with a certain proportion of pay sales commission to the Alliance website. Reference £ LightInTheBox Affiliate Program Introduction