Haidilao, an Internet Company Serving Hotpot

With profound user operation, complete supply chain, long dwell time, and rapid expansion strategies, China's largest hotpot chain Haidilao is essentially an internet company.

Xiaomi's founder Lei Jun once said that Haidilao was basically the same as tech giants like Xiaomi, Toutiao and Tencent. 

Founded in 1994, Haidilao is now a world-famous catering enterprise. Its founder, Mr Zhang Yong, is the fourth-richest person in Singapore in 2021, with a net worth of US$16 billion. In China's restaurant sector, Haidilao has always been imitated but never surpassed. Even Xiaomi's Lei Jun once said that he learnt from Haidilao at the beginning of Xiaomi. By a deep dive into its operation model, we found that Haidilao is an internet company rather than a restaurant chain.

User Operation 

·       Customer-centred Services

Haidilao is best known for its services beyond a typical Chinese diner's expectations. Their excellent and sometimes overzealous services have made headlines and trending topics across China's social media. On Zhihu, the Chinese version of Quora, under the question "What are some unforgettable services you experienced at Haidilao?" there are more than 5,000 answers. Haidilao customers shared their heart-warming memories with Haidilao, from babysitting to receiving free teddy bears when dining alone in case they are lonely.

As early as 2010, Haidilao has put information technology into its enterprise management, simplifying the internal process and bringing more convenient and personalised service. Customers can order food on Haidilao iPads or their phones through WeChat, Alipay, Haidilao website and App. The ordering system saves the customer's information, records the customer's preference, and analyses the customer's consumption ability. Waiters also put in remarks in the system if they receive any special requirements. When customers walk into Haidilao again, they will receive more personalised services and promotions. Haidilao's smart soup base machine and DIY soup base system allow customers to customise the soup. "Single customer" menu set designed for solo dinners supports cancelling and returning any untouched plates, lowering sales but increased potential return customers.

Haidilao has more than 71 million registered members and has served over 250 million customers as of 2020. Even under the impact of Covid-19, the table turnover rate at Haidilao is way above average, 2.25.

They have been working with food delivery giant Eleme during the pandemic. Their "little hotpot" delivery service allows customers within three kilometres to receive the meal in less than an hour. In 2020, Haidilao's takeout revenue reached RMB718 million (US$112.2 million), up 160% year on year. For customers who live too far from any Haidilao restaurants, Haidilao provides more than 20 kinds of ready-to-cook hotpot on e-commerce platforms and self-collect locations.

·       Online Operation

Haidilao launched its website in 2003 when none of its competitors is scaling up using the power of the internet. Its marketing strategies focus on social media and search engines. More than 254,000 Weibo users have posted under hashtag #haidilao, and it gained over 520 million views as of August 2021. In 2015, Haidilao opened an "internet experience store" at a location gathered with countless internet and tech companies in Beijing, providing an open social platform combining traditional catering with mobile internet. They introduced activities such as "programmer's day" and provide a forum or event venue for We Media and O2O companies, moving the online social activities to the dining place. Thanks to its online marketing strategies, every move of Haidilao can become a hot topic. There are good and bad public opinions, but what remains unchanged is netizens' attention.

Powerful Supply Chain Ecosystem

Haidilao is considered one of the most outstanding Chinese enterprises in catering supply chain orchestration. Backed with Zhang's "don't put all your eggs in one basket" strategy, Haidilao refuses to keep the entire supply chain in the back. It acts as a platform, with each sector in the supply chain operating independently. Besides being a part of Haidilao's kingdom, these companies serve and empower the whole F&B industry. Some of them are even listed.

Long User Dwell Time

Internet companies try to keep users on their products as long as possible, which Haidilao has done. Most Haidilao restaurants are open from 10 am to 10 pm. Some are 24/7 and offer 12%-25% off during night times.

·       Offline

A typical meal at Haidilao starts with a two-to-three-hour queue. To calm the anxious and hungry customers, Haidilao put a lot of thought into the waiting areas. Free and unlimited snacks and drinks are standard. Board games are a must. Free manicures make a trip to Haidilao complete. The longer people wait, the hungrier they are and the more they will order later.

·       Online 

Besides the basic functions such as queuing and ordering, Haidilao App offers a community that allows users to share videos, shop online and play games to collect "Lao Coins", which they can spend in the marketplace. The total number of downloads of the Haidilao App on Android phones is about 32.5 million, and the average daily downloads on iPhones in the past month (July 2021) is 8102.

Rapid Expansion

Rapid expansion helps a brand to occupy a distinctive place in the mind of the target market. In Haidilao's case, a large scale has another perk: it helps keep the rent down. It brings more customers to the malls, so Haidilao can always get much lower rent than its competitors. In 2020, Haidilao spent RMB236 million (US$36.9 million) on rent, accounting for 0.6% of its income. The numbers of Xiabuxiabu, the second player in the market, are RMB220 million (US$34.4 million) and 4.0%. Hotpot can be a standardised dish and does not require many skilled chefs, making it possible for rapid expansion and scaling up.

According to Guosheng securities, the distribution of the Chinese restaurant industry is relatively fragmented. As of 2019, only 10.3% of China's restaurants are chains, and the number is 54.3% in the US and 49.7% in Japan. A report by Frost & Sullivan shows that the size of China's hotpot restaurant market is expected to reach RMB707.7 billion (US$110.6 billion) by 2022. According to ASKCI Consulting, China's hotpot restaurant market's top five concentration ratio (CR5), the percentage of the total market share of the top five companies, was 5.5% in 2020. Even a giant like Haidilao takes less than 3%. In addition, the accelerating urbanisation process in the country provides more opportunities for Haidilao with its "central kitchen + chain restaurants" fast food model and advantages in supply chain management. In 2019, Haidilao's leaders claimed that the country has enough room for 3,000 Haidilao restaurants nationwide.

To achieve rapid expansion, a restaurant chain that adopts an all-direct-sale model needs at least four key factors: a complete restaurant supply chain system, a standardised management system, a talent training system, and substantial capital. With all those in place, Haidilao was able to scale up fastly. According to Haidilao's 2020 financial report, the total number of restaurants was 1,298 by the end of 2020, an increase of 178.5%. There were 544 new locations opened in 2020, almost 1.5 new ones each day.

Despite the rising costs and declining profits due to the pandemic and a drop in Haidilao's share price, securities agencies still recommend buying. It indicates the market's recognition for Haidilao and its expected bullish long-term development.

Summary

Although the founder, Mr Zhang Yong, claims not to understand the so-called "Internet thinking", Haidilao has always been the first to leverage new business models and technologies and keeping up with the trend. Haidilao's nature as an internet company is essential for its unprecedented success.

付费内推实习，是骗局而不是捷径

激烈的竞争和对名企的追求让付费内推实习成为大学生眼中的捷径，即使知道有可能被骗。

一到毕业季和假期，“付费内推实习”的广告便四处可见。这两年在疫情影响下人们逐渐习惯居家办公，“付费内推实习”还与时俱进出远程模式。在国内的社交平台或者电商网站搜索“内推实习”、“实习中介”等，就会跳出大量相关信息。他们均声称可轻松推荐去知名投行、券商、或者大型互联网企业等实习。价格从数百到数万不等。

什么是付费实习？

按照中介提供的解释，实习分正式实习和非正式实习两种。

l  正式实习　

企业真的有人事需求，但人事部门精力有限，于是选择通过中介寻觅人才。这类实习会有人事档案记录，企业也会提供正式的实习证明。但要求的时间比较长，通常在三个月以上。

l  非正式实习　　

非正式实习不会记录在人事档案上，公司也不会出具实习证明。一般是由公司的某个员工安排工作内容，体验实际工作的情形。结束时该员工会通过公司邮箱发邮件证明实习经历。

哪些人选择付费实习？

l  临毕业的大学生

一到毕业季，大部分学校都会要求学生出去实习，以了解如何找到合适的工作。然而正规企业要求学生实习时间持续三个月以上。部分学生因为考研或者出国等需要备考而有时间冲突，只能花钱找个时间限制不那么严格的。还有同学把付费实习当作花钱买实习证明来应付学校。

而另一部分竞争压力大的学生则把付费实习当作完善履历的捷径，无论是用来找工作还是申请国外学校。据教育部数据显示，2021届全国普通高校毕业生总规模909万，同比增加35万。很多学生希望拥有一段“名企实习”经历来增加自己的竞争力。如果能从这些优秀企业中学习到知识，那更是一举两得。

l  试图回国找工作的留学生

智联招聘发布的《2020中国海归就业创业调查报告》显示，2020年在国内求职的海归人数同比增长33.9%。除开这个巨大的竞争压力，对国内职场环境的陌生以及无法及时回国等原因，也让付费实习成了部分留学生的选择。如果打算回国工作，拥有一份国内名企的实习经历并了解他们的工作流程能更加迅速的找到一份称心如意的工作。

付费内推的实质

大企业的福利好，晋升空间大，大家都想进去。然而资源有限，所以花钱应该是理所当然的事情。但很多学生缴费后发现，中介安排的实习基本没什么意义，有的甚至无法得到实习机会。与此同时，腾讯、美团、普华永道、中信证券、毕马威等名企也纷纷发布声明称，从未与任何第三方机构合作，整个招聘和求职过程不会收取任何费用。中介所谓的付费内推，到底是什么？

 l  概率型

中介声称收费后可以推荐去知名企业，实则只是帮学生投递简历。中介根据学生的个人情况，完善简历，指导面试技巧。然后拿着完善后的简历，通过搜寻到的各企业或者学校的官方途径投递简历。一旦有成功的，学生还真以为是中介的功劳，甚至成为中介的免费宣传力。如果失败了，那就是学生能力实在太差，公司或者学校要求太高。中介有时还会退回部分费用以安抚学生。

部分中介主业就是课程培训或者求职辅导。宣传能内推，只是为了吸引学生来付费。毕竟他们所谓的辅导资料、培训课程网上都能找到。没有足够的噱头，根本吸引不到学生。有的中介以此拿到大批学生的资料，进而跟各个公司的人事部门谈合作，得到一些宣讲会，线上活动的机会。从而能更加赢取学生的信任。如果企业完全放任中介机构代办宣讲会和简历投递收集，那么不排除这些机构会选择性地拦截一些没有付费的同学的简历，只把自己的客户交给企业，帮助自己的付费客户减少竞争者。

l  名不副实型

中介与某些名企的员工合作，给学生安排实习内容。这种一般是远程实习，每周安排一定的任务，之后该员工（业内称“导师”）来指导或者查看。实习时间一般是一个月。

由于大型企业对免费实习生的需求非常少，而学生对名企的实习岗位需求很大，尤其是金融、互联网行业，部分中介机构联合一些想赚外快的员工，以招远程实习生的名义，创造一些岗位然后高价卖给学生。很多学生实习完发现，所谓实习内容毫无技术含量，白白耽误一个月时间。甚至有的就是做免费的苦力，替该员工完成一些琐碎的工作。学生无法从这类实习中提升个人能力，也无法了解真实职场的运转流程。而事后出具的实习证明，连该员工的名字都没有。因为一旦被检举，该员工会受到内部质询，甚至失去工作。如果碰到严谨的学校或者企业，这种实习证明根本没用。很多中介会在实习后提示，不要去该实习单位求职。然而这一类型的实习收费还不低，动辄上万。

l  纯诈骗型

承诺推荐名企，然后在合同里面设置各种陷阱。即使学生之后要求退款，也会因为各种原因被扣除掉很大一部分。更有甚者安排假实习给学生。比如Wall street tequila曾被曝光有专门团队假扮各大公司员工带学生实习。知乎大V@大欣V也曝光过Unicareer公司租场地做假项目的事情。

付费实习，不只是钱财被骗这么简单

很多学生认为在中国这样的人情社会，走关系拿到资源很正常，因此也就认为花钱买到资源也很正常。毕竟自己不买别人也会买。正是这种心态给了骗子可趁之机。他们即使明白有被骗的风险，却心存侥幸愿意一试。觉得最多就是被骗点钱，但自己的简历会光辉一笔，以后找工作更有优势。而事实上，大型企业的招聘流程十分严谨，HR们也身经百战，火眼金睛，是真正实习还是花钱买的名头，HR一问便知。即使侥幸骗过，付费实习还能成为以后职场晋升的污点，不知道什么时候就会被曝光。

付费实习能否禁止

《2020年中国大学生就业压力调查报告》显示，51%的学生认为找工作非常难，87.5%的学生认为实习经历有助于求职。事实上有很多HR坦言，实习经验是很重要，但企业实际在乎的是学生从实习中学到的内容，而不是实习的场所。如果没有实习经历，学生有优秀的在校学习和实践经验也能获得青睐。此外其它与所求职业相符的证书或者培训经验也能加分。

然而在巨大的竞争压力和显著的信息差下，焦虑的学生很容易走弯路。付费实习如今已经发展成一条完整的产业链，以各种名义堂而皇之的出现在学生面前。要想堵住漏洞，需要学校、企业以及政府多方的协调。从长期来看，需要拓展就业空间，也需要高校更符合实际地培养人才，才能让学生毕业时不再焦虑和彷徨。

Buying Internship Opportunities, "Trick" Instead of "Quick Win"

Fierce competition and the pursuit of famous companies make students and fresh graduates believe that they can take a shortcut by paying an agency for an internship at a company with a household name to polish their resumes. Even if they know, they might walk into a scam.

During graduation season and holidays, advertisements selling internships are everywhere. Covid-19 has made working from home a norm. The internship agencies evolved accordingly and started to offer remote internships. The phrase "internship agencies" is all over China's social media or e-commerce sites. These so-called agencies all claim to have the internal resources to refer students for internships at well-known investment banks, securities companies, and tech companies. The price for one position ranges from hundreds to thousands of dollars.

How Does it Work? 

According to the agencies, there are two kinds of internships available: formal ones and informal ones. 

·       Formal Internships

A formal internship comes from actual demand from the organization. Agencies will connect the buyers to HR departments, and the buyers will actually work in the company for three to six months.

·       Informal Internships

An employee from the company will arrange the work and guide the intern through it. The intern will not formally join the company, and the company will not issue an "internship certificate", a piece of paper that Chinese universities require their students to submit. The duration of this kind of internship is usually less than two months.

 Who Is Paying for Internships? 

·       Junior Students

Universities usually require students to complete at least one internship. Students have to get the company to stamp on their internship certificates and bring them back to school. Some students would pay for an internship because they need the certificate to cope with the school. Students who do not have three months would rather spend some money to find a place that offers a more flexible schedule. Some of them just need to polish their resumes to reach better positions after they graduate.

Data from the Ministry of Education shows that the total size of the 2021 class is 9.09 million, an increase of 350,000 year-on-year. Many students hope to win a better place in this fight. 

·       Chinese Students Studying Abroad but Plan to Come Back

The Report on Employment and Entrepreneurship of Chinese Returnees in 2020 shows that the number of returnees applying for domestic jobs in 2020 increases 33.9% from 2019. Tremendous pressure from the competition and unfamiliar working environment make paying for internships an option for some overseas graduates. The student will find a satisfying job easier with internship experience in a famous domestic company and knows their work process.

The Truth About This Business

Fresh graduates prefer working in larger companies to get paid more and more potential for promotion. Since there are only a few targets, spending money to get it might seem reasonable. However, many students find that the internships they paid for are pointless. Some even fail to get an internship at all.

Tencent, Meituan, PwC, Citic Securities, KPMG, and other companies once issued statements confirming that they have never worked with any third party nor charged candidates for internships. So what exactly are those agencies?

·       Interview Coaching Consultancies

Some agencies claim that they have connections to send students to well-known enterprises. The fact is, all they do is to help the students to optimize their resumes, apply and provide advice on interviews. They apply for internships using the students' resumes via official channels of those companies or schools. Students would believe that it is the agencies' credit if any offer is received and even recommend the agencies to others. And if failed, it will be attributed to the student's ability or the company's high standard. Sometimes the agencies will refund part of the fees to avoid any disputes.

Some agencies are training and tutoring centres that use their "connections" to advertise. They use the information and resumes they collected to get opportunities for hosting campus recruitment projects or online activities on behalf of the companies. In return, they win the trust of students. It seems like a win-win, but agencies might filter the candidates who are not willing to pay.

·       Agencies With the Wrong Type of Connections

Some agencies pay employees from big companies to provide internships, usually remote ones that last for less than a month. They create jobs off the record. In the end, the students may find that they have been doing nothing but free work for the "mentor", and the internship certificates they receive are fake.

·       Scammers

Some of the internships that agencies provide do not even exist. Wall Street Tequila, a Chinese agency registered in Hong Kong, was once reported to hire a team that pretends to be employees of major companies to assign work for interns -- their clients. Zhihu influencer DaxinV has also exposed the fact that Unicareer rents offices to arrange fake projects for students.

Worse Consequences Than Money Lost

Many students think it is customary to use networks, or guanxi in Chinese, to get resources and access. After all, someone will buy, why not me? This mentality gives scammers the opportunity. Some students are willing to take the chance even though they understand the risk of being cheated. In their opinion, the worst thing is some money lost. They do not know that the recruitment process and background checks at large enterprises are rigorous. It is their future career that they are risking. 

Can The Agencies be Banned? 

According to a survey on Employment Pressure of Chinese College Graduates in 2020, 51% of students think it is tough to find a job, and 87.5% think internship experience is helpful in their job search. HRs agree on the importance of internship experience, but they value the actual work candidates did rather than the company names on the resumes.

Students buying internship opportunities is a stress response to the pressure of competition. And there is a whole industry that would love to take advantage of their anxiety and information gaps. Closing the loophole requires coordination among schools, organizations, and the government. In the long run, companies need to create more jobs, and schools need to train their students more practically so they may feel less anxious and confused when they graduate.   

Can Highly Indebted China Evergrande Break the Game?

China Evergrande rushes to keep its interest-bearing debt ratio down under Beijing's "three red lines" policy, causing more problems.

The ordeal faced by China Evergrande has made headlines in the past month. As China's most indebted property developer, it urgently needs to cut its debt pile to bring its finances into compliance with "three red lines" set last year by the country to restrict further borrowings by property developers.

What are the "three red lines"?

The Ministry of Housing and the People's Bank of China drafted the rules in August 2020.

·       The debt-to-assets ratio should be less than 70%, excluding advance proceeds from projects sold on contract.

·       The net debt to equity ratio should be less than 100%. 

·       The cash to short-term borrowing ratio should be more than 100%. 

Under the three red-line policy, property developers are scored as green, orange, yellow or red based on how many of the "lines" they cross, and their debt growth will be capped accordingly. If categorized as red, the company will not be allowed to increase its debt in the following year, which was Evergrande's case.

Why is Evergrande so Debt-ridden?

Although a high debt ratio is expected in real estate, Evergrande's problem is more than that. It owns businesses in eight major industries, including real estate, property services, streaming service Hengten networks, online automobile marketplace Fangchebao, electric vehicle maker Hengchi, Evergrande Fairyland, Evergrande Health and Evergrande Spring.

·       Main business - Property Development 

In the early years, the government, enterprises, and people were keen on real estate development as it was profitable. Later the market gradually returns to rationality with the tightening policies and the retreat of investment enthusiasm. For example, in the past three years, the best-selling houses located in urban core areas and mature industrial clusters in the Yangtze River Delta and Pearl River Delta. People prefer the new Chinese style and minimalistic style. Even though Evergrande claims that 67% of its land is in first and second-tier cities, few are in the core area. Product development is also outdated, resulting in poor sales that need discount promotion to boost. 

·       Diverse Trend

Evergrande has been trying to diversify and broaden its territory. Since 2009, Evergrande has entered the fields of department stores, supermarkets, mineral water, agricultural products, animal husbandry, dairy, orthopaedics, health care, tourism, sports, film and television, automobile and so on. Yet, they have achieved so little from all these businesses after these years.

How Does Evergrande Reduce Interest-bearing Liabilities? 

A key factor affecting the "three red lines" policy is interest-bearing liabilities. At the end of 2019, Evergrande's interest-bearing liabilities were RMB799.9 billion (US$125 billion). It rose to RMB874.3 billion (US$136.6 billion) in Q1 2020. According to Evergrande's 2020 financial report, by the end of 2020, its total interest-bearing debt was RMB716.5 billion (US$112 billion).

At Evergrande's earnings conference in March 2021, Xu Jiayin gave a downgrading plan for the next three years:

·       Reduce the net debt ratio to less than 100% by 30 June 2021.

·       Bring the cash to short-term borrowing ratio above one by 31 December 2021.

·       Keep the debt-to-assets ratio less than 70% by 31 December 2022.

 

At the end of June, Evergrande announced it had reduced its interest-bearing liabilities to about RMB 570 billion (US$89 billion). In other words, Evergrande reduced its debt by RMB146.5 billion (US$22.9 billion) within only half a year.

There are usually three ways to reduce interest-bearing liabilities: one is "selling more, collecting more money and investing less" at the operational level, and at the same time paying the debt through equity financing; One is to hide interest-bearing liabilities at the financial level; The last is to occupy non-interest-bearing commercial bills. 

In the first half of 2021, Evergrande's sales were RMB356.8 billion (US$55.7billion), and its payment collection was RMB321.2 billion (US$50.2 billion), up only 2.9% year on year. 

According to statistics from Focus Finance and Economics, Evergrande raised about HKD62.7 billion (US$8.2 billion) in the first half of this year through rights issue financing, strategic investment, and asset sales. 

In terms of investment, Evergrande did not appear on the TOP 100 List of Real Estate Enterprises' Land Reserving in the first half of 2021, whose threshold is RMB 3.7 billion (US$0.6 billion). It acquired RMB63.3 billion (US$9.9 billion) worth of land in the same period last year. 

In general, operational methods are not enough. Evergrande does not release its financial statements for the first half of 2021 till now. Thus, we are unable to know the details.

The non-interest-bearing notes are payments to upstream suppliers that Evergrande can only temporarily defer at present. In April 2021, Evergrande released its annual report on corporate bonds in 2020, showing that its notes payable balance exceeded RMB205.7 billion (US$32.1 billion), accounting for 13.51% of the total liabilities. This amount is equivalent to more than ten real estate enterprises such as China Resources, Greenland and Sunac.

Bad News Continues 

As the first red line being successfully crossed, Evergrande should be able to breathe a sigh of relief. However, Evergrande's behaviour of robbing Peter to pay Paul triggers a series of vicious chain reactions. 

On 27 May, Caixin reported that the China Banking and Insurance Regulatory Commission was investigating related party transactions of over RMB100 billion (US$15.7 billion) between Evergrande and Shengjing Bank. 

On 20 June, the Yuelongtai project in Xuchang was suspended. The China Railway Construction Group, which is building the project for Evergrande, claimed that it was unable to pay the workers since Evergrande owed it more than RMB20 million (US$3.1 million).

On 29 June, the listed company SKSHU Paint Co., Ltd. announced that the company's bills receivable from Evergrande were overdue. As of the end of March, the company's outstanding bills amounted to RMB53.6 million (US$8.4 million). That evening, Evergrande quickly responded that they had paid the bill in June. Later SKSHU confirmed this news. 

On 30 June, Moody's downgraded Evergrande's rating to B2, saying further downgrades may be on the way.

On 19 July, according to Wuxi Intermediate Court, Guangfa Bank requested to freeze RMB132 million (US$20.6 million) of bank deposits from Yixing Hengyu Real Estate Co., Ltd. and Evergrande Real Estate Group Co., Ltd. or seize other equivalent assets. Soon the two sides reconciled.

On 19 July, the Housing and Urban-Rural Development Bureau of Shaoyang, Hunan province, announced the suspension of the pre-sale license, online registration and pre-sale fund allocation of the Evergrande Future City project and the Evergrande Huafu Project. It found the supervised amount was not in line with the actual sales amount. Soon Evergrande paid RMB120 million (US$18.8 million), and the projects resumed.

On 22 July, the Lanzhou Municipal Bureau of Natural Resources issued a notice urging 41 developers, half of whom are Evergrande subsidiaries, to pay land-transferring fees. 

On 26 July, S&P Global downgraded Evergrande and its affiliates from B+ to B- with a negative outlook. In response, Evergrande said that it did not rule out the possibility that foreign institutions deliberately shorted Evergrande's shares by repeatedly creating public opinion. 

On 28 July, the Housing and Urban-Rural Development Bureau of Heze, Shandong province, received reports that some Evergrande projects sold at unfairly low prices.

On 28 July, Fitch Ratings again downgraded Evergrande Group and related companies to CCC+. 

On the evening of 28 July, Huaibei Mining sued three Evergrande companies. It said Lu'an Hengda owed RMB401.3 million (US$62.7 million) for the completed project and liquidated damages, and that Evergrande Real Estate Group Hefei Co., Ltd. and Evergrande Real Estate Group Co., Ltd. were liable for the settlement. Evergrande responded that Evergrande Real Estate Group Co., Ltd. was not the subject of the contract and should not be involved in the lawsuit, and it had filed an objection to the court. 

On 29 July, Langfang Development announced at night that the judiciary department froze all shares held by Evergrande Real Estate Group Co., Ltd. The frozen shares were 76.032 million, accounting for 20% of the total share capital. 

Can Evergrande Survive the Crisis? Or Will It Go Bankrupt?

As early as October 2016, Evergrande tried to return to the A-share listing through a backdoor. Later it got an investment of RMB130 billion (US$20.3 billion). Under the contract, Evergrande must repay the debt and payout RMB13.7 billion (US$2.1 billion) in dividends to investors by 31 January 2020. However, in September 2020, Evergrande's IPO plan was declared a complete failure. With bankruptcy as a threat, Evergrande successfully converted this 130 billion debt into shares. The money continued Evergrande's life but put Suning on the path of change of ownership. Evergrande is on the blacklist of financial institutions and investors from then. 

Suppliers are angry about the delay of commercial bills. On the trading floor of the Shangpiaoquan, there are 84 commercial bills with Evergrande companies as acceptors, totalling RMB101.4 million (US$15.9 million), most of which have an APR of over 30%. 

According to Fitch Ratings, Evergrande raised only RMB8.2 billion (US$1.3 billion) by issuing domestic bonds in 2021. 

The share price of China Evergrande (03333.HK) has dropped to HKD5.26 from HKD28 in July last year. Evergrande has difficulty raising money from the stock market now. 

Touching too much bottom line, Evergrande is under siege on all sides. Rumour had it that the company was going bankrupt because of its capital problem in 2017, yet it survives successfully. Will it break the ice successfully like four years ago?

"Brushing" Method led to Massive Crackdown by Amazon on Chinese Sellers

Amazon bans more than 50,000 Chinese sellers for alleged fake reviews and other violations. Chinese netizens: Well done! 

2021 is a challenging year for Amazon’s Chinese sellers. A crackdown by the US-based e-commerce platform against Chinese companies has been in progress since April. According to the Shenzhen Cross-border E-commerce Association, Amazon has banned more than 50,000 Chinese sellers as of July 2021, leaving multi-billion-dollar revenue losses for top sellers and bankruptcy for midsize ones. Shenzhen Youkeshu Technology co., Ltd., one of Amazon’s largest Chinese retailers, has 340 stores banned or frozen with more than RMB130 million (US$20 million) frozen in their accounts, according to its Shenzhen-listed parent company TIZA Information Industry Co., INC.

A statement by TIZA provided a list of Youkeshu’s violations that led to the massive banning, including low fulfillment rate, fake reviews, unauthorized listings, counterfeit, etc., which reveals some typical “Chinese e-commerce practices” that Chinese consumers have condemned for a long time.

Companies like Youkeshu operate in a model of massive stores or dianqun, which means they list up to a million products in thousands of stores they bought. With that much amount of SKU, it is hard to keep a good performance for each store, which brings terrible experiences for buyers.

“Brushing”, known as shuadan in China, is a process that “brushers” place fake orders to help sellers build higher sales that can bring better placement on e-commerce platforms, leading in turn to more sales.  Brushing and paid review are almost standard practices to trick the algorithm of e-commerce marketplaces and boost online sales in China. Amazon’s Chinese merchants did not give up that shortcut. There is a whole value chain of brushing and selling reviews: countless Facebook groups filled with “reviewers” buy off Amazon, leave a nice detailed review, and get refunded via PayPal from the seller later; websites that offer reviews in bulk; and most commonly, vouchers come with the packages that provide cashback for good reviews. Companies even set up dedicated job positions for fake reviews on their listings.

Illegal But a Norm in China

In China, it is an open secret or a hidden rule that to succeed in e-commerce, sellers must buy reviews. Despite regular crackdowns by the state, cheating is so common in e-commerce businesses that consumers just stopped to read the reviews. To make it seem more legit, sellers even pay for some bad reviews, focusing on not so essential flaws such as logistics. And then, the shop owner would reply and solve any of the problems mentioned in the bad reviews on the thread to show good customer service. They also buy bad reviews that seem real for their competitors’ listings. There is a whole industry of fake transactions and fake reviews that supports any product or service listed online. To improve the ranking of your listings on a famous hotel booking platform, you can order fake orders for RMB20 (US$3) each. A good review takes an extra RMB5 (US$0.8). There is no official number, but a report by iiMedia Research indicated that the fake sales industry is worth more than RMB600 billion (US$92.9 billion) by 2016.

How it Works

The most common process of brushing:

• the seller sends the requirement to the brushing organization
• the organization dispatches the task to brushers
• the brushers search for the product, pretend to compare, chat with the seller, add the product to the cart, place orders, leave five-star reviews, and get refunded plus commission outside the e-commerce platform

Is an Honest Market too Good for Chinese Consumers?

Another iiMedia Research report suggested that nearly 70% of China’s live streaming e-commerce users believe there is data fraud in this business. The e-commerce platform showed more than three million views on some live streaming, but only 110,000 of them are real users.

The Amazon crackdown has caused a stir in China. Even though thousands of workers lost their jobs overnight when companies decide to close down after Amazon banned all of their stores, Chinese consumers showed their understanding and support and even wished Chinese e-commerce giants would do the same. The topic was trending on Zhihu, the Chinese version of Quora, for days. The question “How do you feel about Amazon’s harsh banning of 50,000 Chinese sellers, causing losses of over 100 billion?” received thousands of answers and comments, most of which are supportive of Amazon. An anonymous user who claims to be an old Youkeshu employee put in the thread that “they deserve it. They used nice product pictures in their campaigns and on their websites, but the products they sent to buyers are nothing like what they advertised. It is a complete fraud. I left because I felt bad for the buyers and did not see any future in that company”.

Chinese Fashion E-Commerce Brand SHEIN - a Hidden Dragon Aims to Take Out ZARA

Relying on supply chain integration capability and pioneering marketing strategies, SHEIN has conquered Gen Z with affordable prices and massive daily new arrivals.

A report from Latepost in August 2020 brought Chinese e-commerce brand SHEIN under the spotlight. Since then, the company has frequently made top stories in domestic media, despite their intention to keep a low profile. At the same time accordingly, SHEIN is preparing for a US IPO.

What is SHEIN? 

As a direct-to-consumer (DTC) retailer specializing in women’s fashion, the company SHEIN owns the fast-fashion brands SHEIN and Romwe, which are available on two global sites, 16 subsites in different languages, and mobile App SHEIN. It has 120 million registered users from 220 countries and regions. 

According to App Annie, SHEIN is the most downloaded shopping app on iOS and Android in the United States and 12 other counties and the second in 54 countries. In the Top 50 Kantar BrandZ ™ Chinese Global Brand builders 2021 released by Google and Kantar on May 10, SHEIN ranks No.11, higher than Tencent.

SHEIN’s sales reached $10 billion in 2020 and have grown by more than 100% each year for the past eight years, while ZARA owner closes 1,200 worldwide stores.

The Rise of SHEIN 

Founded in 2008 by SEO expert Xu Yangtian, the company sold wedding dresses, one of the most popular e-commerce products from China to the world back then. After Xu realized that the competition in the wedding dress race was getting fiercer, he made a bold move to enter the fast-fashion sector, trying to take a slice of the pie with ZARA, H&M and Forever 21.

In the early days when they did not have their supply chain, SHEIN first put up the pictures on the website and placed the order at the suppliers after receiving orders from the customer. In this way, the sampling process was shortened to as fast as seven days, while the best ZARA could do was 14 days. The speed helped SHEIN win the first battle. They decided to build their supply chain in 2014, which gradually developed into an industrial cluster in Panyu District, Guangzhou, with hundreds of suppliers, like the ZARA production headquarters in La Coruna, Spain. 

By subsidizing the suppliers, SHEIN managed to place 100-unit small orders, while ZARA’s suppliers have a MOQ of 500. This model of small orders and quick feedback, in which they produced small batches, tested the market and mass-produced the popular ones, helped SHEIN maximize sales and profits and reduce inventory risk.

During these years, SHEIN also raised a lot of money. In 2013, the company received a US$5 million investment from JAFCO. In 2015, it raised US$46 million from Greenwoods and IDG. Sequoia China invested in 2018 at a valuation of US$2.5 billion. Accordingly, SHEIN’s value is now US$15 billion with a Series E funding.

Gen Z’s Fave

While it kept a low profile in China throughout the years, SHEIN is very popular on social media platforms abroad. “#Addicted to SHEIN” made Twitter trending topics. With affordable prices, massive daily new arrivals, and its mysterious origin, SHEIN have conquered Gen Z customers.

• The Price

SHEIN’s average unit price is about half of ZARA’s, while they provide the same quality. Their Gen Z fans loved 6-dollar shirts and 12-dollar dresses.  

• Massive Daily New Arrivals

SHEIN puts on thousands of new arrivals daily, which means they can achieve ZARA’s annual goal in just one or two months. Speed is the key to win the fashion-seeking young customers.

• Mysterious Origin

SHEIN has no physical store as of July 2021 except for temporary pop-up stores in Paris, Lyon, London, Las Vegas, and other cities. These events are always irregular and short notice, which serves young people’s desire for mystery and excitement. The fans have to follow closely on their updates to get notified.

Critical Factors of SHEIN’s Success

Fashion and affordable, this winning combo of fast-fashion brands may not be easy to achieve as it might sound. SHEIN’s superb supply chain integration capability and pioneering marketing strategies contributed the most to their success.

• Supply Chain Integration 

1. Design

SHEIN developed a trend-tracking system that grabs product data from various websites to analyze colours, prices, and patterns in real-time. After finding out the potential trend, a team of nearly 400 designers and buyers start to design or source for samples.

2. Production

SHEIN adopted the customer to manufacturer (C2M) model of “small orders and quick feedback” in production. They produce 100 units for each product to test the market and start mass-producing the popular ones, while the unpopular ones go back to the design department for modification. This model allows SHEIN to produce more hit products and reduce inventory pressure.

To become one of SHEIN’s suppliers, you

• have to be somewhere within a five-hour drive from SHEIN headquarter
• better be a small or medium-sized factory with a total capacity of R&D, manufacturing and sales
• have to ship out ready stock within 40 hours and pre-orders within five days

When working with SHEIN, suppliers face strict KPIs in lead time, on-time delivery rate, defective rate, etc. At this moment, SHEIN’s lead time requirement is 10 to 15 days for new products and seven days for old products, which is far shorter than ZARA’s three weeks and traditional brands’ three to six months. 

In return, SHEIN subsidizes the suppliers, covers the sampling fee, never defaults on the payment, and even leaves inventory pressure to themselves. 

SHEIN uses an ERP to track every order and production status at each supplier. The system starts to capture and analyze user behaviour, such as views on the product details, add-to-cart rate, etc., soon after launching a new product. Then it automatically places orders to the suppliers.

• Pioneering Marketing Strategies

According to SimilarWeb, in June 2021, SHEIN’s website received 160.8 million visits with a bounce rate of less than 40% and an average visit duration of 10 minutes. SHEIN’s main markets are North America and Europe. 39.6% of the site’s traffic are from the US. Specifically, the primary sources of its traffic are direct traffic 36.88% and search traffic 39.69%. Paid traffic accounts for 27%. 

1. Paid Ads

Being the largest Chinese customer of Google, SHEIN is burning a lot on paid ads at Google, social media platforms, YouTube, and even on TV.

2. Influencer Marketing Pioneer

As early as 2011, SHEIN began cooperating with influencers or Key Opinion Leaders (KOLs) to promote the brand. Almost 100% of SHEIN’s traffic came from influencers’ references with a 300% ROI back then. However, as the influencer community grow, the traffic was also getting expensive, while it used to be free. A YouTuber SHEIN used to work with would charge US$50,000 instead of US$30 when they first began six years ago. So SHEIN started to partner with Key Opinion Consumer (KOC) and launched its affiliate programme. An ordinary customer can get a 10%-20% commission on sales and free products by promoting SHEIN’s products. According to an April article by Jing Daily, #SHEIN has gained 6.2 billion views on TikTok alone.

Now, SHEIN has formed an influencer marketing mode of working with fans and small KOCs to gain traffic to the site, medium KOCs for product sales, and KOLs for branding. 

3. Social Media

SHEIN is all over social media. As the brand grows, contents on their accounts are not just discounts and promotions anymore. They are now trying to sell a lifestyle. Currently, SHEIN has 15 million followers on its main Facebook account and 11 million on Instagram.

4. Focus on mobile App

Powered by tech talents and experience on mobile e-commerce in China, SHEIN has been promoting its App since 2013 and selling through live-streaming since 2017. According to Sensor Tower, SHEIN App has been downloaded eight million times on Google Play and six million times on the iOS App Store as of June 2021. Now traffic from the App accounts for 72% of total traffic, higher than any US competitors.

Besides online marketing, SHEIN has also planned for offline activities, such as pop-up stores, campus ambassador programmes, music festivals, public welfare activities, etc. SHEIN misses no marketing opportunities to reach its customers online and offline. 

There is No Slack in the Future

Valued at US$15 billion, SHEIN is not far from its goal of surpassing ZARA. Yet SHEIN’s future is not a rosy one. There are still many problems to be solved. 

• Plagiarism accusation

Plagiarism seems to be endemic in the fashion industry. YouTube videos comparing products from ZARA and SHEIN pointing out its plagiarism problem keep coming out, and more and more designers started to speak up, which costs a lot to settle.

• Quality Issue

To ensure its low cost, SHEIN uses cheaper materials like nylon and polyester to make the clothes.  Some customers complained that the products they received look nothing like the online pictures, and they are almost disposable clothes. On the other hand, with the rising environmental awareness, such materials are bound to attract a lot of criticism. 

• Logistics

Compared with SHEIN’s high-speed domestic supply chain, its delivery speed abroad has a lot of space to improve. Even if Amazon’s next-day delivery does not exist, SHEIN’s more-than-10-day delivery time still has no advantages on the market.

• Culture

As a global fashion brand, SHEIN needs to be familiar with different cultures and customs to avoid another incident like the Muslim prayer mats in July 2020.

• Data Security

SHEIN suffered a massive data breach in September 2018 and exposed the personal information of 6.4 million users. Luckily for SHEIN, the incident did not draw much attention from American politicians or the Western media. If it happens again, no one can guarantee good luck furthermore.