Hangzhou Ruhnn Holding Co.,Ltd
(NEEQ: 832887)
Investment PitchQI FENG
Hangzhou Ruhnn Holding went through backdoor listing less than
a year ago and has only one official half year report available (as
of June 2016). In addition, with the absence of its official website
and a small amount of repetitive news available online, there is
great difficulty in gathering information from public source.
As a result, individual interviews were conducted during theresearch period. Python scraper code was employed to gather a
large amount of data to estimate the company’s growth and
revenue.
Table of contents
Introduction of Hangzhou Ruhnn Holding
Market conditions
Competitive Landscape
Business Model Evaluation
Great Talent Under Ruhnn
Growth and Revenue (Modeling)
Team
Investors
Relevant events & Long-term Direction
Investment Suggestions
Introduction Of Ruhnn Holding
INTRODUCTION
BUSINESS CYCLE
A BRIEF HISTORY OF RUHNN (MILESTONES)
Introduction
Ruhnn Holding Co.Ltd is the first Blogger Incubator in China.
It is a fashion retailer and talent management company in essence.
Instead of outsourcing marketing to traditional advertising agency and
Baidu paid advertising (similar to Google Paid advertising), it expandsits advertising period to a whole fiscal year by contracting young,
attractive and popular fashion bloggers.
Heavily involve in social media platforms and selling life style,
contracted bloggers are able to obtain a substantial amount of
followers (well performing ones will always hit 1 million followers) in the
first half of a fiscal year and start converting them to consumers in the
middle of the year. (Conversion rate may vary from 2% to 20%
depending on individual bloggers’ performance.)
Introduction
Ruhnn sets up an online fashion store on Taobao.com for each
contracted bloggers aiming to achieve high volumes of sales, which is
the major source of Ruhnn’s revenue.
Bloggers are the front men while Ruhnn provides them with essential
training , utilizes data analytics to monitor web traffic and handles the
whole supply chain of fashion retail.
Sales occur throughout the year but it is highly seasonal due to the
nature of the business. Revenue from Single’s Day Sale (11.11, similar toBlack Friday) can mount up to 60% of Ruhnn’s total income.
Timing of converting followers to consumers at the middle of a fiscal
year and the accumulation of followers also contribute to the
seasonality of Ruhnn’s Revenue
Business Cycle
January-June
Generating webtraffic and expanding
fan base.
June-October
Converting followersto consumers. Startingsmall amounts of sale
October – December
Realizing revenue byconducting hugevolume of sale on
individual bloggers’online store.
Brief History of Ruhnn (Milestones)
2012
• Ruhnn Trading Company was founded in Hangzhou, China, specializing in onlineFashion Retail under its own Brand called LiBeilin(莉贝琳).
2014
• Libeilin (Ruhnn) hit Top 10 Women’s Fashion Sale on Alibaba’s online retail PlatformTaobao.com, achieving at least ¥0.2 billion sale.
• Signed 张大奕Eve (4.74 million followers on Weibo) as the first contracted blogger
* Raised Series A, leading investor SAIF Partners (Private Equity) at a non-disclosedamount
Brief History of Ruhnn (Milestones)
2015
Ceased operation of Ruhnn’s own Fashion Brand LiBeilin(莉贝琳)
Transition to be the first Blogger Incubator in China, with more than 50 contracted bloggers
张大奕Eve (contracted blogger) individually achieved ¥ 0.2 billion sale on Single’s Day, hitting Top 10Women’s Fashion Category C Sale on Taobao.com
* Raised Series B at ¥120 million with leading investors of SAIF Partners, Legend Capital (VC division ofLenovo) and Telescope Investment(VC)
2016
Backdoor Listing through NEEQ (National Equities Exchange and Quotations) @ ¥7.66 per share, value @¥0.176 billion. (April)
•Undergone corporate restructuring : dissolved Ruhnn Trading Company, changed the backdoor listingcompany name to Ruhnn Holding and founded 4 subsidiary companies specializing in different part of itsbusiness (media, supply chain, online store management [both in mainland and in Hong Kong])
•¥0.3 billion investment from Alibaba Group right after Single’s Day Sale (11.11)
Valuating at ¥3 billion @ ¥96.43 per share
Market ConditionCHINESE CONSUMER MARKET
THE RISE OF BLOGGERS
STATISTICS OF THE BLOGGER ECONOMY
THE RISE OF BLOGGER INCUBATORS
INDUSTRY GENERAL BUSINESS MODEL
RISK ANALYSIS
BLOGGER INCUBATORS FUNDRAISING
SUMMARY
Chinese consumer market
Strong growth of the Chinese economy increases people’s
purchasing power. (National retail volume in 2015 is 30,093.1 billion
RMB with an 10.7% annual increase)
E-commerce has become the one of the leading factor in
increasing consumption. (National e-commerce retail volume in
2015 is 3,880 billion RMB with an 33.3% annual increase.)
Chinese Consumer Market (Brief
Introduction of Taobao)
TaoBao is the largest Chinese E-commerce Platformoperated by Alibaba Group. It is similar to Ebay andAmazon. The company reported its gross merchandisevolume of $485 billion in FY 2016, which is $3 billionhigher than that of Walmart in the same period.
It hosts a shopping festival called Single’s Day onNovember 11 every year. It is the Chinese version ofBlack Friday. Single’s Day Sale in 2016 is $14.3 billion(¥120.7 billion)
Single’s Day captures a large percentage of Taobao’sannual volume of sale. As a result, the growth in Single‘s Day sale volume is a good representative of the total sale volume of the website.
The Rise of Bloggers
Fashion retail especially women’s fashion is the dominant force of
Single’s Day Sale.
Most of Single’s Day consumers are young women born in the 80sand the 90 living in first and second tier cities in China with easy
excess and knowledge of the internet.
Noticing the great market potential and an ideal customer base,
individual bloggers who share life style and fashion posts on social
media platforms start to convert their followers to consumers. The
result is surprisingly good that some bloggers achieve 30 million RMB
sale on a single Single’s Day
Statistics of The Blogger Economy
The Blogger industry is estimated to generatea total of ¥ 58 billion revenue in 2016.
Target customer base is young females born between 70s and 95s, in which more than 60% of them are born after 1990 and 25% of them are born between 1970 and 1980.
Women’s fashion is the largest component of the blogger economy still with large room to grow but more competition.
Area such as makeup and skincare, baby and mother care product have relatively smaller volume but larger room to grow withless competition.
Graph: Volume composition of e-commerce sale under Blogger Economy
The rise of Blogger Incubators In 2014, a new business called the Blogger Incubators emerged as a result of the huge
profitability of the Blogger Industry.
Blogger Incubators select, train and manage contracted bloggers. Each blogger usuallyhave a team to manage shared contents, web traffic, blogger’s public image, clothesmanufacturing and the blogger’s online store on Taobao.
Blogger Incubators are similar to traditional talent agencies except that the source ofincome is not advertising commissions but sales revenue from individual bloggers’ onlinestore. (More than 60% of the annual sale comes from Single’s Day.)
Such systematic production system of Bloggers shortens the time for revenue realization(the industry average of the time from training a blogger to conduct successful sale is 3 to6 months) and thus achieve economy of scale.
There are around 150 to 200 Blogger Incubators in China.
Industry general business model
Select bloggers
(Good potential candidates are
young female witha good sense of fashion, skinny
figure and at least10,000 followers on
various socialmedia platform)
Social MediaManagement
(Bloggers interact withfollowers when the
Incubators managestheir social media
account trafficincluding paid
advertising andhaving influential
social mediaaccounts to share
blog posts)
Preparation ofSingle’s Day Sale
(Conversion)
(Based on the comments of
followers collected and current trend of
fashion, bloggersand incubators
design women’s outfit and show
samples on social media platform for
publicity and inventory
management purposes. This is the
stage when the incubators start
converting followers to consumers.)
Single’s Day Sale
(Followers-turned-consumers shop on
Blogger’s online Taobao Store.
Monitoring the volume of orders for different outfits, the incubators will have the factories
manufacture more popular outfits. This is when the revenue is
realized.)
Profit split
(Bloggers and the incubators will split
the profits after sale and prepare for
new business year.)
Risk analysis
High Volatility: The Blogger Incubators rely entirely on individual bloggers’ popularity even with diversification of risk in terms of increasing the number of bloggers contracted and contracting bloggers with different style.
Easy to Duplicate: Chinese Bloggers are highly homogenized due
to Blogger Incubators’ systematic production of bloggers.Additionally, low barrier for entry and the easy nature to copyindividual public image and style make bloggers face fiercercompetition than ever.
Unprofessional Management: Due to the fierce competition andthe need for rapid scale up of business, blogger incubators facedifficulty in setting up an efficient management system.
Increasing Cost in Acquiring Web Traffic: Increasing need forsocial media exposure pushes up the price for advertising andpaid blog sharing service offered by influential social mediaaccounts.
Chinese Bloggers (All young women from the picture
above are different individuals.)
Summary
Relative early stage of the blogger economy
Still great room to grow and higher profits to gain
More competitive because of homogenization
Need diversification in the types of bloggers contracted to secure
the number of followers and reduce churn rate for revenue
stabilizing and business expansion purpose
Ruhnn being the first incubator with a relatively larger number
influential contracted bloggers has a substantial market
capitalization
Competitive landscape
MAJOR PLAYERS
COMPETITOR’S BUSINESS MODEL
Major Players
Company
Name
Round Amount
(in millions, RMB)
Time Lead Investor
Fan Xing You
Xuan (繁星优选)
Series A 17.25 12/3/14 China Media
Capital
PBLAB (杭州缇苏) Series B 30 5/3/16 Beijing Enlight
Media Co Ltd.
Yu Jia Yu Le (娱加娱乐)
Series B 100 8/4/16 Legend Capital
Ruhnn (如涵电商) Series B 12 10/26/15 Saif Partners
Competitor’s Business Model
Most of the Blogger Incubators now adopt quantity over quality strategy
Yu Jia Yu Le (娱加娱乐)
Contracted 1000+ Bloggers
Quantity over Quality Strategy
Limited individual attention and thus poor performance of bloggers
Mass production of homogenous Bloggers and thus higher default rate
Higher risk because of high correlation between individual bloggers.
When market changes to an unfavorable direction, Yu Jia Yu Le (娱加娱乐) does not have diversification to balance out the downfall
Ruhnn’s business modelBUSINESS MODEL IN DETAIL
ANALYSIS OF RUHNN’S BUSINESS MODEL AND SCALABILITY
RUHNN’S TALENT
Business model in detail
Ruhnn’s business has three stages:
Stage 1: Increase bloggers’ social media influence
Stage 2: Start to convert the followers to consumers and direct
followers from social media platform to bloggers’ sale site (Taobao
online shop)
Stage 3: conduct actual sale and realize revenue on Single’s Day
Business model in detail (Stage 1)
Content of Training: how to interact
with followers as a public figure; how to
select and create hit topics; how to do
trendy makeup etc.
Social Media Platform: Weibo
(Facebook), WeChat, Tudou (Youtube),
Youku (Youtube), Bilibili (Youtube),MeiPai (Snapchat), YY Channel (Skype)
etc.
Partnered Influential Social Media
Account: The price for sharing blog
posts is not fixed. It can be free
depending on the relationship of
Ruhnn and those Social Media
Accounts.
Business model in detail (Stage 2)
Notes:
During stage 2, although Ruhnn’s
focus shifts to testing sample outfit
with followers and directing them
to the sale site.
Expanding social media network
and post sharing through existing
network are still operating.
Business model in detail (Stage 3)
Notes:
Taobao’s livewebcast serviceallows owners ofTaobao’s onlinestores to directlyengage with thecustomers insharing samples,fashion trends orjust lifestyle ingeneral. It alsoallows the viewersto leave commentswhich will be showup on the webcastscreen. Thus thebloggers caninteract with theviewers during livecasting.
Analysis of Ruhnn’s Business Model
Select Mature Bloggers: Ruhnn selects potential bloggers with at least 100,000 followers on Weibo. Such process reduces the cost of training since bloggers have previous social media experience. Additionally, the substantial amount of followers indicates the market’s acceptance of these individuals and thus lower risk of default.
Allow Individual Personality and Style: Ruhnn allows bloggers to have their individual style and personality. It is different from most of the other incubators who assign identical public image and fashion style to their contracted bloggers. The industrial general practice cuts cost and saves time in the short run but it is not sustainable in the long run. It is the main contributor for the homogenization of bloggers and high default rate. (Industry default rate is 80%). Ruhnn’s strategy allow its bloggers to stand out and have a more loyal follower base.
Adopt quality over quantity strategy: Ruhnn contracted around 50 bloggers, which is relatively small compare to other incubators at this scale. It allows Ruhnn to give moreindividual attention and produce better outcome.
Talent Management
Quick Revenue Realization: The industry average time for a blogger to generatesales from the start of training is 6 months. As a result, Ruhnn’s business modelgenerates cash much faster than most startups. In addition, most of the costincurred are fixed cost and overheads, which stays relatively constant whenscaling up. Thus it produces positive cash flow even in relatively early stage ofthe business.
Rapid Growth of Number of Followers: Ruhnn leverages its network of influentialsocial media accounts allows the bloggers to gain followers much faster. Theability to share and utilize partners’ follower base allows the rapid growth of thenumber of followers and thus greater profit.
Lower Cost of Web Traffic: Ruhnn’s organic mechanism of increase bloggers’social media exposure and number of organic followers has much lower costand higher return than traditional retail stores. Organic followers are more likelyto be returning customers (repurchase rate is 95%) while customers fromtraditional retail store are prone to one-time purchase. Thus in long-run webtraffic and customer acquisition cost are lower under Ruhnn’s model.
Business Model and Scalability
Loyalty of Followers (stickiness): Bloggers’ frequent engagement
with the followers implies a mutuality in the celebrity and fan
relationship. Followers are more loyal when their idol responds.
Preorder and Less bad inventory: Preorder and analysis of followers
response on outfit samples allows Ruhnn to accurately estimate the
sale volume and thus the quantity of inventories. The average
traditional retail inventory turnover ratio is 15%-18% while Ruhnn’s
ratio is only 2%-3%.
Fast adaptation to market change: Frequent interaction withfollowers and constant presence on social media allows thebloggers to quickly sense the change in consumer preferences. And
thus faster adjustment to the blog post content and outfit design to
maintain Ruhnn’s market capitalization.
Business Model and Scalability
Great Talent Under RuhnnGREAT TALENT UNDER RUHNN
Name No. of
Followers on
Social Media Link (Weibo) Taobao Online Store
Link
Note
张大奕Eve 4,740,423 http://weibo.com/zhangyiev
e?refer_flag=1001030101_
https://bigeve8.world.taob
ao.com/
Hit Taobao Top 10
Women’s Fashion Retail C
Category twice; No. 2 in
Most Profitable E-
commerce Blogger Rank
大金Dajin 1,822,150 http://weibo.com/kings1992?
refer_flag=1001030102_&is_h
ot=1
https://dakin.world.taobao
.com/
Specializes in Fashion
Clothing
虫虫Chonny
1,714,698 http://weibo.com/u/2634154
091?refer_flag=1001030102_&
is_hot=1
https://shop446571526.worl
d.taobao.com/?spm=0.0.0
.0
Specializes in Makeup
左娇娇Rosemary
1,520,409 http://weibo.com/rosemary1
6?refer_flag=1001030101_&is_
hot=1
https://shop114107749.worl
d.taobao.com/
Specializes in Fashion
Clothing
管阿姨 1,569,971 http://weibo.com/u/1225512
093?topnav=1&wvr=6&topsu
g=1&is_hot=1
https://pastten.world.taob
ao.com/
Specializes in Fashion
Clothing
Growth and Revenue (Modeling)
- NOTES AND ASSUMPTIONS
- INTUITION BEHIND THE MODEL AND METHODOLOGY
- DATA SUMMARY
- DATA ANALYSIS
- COST STRUCTURE AND SCALABILITY
- SUMMARY
Growth and Revenue (Modeling)
Ruhnn does not publish information regarding its revenue and growth
Proxies are identified to estimate Ruhnn’s growth and revenue
Bloggers’ followers are the ultimate driver of Ruhnn’s revenue
Thus the growth of the number of followers is a reasonable estimate of thegrowth of Ruhnn’s revenue, assuming purchasing power remains constant
Since Weibo.com does not provide the history of number of followers forindividual accounts, relevant metrics under each blog post of individualbloggers are identified to be the proxy in estimating the growth of bloggers’ fanbase
Relevant metrics are Number of Likes, Number of Comments and Number ofShares
Python Scraper Code is utilized to obtain data
Four different levels of blogging and selling performance are identified and fourrepresentative bloggers are chosen for data analysis
Notes and Assumptions
Weibo Blog Post Example:
Blog post contains three
metrics (at the bottom of
the picture on the left)
The first one is Number of
Shares: 444
The second one is
Number Of Comments:
13736
The third one is Number
of Likes: 1114
Taobao Item Sale Example:
Taobao Item Sale contains
three metrics
The orange one is Price : ¥459
The one on the right is number
of items sold in the current
month (Taobao cleans sale
data every month): 281
The one on the bottom is the
number of comments in the
past three month (Taobao
cleans data on commentsevery three month) : 89
Four Representative Bloggers Identified for
Analysis (different level of performance)
Name No. of Followers Performance Level Social Media Link
张大奕Eve 4,738,586 Super Star Performer
(2016 Single Day’s Sale
¥0.248 billion)
http://weibo.com/zhang
yieve?refer_flag=100103
0101_
大金Dajin 1,822,825 Star Performer (2016
Single Day’s Sale ¥30+
million)
http://weibo.com/kings1
992?refer_flag=10010301
02_&is_hot=1
媌老板 Miaolaoban 996,253 Mediocre Performer http://www.weibo.com/
maimiaoerqingqing?top
nav=1&wvr=6&topsug=1
&is_hot=1 -
_rnd1482588048810
朴瑟 Puse (KoreanNationality)
1,581,168 Poor Performer http://weibo.com/u/562
6139459?topnav=1&wvr=
6&topsug=1&is_hot=1
Data Summary
Number of observations: 8472
OLS Regressions: F-test and P-values show that all statistics are
statistically significant with an average R square of 65%
Intuition Behind the Model and
methodology
Please refer to PowerPoint named “Model for Ruhnn‘s Growth and
Revenue Detail Explanation” and attached excel spreadsheets for
detail
Data Analysis
Growth of Followers:
Ruhnn Blogger Social Media Performance Data Analysis
Individual Blogger’s Revenue:
张大奕eve‘s 2016 Taobao Sales Revenue
Ruhnn’s Estimated 2016 Annual Revenue:
Sensitivity Analysis
Detail Analysis of Sensitivity Analysis
Ruhnn’s Revenue Projection:
Ruhnn’s Revenue Annual Growth Rate
Ruhnn’s Revenue Projection for the Next Four Years
Growth of Followers: Ruhnn Blogger Social
Media Performance Data Analysis
R Square
The larger the number of inorganicfollowers (blogger incubators willsometimes paid third parties for computergenerated fans who are not real people toboost up number of followers), the smallerthe R square.
The more inorganic fans, the higherstandard deviation between R squares. (i.e.
Extreme under perform blogger 朴瑟 Pusehas huge amount of inorganic fans. Her Rsquares from different metrics variesdrastically from 1.48% to 38.30%)
Reliability of Data
It is technologically hard to use computersprogams to generate comments, sharesand likes on blogs while it is extremely easyto generate fake followers.
That being said, calculated weightedaverage monthly growth of followers ismuch more reliable than number offollowers.
Thus 朴瑟 Puse's extremely low volume ofsale, growth of comments and growth ofshares do not justify her large number of
followers
Blogger Performance
1. Blogger-
performance
evaluation is based on
Ruhnn Standard
instead of industry
standard.
2. Ruhnn Standard is
much higher than
industry standard.
Growth of Followers: Ruhnn Blogger Social
Media Performance Data Analysis
Given high industry default rate of 80%, Super Star (4.24%), Star
(7.25%) and even Mediocre (3.90%) performing Bloggers out
perform most other bloggers even with fierce competition.
Super Star performer does not experience slower growth asindicated by 4.24% because of her extremely large number of
followers (almost 5 million).
Star performer is experiencing rapid growth as shown by 7.25%
Conversion rate for Super Star and Star Performers are all above 20%.
Given its high follower growth rate and assumption of constant
purchasing power, these bloggers’ revenue growth are equally high.
Individual Blogger’s Annual Revenue: 张大奕eve‘s2016 Taobao Sales Revenue
Only data on Nov Sale of Nov's Design (11[11]), Dec Saleof Dec's design(12[12]), Dec Sale of Nov's design(12[11])are actual data.
张大奕eve is estimated to achieve ¥248 million of Sale onher Taobao Online store during Single’s Day, which is 24%higher than that of last year
张大奕eve is the only blogger from Taobao Women’s OutfitC Category (non brand, individual seller category) that isranked Top 10 of Toabao’s Women’s Outfit Sellers( including all categories). It is worth noting that she is theonly C Category selling on the rank.
Format for Monthly
Sales Category:
Rev(Month of the Sale
Occur[Month of the
Design])
i.e. Rev(12[11])
represents the revenue
from selling
November's design
during December
Individual Blogger’s Annual Revenue: 大金Dajin’sSingle’s Day 2016 Taobao Sales Revenue
Format for Monthly Sales Category:
Rev(Month of the Sale Occur[Month of the
Design])
i.e. Rev(12[11]) represents the revenue from
selling November's design during December
大金Dajin (Star Performer) made ¥31.4million of sale during Single’s Day. She out
performed most other bloggers in the
market.
Ruhnn’s Estimated 2016 Annual Revenue:
Sensitivity Analysis
Ruhnn’s Estimated 2016 Annual Revenue:
Detail Analysis of Sensitivity Analysis
张大奕Eve's November Sale is44.6% of her 2016 Annual Sale(247.98million/556.16million).
Assume Nov Sale to AnnualSale ratio for Star PerformingBloggers are higher, assumedto be 60% (conservativeestimation), given there are 6Sales periods on average foreach Blogger, each StarPerforming Bloggers will beable to generate 52.38million Yuan Per Year. (Taking大金Dajin's November Sale asa benchmark, 31.426million /60% = 52.38million)
Thus 4 Star Performers's Total2016 Annual Revenue is 210million Yuan.
Total Revenue from the rest of 45 Mediocre and poor Performers should at leasttotal 67.5 million Yuan with each contribute on average 1.5 million Yuan. (Rest ofthe Rev - 210 million => 67.5 million yuan)
According to the Detail analysis of Sensitivity analysis Table, 张大奕Eve's %contribution to Ruhnn's Total income should be within range 55% to 59% andRuhnn's Total Revenue in 2016 should be around 900million to 1billion Yuan.
Ruhnn’s Revenue Projection: Ruhnn’s Revenue
Annual Growth Rate
Ruhnn’s Revenue Projection: Ruhnn’s Revenue
Projection for the Next Four Years
Ruhnn’s Revenue Projection: Ruhnn’s Revenue
Projection for the Next Four Years
1,000.0001,047.467
1,097.1881,149.268
1,203.821
900.000942.054
986.0721,032.148
1,080.376
y = 50.944x + 946.72
y = 45.085x + 852.88
0.000
200.000
400.000
600.000
800.000
1,000.000
1,200.000
1,400.000
2016 2017 2018 2019 2020
Ru
hn
nA
nn
ua
lRe
v
Year
Ruhnn Holding's Future Revenue Projection
Ruhnn Annual Rev (Upper Bound, in millions Yuan)
Ruhnn Annual Rev (Lower Bound, in millions Yuan)
Linear (Ruhnn Annual Rev (Upper Bound, in millions Yuan))
Linear (Ruhnn Annual Rev (Lower Bound, in millions Yuan))
Cost Structure and Scalability
Other than the cost of inventory, most of costs incur are overhead
and fixed cost. Salary for talent management team is the highest
among these overheads.
Ruhnn’s business model is highly scalable because of its cost
structure.
During expansion, an increase in the number of contracted
bloggers will not greatly affect the overhead costs.
Thus Ruhnn can scale up fast as it did in 2015 and achieve economy
of scale.
Summary
Ruhnn Holding is estimated to experience a (4.575%, 4.646%)
monthly grow and a (4.673%, 4.747%) annual Growth, in addition to
a (¥ 0.9 billion, ¥ 1billion) revenue of 2016.
According to the analysis above and aggressive financing activities,
Ruhnn is growing and expanding rapidly to capture more market
share.
It is also a highly profitable company with the lowest default rate,
comparing to most of the other ones in the market.
TeamCORE MEMBERS
OTHER FACTORS
Core Members
Founders:
冯敏 Min Feng (CEO)
孙雷 Lei Sun
张舒 Shu Zhang
All members have previous experience and heldimportant positions in related field, including E-commerceand media.
Three founders started an E-commerce fashion retailcompany with a popular brand called LiBeilin(莉贝琳).
Libeilin (Ruhnn) hit Top 10 Women’s Fashion Sale onAlibaba’s online retail Platform Taobao.com, achieving atleast ¥0.2 billion sale in 2014 before its transition to be thefirst Blogger Incubator in China.
Realizing the high cost of marketing and high churn rateof customers of traditional fashion retail business, thefounders altered the company’s business model to reducemarketing cost, greatly increase repurchase rate andobtain organic business cycle.
The first blogger Ruhnn contracted (张大奕eve) has4.7million followers on Weibo and achieved ¥0.247 billionsale on Single’s Day in 2016
Other Factors
Specialization of Bloggers’ Management Teams
Highly specialized departments including talent acquisition, talent training,photography, social media management and analytics, external relationship,purchase and inventory management.
Enables higher efficiency, less mistakes and better outcome for businessoperation.
Great Office Location
Located in Jianggan District, Hangzhou, which is one of the largest clothingwholesale market in China.
Reduces warehouse renting cost because of advance logistics in China and ashort clothing manufacturing period (7 days on average). Most of the inventorycan be shipped out directly from the factories.
Enables quick adaptation of market condition such as changing consumertaste because of the same reason above.
InvestorsLIST OF INVESTORS
STRATEGY INVESTMENT
List of Investors
Name (Year) Round Amount Note
SAIF Partners (2014) Series A Non-disclosed Invested in Ruhnn’s transition stage
from traditional fashion retailor to
Blogger Incubator
SAIF Partners (2015)
Legend Capital (2015)
Telescope
Investment (2015)
Series B ¥120 million Invested in Ruhnn’s expansion stage.
The company contracted from less
than 10 bloggers to more than 50
bloggers and achieved more than
¥0.2 billion Single’s Day Sale during
the Same year.
Alibaba Group (2016) NEEQ
(already went
public but
with ¥5 million
minimum
investment)
¥0.3 billion Ruhnn’s stock price sky rocked from
¥7.66 per share at April 2016 to ¥96.43
per share @ valuation of ¥3.3billion.
Alibaba Group now holds 10% of
Ruhnn’s equity.
Strategy investment
Alibaba Group has access to all the sales data from Ruhnn as it
operates Taobao.com
The Group invested 11 days after Single’s Day (11.11.2016)
This investment is a strong indication of Ruhnn’s great performance
this year and its better performance in the following year
Given the nature of Alibaba Group’s business, Ruhnn will potentially
have access to competitors data and thus have better knowledge
of market condition.
Ruhnn will be able to adjust much faster to market change and willpotentially open more avenues of income
Relevant events & Long term directionBACKDOOR LISTING AND CORPORATE RESTRUCTURING (FACTS)
PURPOSES OF DIFFERENT FINANCIAL ACTIVITIES AND LONG TERM DIRECTION
Backdoor Listing and Corporate
Restructuring: Facts
Backdoor Listed through a shell company called 克里爱KeLiAi at the cost of¥ 0.176 billion on NEEQ (National Equities Exchange and Quotations)
Dissolved Ruhnn Trading Company (the original Ruhnn), changed the shellcompany name’s to Ruhnn Holding Co.,Ltd and founded 4 subsidiary
companies specializing in different part of its business (media, supply chain,
online store management [both in mainland and in Hong Kong])
IPO in NEEQ (National Equities Exchange and Quotations) has much lower
qualifications such as minimum annual revenue and wait time comparing to
IPO in SSE-A Share (Shanghai Stock Exchange A-Share)
Minimum investment in companies on NEEQ is ¥ 5million
There is no minimum investment on SSE-A Share
Backdoor Listing and Corporate
Restructuring: Purpose
Ruhnn’s ultimate goal of going public is to be able to raise more capital
and increase enterprise value for expansion purpose
It also gives the advantage of better financial regulation including taxregulation, which is more appealing to more investors
Shell companies on NEEQ are usually much cheaper
Minimum ¥5million investment on NEEQ allows Ruhnn to remain relatively
private, which enables founders to maintain a majority of the
company’s ownership
Corporate restructuring allows Ruhnn to better prepare for expansion aseach subsidiary company is highly specialized.
Setting up a subsidiary E-commerce company in Hong Kong indicatesRuhnn’s ambition of expanding out of the Mainland China’s Market
Purposes of different financial
activities and Long Term Direction
Ruhnn undergone three major Financial activities in 2016: backdoorlisting, corporate restructuring and receiving investment from AlibabaGroup.
It aims to rapidly expand its current operation into different geographicallocations including Hong Kong and Korea (the company contracted aKorean Blogger 朴瑟Puse in 2015)
It also intents to enter different areas of E-Commerce such as Cosmeticsas it starts contracting Bloggers specializing in makeup.
Entering different fields of E-commerce allows Ruhnn to diversity its talentportfolio and reduce risk due to homogenization and high default rate inthe market
With the help of Alibaba’s Big Data, Ruhnn will maintain its dominance inthe blogger industry
Investment Suggestions
It is expected that Ruhnn Holding’s share price will increase after
publishing its first fiscal year financial report
Alibaba Group’s investment right after Single’s Day proofs this
speculation to be correct
Chinese public companies usually publish their financial report from
the previous year around late January to April
There will be 15 days to 3 months for investment decision making and
investing internationally
Will be able to invest through institutions with QFII qualification
(Qualified Foreign Institutional Investors).
Please refer to QFII Qualified Institutions’ List Attachment
The End
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