On September 23rd, the second-hand e-commerce platform Zhuanzhuan Group announced the full acquisition of the second-hand luxury goods e-commerce platform Hongbulin. Since the anti-monopoly crackdown in the internet industry in 2021, there have been very few acquisitions initiated by well-known domestic internet companies in China, hence this acquisition has attracted significant attention.
Zhuanzhuan's co-founder, Chief Operating Officer, and CEO of Hongbulin, Hu Weikun, told the Economic Observer Network that after Zhuanzhuan's acquisition of Hongbulin, its infrastructure capabilities such as door-to-door services, offline stores, and offline self-inspection can be reused, generating economies of scale. In addition, this acquisition will also enhance Zhuanzhuan's ability to appraise luxury goods.
In the current second-hand e-commerce market, Zhuanzhuan has a certain gap compared to its old rival Xianyu. Data from market research firm QuestMobile shows that in April of this year, the monthly active user number (DAU) of Xianyu's APP was 162 million, while the combined DAU of Zhuanzhuan's Zhuanzhuan APP and Zhaoliangji APP was 24.08 million (without deduplication).
However, Zhuanzhuan is also promoting a differentiated development strategy. Xianyu only established two offline stores at the beginning of this year. According to Hu Weikun, by the end of this year, Zhuanzhuan will open nearly 800 stores nationwide, with offline stores mainly relying on natural customer traffic, and the proportion of online traffic is no more than 30%.
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The Beginning and End of the Acquisition
This acquisition of Hongbulin is Zhuanzhuan's second major merger and acquisition.
Hu Weikun said that after Zhuanzhuan acquired Zhaoliangji in 2020, it has been actively looking for new targets since 2021. At that time, it looked at many top companies in the second-hand vertical field, and Hongbulin was the best one they saw. However, in 2022, Zhuanzhuan's infrastructure capabilities such as door-to-door services, offline stores, and offline self-inspection were not yet perfect, so it did not choose to acquire but strategically invested in Hongbulin.
Hongbulin was established in 2017 and has raised funds for seven rounds, with a total amount of about 1.3 billion yuan. Investors include Matrix China, Jiuhe Venture Capital, IDG Capital, and Innovation Works. However, after Zhuanzhuan invested $100 million in Hongbulin in November 2022, other shareholders of Hongbulin gradually exited.
Tianyancha shows that in February 2023, the shareholder structure of Hongbulin is: 58.com's affiliated company Wu Ba Limited holds 47.67%, Zhuanzhuan's wholly-owned subsidiary Tianjin Key Time Information Technology Co., Ltd. holds 35.23%, and Hongbulin's founder Xu Wei holds 17.09%.
Zhuanzhuan is a company under 58.com, and the two have the same interests. Therefore, Zhuanzhuan's full acquisition of Hongbulin requires Xu Wei's consent.Hu Weikun said that in 2023, Zhuanzhuan had the idea of a full acquisition of Hongbulin. From a strategic perspective, Zhuanzhuan believed that after merging with Hongbulin, the infrastructure could be reused, creating economies of scale and significantly spreading out costs. Thus, they began communicating with Hongbulin's founding team. The founding team of Hongbulin had no objections, as for the second-hand luxury goods platform, they had always hoped to provide door-to-door services or make investments offline, but such expenditures would be a huge financial investment for Hongbulin.
"Both parties had a consensus, so the talks went quickly. After the Chinese New Year this year, we started formal discussions and completed all processes in less than half a year, and all contracts have been finalized," Hu Weikun told the Economic Observer Network.
Hu Weikun also stated that the underlying logic of this acquisition is Zhuanzhuan's optimism about the second-hand market, especially in the second-hand luxury goods sector, which is still an incremental market. The growth areas for second-hand luxury goods are mainly in cities below the third tier and in the young user market. Many users in lower-tier cities buy their first luxury goods as second-hand items. Users born after 1995 and 2000 also have a high acceptance of second-hand luxury goods.
How to Integrate
Currently, Zhuanzhuan and Hongbulin's brands and apps continue to operate independently, and the employees of both companies work separately. In October this year, Zhuanzhuan's app will undergo a major revision to add a luxury e-commerce entry point. Hongbulin's own customer base, operational mechanisms, and team will continue to operate independently, while the underlying supply chain systems will be shared.
Hu Weikun said that the integration of both parties mainly includes the interconnection of the middle and back-end systems and fulfillment capabilities. Hongbulin will reuse Zhuanzhuan's door-to-door services and store systems. In the future, all luxury goods appraisal work for Zhuanzhuan will be undertaken by Hongbulin. Luxury goods appraisal is a core capability of Hongbulin, which currently has a professional appraiser team of nearly a hundred people.
In terms of physical stores, Zhuanzhuan and Hongbulin will also cooperate. Zhuanzhuan's CEO Huang Wei once stated that in December 2023, Zhuanzhuan's physical stores would number 400. Hu Weikun revealed that the company will open nearly 800 stores across the country by the end of this year, mainly selling digital products such as mobile phones, computers, and game consoles. The advantage of physical stores is that customers can see and get what they want, and in the future, Zhuanzhuan's physical stores may also display luxury goods.
As non-listed companies, neither Zhuanzhuan nor Hongbulin have disclosed financial data such as revenue and profit to the public. Hu Weikun said that both Zhuanzhuan and Hongbulin have already achieved profitability.
Regarding the expectations for acquiring Hongbulin, Hu Weikun is quite optimistic. He said that in the second-hand market, the costs for vertical platforms are very high, and it is necessary to do a good job in customer acquisition, infrastructure, and other supporting aspects, which is an extremely high cost. After integrating with Hongbulin, it is theoretically possible to bring higher benefits to Zhuanzhuan.
However, in the current second-hand e-commerce field, Zhuanzhuan has a certain gap with its old rival Xianyu. Data from market research institution QuestMobile shows that in April of this year, the DAU of Xianyu's app was 162 million, while the combined DAU of Zhuanzhuan's app and Zhaoliangji app was 24.08 million (without deduplication).Zhuang Shuai, a retail e-commerce industry expert and founder of Bailian Consulting, believes that the scale of Hongblin itself is not very large, and the proportion of second-hand luxury goods in the second-hand goods transaction is also relatively low. For Zhuanzhuan, the value of this acquisition lies in the team and the value of the goods sources of Hongblin, and it will not have a significant impact on Zhuanzhuan's DAU in the short term.
Compared with Xianyu, Zhuanzhuan's advantage lies in offline business. At the beginning of this year, Xianyu successively opened two community stores in Hangzhou and Shanghai, far less than the hundreds of offline stores of Zhuanzhuan. Hu Weikun said that Zhuanzhuan's offline stores mainly rely on natural customer flow, and the proportion of online traffic is within 30%.