Live streaming craze is fading, and losses of online celebrity e-commerce may become the norm

Live streaming craze is fading, and losses of online celebrity e-commerce may become the norm

When it comes to Hangzhou Ruhan Holding Co., Ltd., not many people may know it, but when it comes to internet celebrity Zhang Dayi, everyone is familiar with her. Ruhan Holding is the company behind Zhang Dayi.

That year, Ruhnn Holdings was listed on the New Third Board as the "No. 1 e-commerce company among Internet celebrities". It recently released its 2017 semi-annual report, with a net loss of 15.319 million yuan in the first half of 2017, and the loss continued to expand compared with the same period last year.

"You are responsible for being beautiful, and I am responsible for making money to support the family" is the business model explained by Feng Min, CEO of Ruhan E-commerce. Now it seems that it is not as good as it is said. In the first half of 2017, Dayi E-commerce, a subsidiary of Ruhan Holdings, achieved a net profit of 18.192 million yuan, but the overall loss of Ruhan Holdings reached 15.3191 million yuan. "The cash-making ability of top Internet celebrities and mid-level Internet celebrities is very different. It is difficult for Zhang Dayi to support the entire Ruhan Holdings." Li Qiang (pseudonym), who was once a partner of the anchor agency, pointed out to the reporter of China Business News.

For the industry, Ruhan Holdings' losses are not surprising. The sluggish live broadcast industry has affected the growth of Internet celebrities in the central region. It is not easy to create top Internet celebrities like Xue Li and Zhang Dayi. In addition, the rising traffic costs make Ruhan Holdings' losses just the cruel reality behind the boom of Internet celebrity e-commerce.

Costs have risen sharply

According to the 2017 semi-annual report recently released by Ruhnn Holdings, the company's revenue increased and losses widened. According to the financial report, the company achieved revenue of 305 million yuan during the reporting period, a year-on-year increase of 293.48%. However, the net profit attributable to the shareholders of the listed company was -15.3191 million yuan, a year-on-year decline of 287.64%.

Ruhnn Holdings attributed the loss to two reasons: first, sales and administrative expenses increased significantly compared with the previous period; second, online clothing sales accounted for a high proportion of sales, with clothing sales accounting for 77.23% of total revenue in the first half of the year. The clothing business has obvious seasonal characteristics, and operating income and net profit are expected to rise in autumn and winter.

However, in the eyes of industry insiders, this cannot fully explain the losses of Ruhnn Holdings. In 2016, Ruhnn Holdings was listed on the New Third Board as the "No. 1 e-commerce company for Internet celebrities". Subsequently, Alibaba invested 300 million yuan and subscribed for 3.1111 million shares of Ruhnn Holdings at a price of 96.43 yuan per share, accounting for 9.58% of the total share capital. After the financing was completed, the valuation of Ruhnn Holdings once reached 3.132 billion yuan.

E-commerce analyst Lu Zhenwang believes that Ruhan Holdings' main loss is marketing costs. Ruhan Holdings' bonus is the increase in fans, but Zhang Dayi's fans have not increased much in the past year, so the bonus no longer exists. On the other hand, Ruhan Holdings needs to use its own supply chain to create more Internet celebrities and amortize costs, but as of now, among the many Internet celebrities under Ruhan Holdings, only Zhang Dayi is well-known to the public. Internet celebrities cannot be created in batches, which means that Zhang Dayi is under great pressure to "support her family."

A reporter from China Business News combed through Ruhnn Holdings' financial reports and found that sales and management expenses rose sharply in the first half of 2017, with sales expenses rising from 20.065 million yuan in the same period last year to 118 million yuan, and management expenses rising from 9.4336 million yuan to 41.7676 million yuan. Advertising and celebrity service fees accounted for the majority of sales expenses, totaling 72.2751 million yuan, accounting for 23.7% of revenue.

In addition, Dayi E-commerce (Ruhan Holdings holds 51% of the shares) is still the main source of Ruhan Holdings' net profit. In 2016, Ruhan Holdings' annual revenue was 445 million yuan, while Dayi E-commerce's revenue was 228 million yuan. In the first half of 2017, Ruhan Holdings lost 15.3191 million yuan, while Dayi E-commerce achieved a net profit of 18.192 million yuan. "More than half of Ruhan Holdings' profits now come from Zhang Dayi, and it is clear that more influential Internet celebrities like Zhang Dayi are needed to amortize the cost," Lu Zhenwang said.

Reducing the burden on Zhang Dayi is not only related to the overall profitability of Ruhnn Holdings, but also to its long-term development. Ruhnn Holdings' Internet celebrity economic model is "Internet celebrity + incubator + supply chain", which means that while Zhang Dayi continues to make money, more Zhang Dayi need to be quickly incubated.

Feng Min said in an interview earlier that Ruhnn Holdings is expanding into the fields of extreme sports, outdoor activities, travel and other fields, and is trying to expand into more content categories besides beauty and clothing. However, according to industry insiders such as Li Qiang, Ruhnn Holdings previously entered into products with higher gross profit margins, such as clothing and cosmetics. Once the product categories are expanded, it is particularly necessary to control the rising costs and cultivate new "Zhang Dayi".

The best time to incubate influencers has passed

Although iResearch and Sina Weibo jointly released the "2017 China Internet Celebrity Economic Development Insight Report" and disclosed that the total number of fans of Chinese Internet celebrities continued to increase on the original huge basis in 2017, reaching 470 million, a month-on-month increase of 20.6%. This means that both the number of Internet celebrities and the scale of fans have increased, and the monetization space of the Internet celebrity economy has further expanded.

But the reality is not so optimistic. After the crazy growth in 2016, live streaming entered a reshuffle period in 2017. A large number of small and medium-sized live streaming platforms are facing an increasing funding gap, and the brokerage companies that grew up with live streaming are also seeking transformation or direct dissolution.

The decline of live streaming is also directly affecting the overall market of internet celebrities. Partners of anchor brokerage companies like Li Qiang have also begun to transform and incubate their original internet celebrity anchors into vertical fields. "The overall live streaming traffic is declining, and the incubation of internet celebrities is also becoming difficult." What makes Li Qiang and others painful is that the best time to incubate internet celebrities seems to have passed. "Top internet celebrities like Xue Li and Zhang Dayi can continue to play, but it will become difficult for others. On the surface, it is easy to enter the internet celebrity e-commerce, but in fact the threshold is very high and directly depends on the social stickiness and fan scale of the internet celebrity."

For Internet celebrities, the good days of easily increasing followers are gone. The same problem seems to be plaguing Ruhan Holdings. Feng Min also said in an interview that the cost of acquiring new traffic is getting higher and higher, and it is necessary to continue to advertise to gain exposure and traffic. It is difficult for ordinary store owners to easily digest this cost pressure. He gave an example, saying that before, a video of how to tie a bun could attract 300,000 fans, "If you advertise with your eyes closed, you will increase your followers quickly, but now you have to do precise advertising."

The reporter checked the current number of Weibo fans of Zhang Dayi, Da Jin and Auntie Guan under Ruhan Holdings, which are 5.43 million, 1.9 million and 1.76 million respectively, and the number of fans of Taobao stores are 5.868 million, 2.18 million and 817,000 respectively. In terms of the number of fans, the gap between the three is not small, and in terms of the ability to bring goods on Taobao, the gap is also very large. Within 30 days, the total sales of Zhang Dayi, Da Jin and Auntie Guan's Taobao stores were 84,300, 22,200 and 11,200 (pieces) respectively. Judging from the current situation, the gap between the top Internet celebrities and the middle Internet celebrities is so big, it is not difficult to understand that it is not easy for the downstream Internet celebrities to open up the road of Internet celebrity e-commerce.

Judging from the current monetization model of online celebrity e-commerce, selling products to fans on e-commerce or mobile social e-commerce platforms is the most direct and fastest way to achieve results. The combination of "social platform + e-commerce platform" jointly established by Weibo and Alibaba is the most mature. For example, Zhang Dayi's content sharing on Weibo will be linked to her Taobao store, completing the diversion and transaction from Weibo to Taobao. But in Lu Zhenwang's view, "The cost of traffic has been rising. It is not enough to rely solely on Weibo. We also need to rely on Taobao traffic. Although Alibaba has invested in Ruhan Holdings, there will be no traffic tilt."

Some subtle changes are also worth noting. Li Qiang noticed that Weibo also borrowed the algorithm push of Toutiao, which actually reduced the weight of content distribution based on the number of fans, indirectly boosting fan headlines and various promotions. "In other words, taking Zhang Dayi as an example, it is not the case that the larger the fan base, the greater the weight of content distribution, and buying traffic and various promotions will become more and more important."

Cao Lei, director of the China E-Commerce Research Center, believes that at this stage, e-commerce and the Internet celebrity economy are still in the stage of "mutually leveraging each other's strengths". For e-commerce platforms with hundreds of millions of users and tens of billions of yuan in sales, it remains to be seen how much traffic and orders brought by Internet celebrities can release. "Many users follow Internet celebrities for entertainment, but the two sides have yet to merge to truly convert it into consumption power."

In addition to the impact of industry and cost pressures, online celebrity e-commerce will also face more intense market competition. Ruhnn Holdings itself also mentioned in its financial report that "traditional e-commerce clothing brands have joined the competition of 'online celebrity e-commerce' and 'online celebrity brokerage', and many online celebrity e-commerce brokerage companies are gradually emerging. In addition, internationally renowned 'fast fashion' brands have also established e-commerce channels, such as 'ZARA' and 'Uniqlo', etc., and the company faces greater market competition risks."

In the view of industry insiders, Ruhnn Holdings' temporary losses are just a microcosm, and online celebrity e-commerce will usher in a stage that requires refined operations. If costs cannot be effectively controlled and gross profit margins are always maintained at a high level, online celebrity e-commerce will suffer losses again.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.

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