Key points to remember:
- Online luxury retailer Secoo has filed for bankruptcy after its business stumbled under Covid-related disruptions and internal missteps
- The company’s Nasdaq-listed shares now trade for around $0.24, a fraction of the $13 they sold in better times when it went public in 2017.
By Shirley Lau
Talking big is second nature to many ambitious Chinese companies. But luxury e-commerce platform Secoo Holding Ltd. SECO apparently went a bit too far with his fanciful talk about creating a store that would “last 109+ years”.
The 14-year-old Shanghai-based company is currently struggling to stay alive, having recently filed for bankruptcy in Beijing. Note that this was the second such bankruptcy filing for Secoo this year. The first came in January, although Secoo later withdrew that petition.
Unsurprisingly for a company in such dire straits, Nasdaq-listed Secoo has also faced a litany of issues that have angered everyone from buyers to suppliers and shareholders.
China’s Covid-induced slowdown in consumption is a clear culprit of Secoo’s woes, particularly for luxury goods which have undoubtedly seen sluggish demand as many people have been confined to their homes to contain outbreaks. But the company’s sad situation also underscores its misguided strategy, as well as the inherent drawbacks of reselling luxury goods online in China.
It wasn’t supposed to be like this.
Secoo was founded in 2008 by Chinese businessman Li Rixue, who also uses the name Richard. Chinese consumers’ appetite for foreign luxury goods was growing exponentially at the time, giving rise to a strong resale market. From a second-hand handbag store, Secoo has grown into the country’s largest luxury e-commerce platform, peddling top brands such as Valentino and Prada. It debuted on the Nasdaq in 2017, raising around $140 million and boasting its status as China’s “first luxury e-commerce stock”.
The debut on Wall Street was a boom time for Secoo, whose net profit jumped nearly 400%. the year of registration. A confident Li reportedly once said that Alibaba founder Jack Ma “wants Alibaba to last 102 years, and I want Secoo to last 109 years.” If those numbers seem odd, it’s because Alibaba was founded in 1999, which means a 102-year lifespan would stretch to 2101, putting Alibaba in business for three centuries.
But Secoo’s time is better measured now in much smaller units, probably months or even weeks. Management has not commented on reports of its second bankruptcy filing earlier this month. But he dismissed a local media report that his Beijing office was empty, saying he had simply moved all his luxury goods to his warehouse.
Secoo was also coy when media reported in January that its corporate body, Beijing Siku Shangmao Co, had filed for bankruptcy with the Beijing Municipal First Intermediate People’s Court, even as 153 million of its shares were frozen. It withdrew the bankruptcy petition on Jan. 6, according to China’s National Enterprise Bankruptcy Information Disclosure Platform.
No amount of timidity can allay the worries of Secoo shareholders, who over the past two years have seen the stock decline steadily before plunging to an all-time low in the past four months. On Thursday, the stock closed at just $0.238, a tiny fraction of the $13 price for its September 2017 IPO.
mired in misfortunes
The dramatic fall is hardly surprising when you consider all of Secoo’s misfortunes. Earlier this month, she lost a lawsuit in which Prada sought to freeze more than $1.6 million of her assets for a year. But the Italian luxury house, which partnered with Secoo in June 2019, is not alone in such disputes. In the past two years alone, the company has found itself embroiled in hundreds of other sales contract disputes, mostly as a defendant.
So where did things go wrong?
Secoo’s financial reports show that 2019 was its most profitable year, with revenue up 27.5% to around 6.87 billion yuan ($1 billion). But growing competition and falling consumption during the pandemic have weighed on the company, causing its revenue to drop 12% in 2020. The figure fell by nearly half last year to just 3.13 billion yuan, as Secoo’s net loss jumped 547%.
As its business deteriorated, the company missed payments worth tens of millions of yuan to more than 200 suppliers and was fined for fraudulent advertising and unpaid wages.
Last May, Secoo was reprimanded by the Nasdaq for failing to file its annual report for fiscal year 2020 on time. Seven months later, it was warned it was at risk of being delisted after its shares traded below the benchmark $1 mark for an extended period.
Unsurprisingly, buyers weren’t happy with the company either. The number of complaints against Secoo filed with China’s consumer rights platform Black Cat rose from 8,800 at the start of this year to more than 17,000 in August. Many relate to counterfeit products, failure to deliver orders, and failure to refund.
The company has also consistently ranked No. 1 on online public complaints platform Diansubao since last year in terms of consumer complaints received. With so much discontent, it’s no wonder that Secoo’s active user base and orders have dropped significantly, from around 650,000 and 1.75 million respectively in the first half of 2020 to around 560,000 and 1, 4 million at the same time last year.
There are many issues underlying the company’s downfall. At the highest level is the low consumption during the pandemic. While Covid has been a boon for many e-commerce companies, pandemic-related disruptions to international supply chains have negatively affected Chinese luxury e-commerce companies such as Secoo.
Then there are company-specific issues, led by Secoo’s business strategy which has at times been suspect. Its plan to diversify into high-end services such as private jet travel and luxury car rentals, for example, failed to take off due to inadequate offline support. And its introduction of low-cost products such as snacks and hotpot broth was another misstep, blurring the company’s identity as a purveyor of luxury goods.
Luxury e-commerce platforms like Secoo are also understandably at a disadvantage to traditional outlets in several ways. They often don’t have a price advantage over duty-free stores, and luxury brands rarely allow them the right to sell their products at lower prices than traditional outlets for fear of undermining their brand image. Keeping counterfeit products at bay is another challenge.
According to Bain, China is on track to become the world’s largest market for luxury goods by 2025. Whether this forecast is too optimistic or realistic, no one knows, because there is no end in sight yet. for China’s zero-Covid strategy which continues to dampen consumption over the years. a wide range of product areas. But based on its latest woes, Secoo seems unlikely to benefit from a future boom in this lucrative market if and when consumption returns to previous levels.