Ruhnn, a Chinese start-up that manufactures influencers, raises $ 125 million IPO in the United States – TechCrunch

Ruhnn, a company that allows influencers to sell through e-commerce and plans to change the face of the Chinese fashion industry, has raised $ 125 million after its introduction on the Nasdaq on Wednesday.

The company sold 10 million American Depositary Shares for $ 12.5, the middle of its expected range. In a previous filing with the US Securities and Exchange Commission, the company funded by Alibaba aimed to raise $ 200 million through its initial public offering.

While major US brands are turning to influencers for marketing action, a similar trend is emerging in China. Leading opinion leaders, or KOLs, as they are known locally, gather millions of followers on social media because of their expertise in specific areas, ranging from video games to Korean fashion. Aware of their commercial potential, savvy talent managers are scrambling to sign these stars to generate success in e-commerce.

Data from Frost & Sullivan show that Chinese KOL sales reached 32.9 billion yuan ($ 4.9 billion) in 2017 and are expected to produce a compound annual growth rate of 40.4 percent over the course of five years. coming years. Although in its nascent state, KOL's economy has seduced younger generations of China. Ruhnn says that over 80% of fans who follow his KOL are millennia, or people born between the 1980s and the early 2000s.

Founded in 2016 by Feng Min, a former online store owner, Ruhnn is one of the pioneers in showcasing Chinese Internet stars in full swing. The company, funded by Alibaba, provides KOL with a range of services to connect to fans on the one hand, brands and retailers on the other. This means that influencers receive training to increase their brand awareness and create digital content for market products. In 2018, the batch of 113 KOL under contract from Ruhnn generated a total turnover of 2 billion yuan (300 million dollars) and gathered nearly 150 million fans on different social channels.

The company, based in Hangzhou, in eastern China, in the back yard of Alibaba, is more than a talent agency in the traditional sense of the word. The startup operates online stores for online celebrities and takes care of the entire ecommerce cycle, from product design to manufacturing, warehousing and delivery. (which it allows through the intermediary of third party logistics companies) up to the after-sales service.

Most of Ruhnn's revenues come from the direct sale of fashion and lifestyle products, but the company has developed a platform model that is less burdensome in badets. This approach essentially allows third-party stores and merchants to purchase advertising services of Ruhnn's KOL rank. Ruhnn has increased this sector from less than 1% of its total revenue in 2017 to 11.7% for the nine months ended December 2018.

Companies like Ruhnn, sometimes called "facilitators" or "incubators" of KOL, not only allow celebrities on the Internet; they are also essential for content-hungry social platforms. Ruhnn's stars are all over the Chinese internet, engaging users on WeChat, Weibo and Douyin, which is the local version of TikTok.

Ruhnn and other e-commerce sites that rely on KOL for sale, such as Mogu, based in Hangzhou and listed on the New York Stock Exchange, are also expected to shake China's fashion supply chain. Traditionally, brands are only getting the reaction of consumers after putting products on sale. KOL facilitators reverse this process by asking influencers to try on branded clothing samples. From there, the stars will ask fans their comments, based on brands that can adjust their design and factory orders. Ruhnn also uses a barcode for inventory, which allows retailers and retailers to know exactly how consumer tastes are changing in real time.

In terms of financial outlook, Ruhnn's revenues increased from 577.9 million yuan (86.1 million US dollars) to 947.6 million yuan between 2017 and 2018. The company still operates in the red, recording a loss net of about 90 million yuan, up 40.1 million yuan. one year ago.

According to Frost & Sullivan data, although he is the most important KOL enabler in terms of turnover, Ruhnn faces a few hurdles. A report (in Chinese) by Tencent shows that people born after the 2000s are tired of being sold by the KOL. In addition, China may tighten its tax laws around the nascent KOL sector, which could have repercussions on the income of companies like Ruhnn.

The most pressing problem is perhaps Ruhnn's excessive dependence on a handful of KOL. Zhang Dayi, an influential person in particular, accounted for about half of his total sales for almost three years. This means that Ruhnn is under enormous pressure to retain Zhang, who currently holds the position of marketing manager of the company, whether through financial incentives or celebrity marketing support .

The problem is not unique to Ruhnn, as creators play a key role in all of China's rich content platforms, including the Huya esports streaming site and the Douyin short video app. These companies have spent generously on recruiting KOLs and deploying big data to track users' feelings, but we all know that a celebrity's success is sometimes a matter of luck.