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The young people in the town started selling perfumes, and nearly 10 million people were involved in pyramid schemes.

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Text | AI Finance and Economics Liu Xueer

Edit | Yan Dongxue
This article was originally produced by AI Finance and Economics. Without permission, please do not reprint any channels or platforms. Infringement.
After a lot of hard work, another social e-commerce went to the United States to ring the clock.
On May 4th, Beijing time, the stock price of the first day of the listing rose by 28.64%, to close at 14.15 US dollars, and the market value reached 3.087 billion US dollars. According to the founder and CEO Xiao Shangluo holding 46.4% of the shares, its net worth is 1.43 billion US dollars (about 9.6 billion yuan).
Gathering is a socially-driven boutique member e-commerce provider that offers a full range of products such as beauty care, mobile digital, maternal and child toys, and fruit fresh. In the short history of four years of development, the gathering enjoyd the early social dividends, but also controversial due to the differences in the model. Once received a huge ticket, wearing a “MLM” hat, and now become “the first member of China’s member e-commerce.”
The town youth started selling perfumes
“Twenty years ago, I came to Hangzhou from Tongling in Anhui to work hard. From 2003, I founded ‘Xiao Ye perfume’ and started to gather in 2015. My entrepreneurial journey is just an ordinary story of ordinary people.” Looking back, Xiao Shangluo slowed down. “Fortunately, on the road to entrepreneurship, how many hardships have you encountered, how many valuable people have been helped.”
When I was young, Xiao Shangluo discovered that people would bring a bunch of flowers to the Qingming Tomb, so they went to the market to wholesale colored paper, stenciled flowers, and put a note on the paper flower, saying, “The flowers are elegant and elegant.” These flowers are unsalable, and people are more willing to buy flowers instead of paper flowers. Xiao Shangluo then went to the drums. When he grew up, he went to Penghu to enter the watermelon and went to Wenzhou to wholesale 20 yuan a pair of leather shoes.
The real entrepreneurship took place in 2003. At this time, Xiao Shanglu, 25, has worked in Hangzhou for more than four years and is engaged in car audio sales. He found that car owners who spend hundreds of thousands or even millions of cars are generally reluctant to use dozens of car perfumes, many of which will be replaced by private luxury perfumes. He feels there is a gold mine.
In December 2003, Xiao Shangluo resigned and started a business. He collected 20,000 yuan, a person, a computer, and founded the “Xiaoya perfume” Taobao shop, which mainly sells perfumes of international first-line brands. Later, Xiao Shangluo expanded the category to make-up, skin care products, personal care products, etc. In 2010, the annual sales of online stores reached 150 million yuan.
The bottleneck is coming soon. By 2013 and 2014, the e-commerce system has been very mature, and Xiao Shangluo found that even if he tried harder, he only had a 10%-20% increase. Compared with big brand manufacturers, small and medium-sized shop owners have no price and scale advantages, and lack high profits to participate in search bidding, which is curbed by traffic. The impact is even greater on the offline retail industry. In Xiao Shangluo’s words, one-third of the 60 million guides are laid off, and the rest of the work is idle for half of the day, in addition to tens of millions of treasures, facing time. Fragmentation, encountering discrimination in the workplace.
Can we learn from the model of sharing economy, the platform allocates goods to the warehouse, the store owners only sell them, and everyone shares a commodity, all parties can make a profit?
Suspected pyramid scheme was fined 9 million for four months
In 2015, Xiao Shangluo started his business again. In February, the micro store was launched.
Different from the previous Taobao shop model, in addition to selecting global products, solving warehousing logistics, after-sales and training, and even the graphics and posters of goods can be shared free of charge, the only thing the owner has to do is to sell. In the era when WeChat gradually became a national-level application, coupled with the foundation of Xiaoye perfume supply chain and the help of fans, the gathering has developed rapidly, but it has also attracted a lot of controversy.
It turns out that the owner of the collection needs to pay a platform service fee of 365 yuan per year. After that, other people can be invited to become new shop owners. The owner directly develops 30 new shop owners and indirectly develops 130 new shop owners, and can be promoted to a mentor; the tutor team recruits up to 1,000 shop owners. Can be promoted to a partner or a foster partner.
There are two kinds of relationship between the upper and lower lines, one is company, partner, tutor, shop owner, and the other is company, partner, breeding partner, tutor, shop owner. Whenever a new shop owner joins or purchases a product, the corresponding partner and tutor can receive the corresponding training fee and the merchandise sales rebate.
This distribution model was found to be suspected of pyramid schemes. In May 2017, Hangzhou Binjiang District Market Supervision Administration made a penalty, arguing that there were “entry fees”, “pull heads” and “team compensation” in the course of business, giving an administrative fine of 9.58 million yuan. At the same time, the WeChat public number and subscription number of the micro-stores were permanently banned by Tencent.
For a while, the industry is at a loss. Xiao Shangluo issued an open letter to the public, saying that this ticket is for the APP sales model of the two-year-old micro store, and it is the tuition fee for the development of social e-commerce.
Subsequently, the collection will be rectified for four months. For example, the distribution model will be controlled within three layers and divided into free VIP users and diamond users. The former is a non-member. After paying a service fee of 398 yuan, you can upgrade to a diamond member and enjoy Discount offers and seller commissions. In addition, in the new, non-members and members can invite new users, but the new rewards are presented in the form of cloud coins, which cannot be withdrawn for consumption discounts.
In the prospectus disclosed in March, Yunji also emphasized operational compliance, saying that it had consulted with relevant departments in Hangzhou in December 2018. “The relevant regulatory authorities in Hangzhou verbally confirmed that the current business activities are legal” and believes that Violation of applicable Chinese laws and regulations, including the Prohibition of Pyramid Regulations.
However, the dispute has not been eliminated. Especially in the legal profession, Han Hao, a lawyer of Beijing Kangda Law Firm, told the media whether it is illegal pyramid schemes, not how many grades of distribution, but whether it is a distributor, whether it is a fee, and whether the superior pays after the lower level. The collection of micro-stores still belongs to the team’s compensation in terms of profitability.
Transforming member e-commerce ushered in a mall transfer
The fission effect caused by social e-commerce is sensitive after all, and neither Huang Wei nor Xiao Shanglu want to be linked to this. After this punishment, Xiao Shangluo accelerated the exploration of the new way out. In October 2018, he mentioned in an internal open letter that the gathering will transform the membership e-commerce model from social e-commerce.
Under the membership system, you can purchase a 398 yuan registered gift package and get a product worth 398 yuan, and become a shop owner. By inviting new people to join the owner team, you can be promoted to a tutor or partner, and enjoy the corresponding invitation to new people’s cloud coins and shop owners. Sales rebate.
This has helped a lot. The prospectus shows that the number of paid members of Yunji Microstore has increased from 900,000 in 2016 to 7.4 million in 2018, and the user repurchase rate is as high as 93.6%, of which 66.4% of GMV in 2018 comes from member contributions. .
The main financial indicators also grew rapidly. The GMVs gathered in 2016-2018 were 1.8 billion, 9.6 billion, and 22.7 billion, respectively. In 2018, GMV increased by 136.46% compared with 2017. The total revenue in 2018 increased by 101.97% compared with 2017, among which members accounted for revenue. Total revenue reached 11.9%.
It is not uncommon for e-commerce platform to develop membership. As early as the 1980s, American retailer Costco promoted its membership system. Today, it has 94.3 million members worldwide, and most of its profits come from membership fees. Many domestic e-commerce companies have followed suit, such as Jingdong’s PLUS member, Vipshop’s super VIP member, and Ali’s 88VIP member.
The popularity of member business is related to the slowdown in the growth of e-commerce users and the rising cost of customers. However, the membership of the gathering still has a strong distribution atmosphere. The membership system of other families generally provides better sales service for paying members, and the membership system is more to give “wholesale price”, which encourages the owner to distribute continuously: after the member pays, it distributes the commission to the following people. Gathered to provide supply, warehouse, logistics services.
At present, there is still a big gap between Costco and the originator of member-owned e-commerce company Costco. In the 2018 fiscal year, Costco’s membership fee income was $3.14 billion, which was almost the same as the net profit of $3.13 billion. In 2018, the member revenue collected in 2018 accounted for only 11.9% of the total revenue.
In the exploration of the future, in addition to the way to maintain the membership system, the gathering also followed suit to enter the upstream industry and take the reverse custom road. Typically, the “S2B2C” model is proposed to allow the supply chain architecture to be assigned to the small B, and then rely on the small B-side social capabilities and trust value service C, thereby reverse sales forecast and market forecast, and open up the S upstream of the supply chain. Let the user’s personalized needs reverse the guidance of manufacturers to customize personalized products.
In May 2018, this idea was implemented in the “Product 500” strategy. In addition to helping factories and brands to reverse the explosion of products, the company also tried to reach a direct connection from the user to the factory, expecting to shorten the supply. The intermediate links of inventory, logistics, total sales and distribution of the chain may provide another option for Chinese SME brands.

Tags : MLMSocial e-commerceXiao Shangluo