With layoffs and overseas expansion not going smoothly, how can Dewu continue to be so “poisonous”?

Dewu has recently faced the challenges of layoffs and going overseas. Its unique "identification before delivery" model has been questioned in China, and its overseas market has not been smooth. As a representative of domestic trendy e-commerce, Dewu needs to solve the problems of high cost investment and profitability while coping with the rationalization of domestic consumption and the retreat of the Internet traffic dividend. In the future, whether Dewu can find new growth points and achieve global breakthroughs remains to be seen.

After Dewu’s Hebei Langfang Cloud Warehouse was exposed for withholding wages for outsourced employees, Dewu started layoffs for regular employees.

Previously, Dewu issued a "Notice on the Company's Organizational Efficiency Improvement", announcing that the company decided to streamline existing work items and start organizational efficiency improvement, and will streamline about 5% of the staff. In the future, Dewu will focus more on core businesses and projects with higher input-output ratios, and stop or significantly reduce investment in projects with low input-output ratios. As of Q1 2024, Dewu currently has 10,000 employees, which means 500 employees will be laid off.

Image source: Dewu official

Dewu’s pursuit of maximizing business ROI is consistent with the strategies of JD.com and Alibaba, both of which are aimed at responding to the uncertainties brought about by the increasingly rational domestic consumer market and the complete withdrawal of the domestic Internet traffic dividend.

However, unlike the 4% and 1% growth in revenue and profit of Alibaba Taotian Group in Q1 2024, which ranked last among Alibaba's many businesses, public information shows that the commercialization revenue of Dewu in Q1 2024 will complete the full-year performance of 2023. Zhou Dasheng even said that Dewu will achieve an ultra-high growth of 260% in 2024.

The decision of Dewu to lay off employees at this time may be related to the high marketing and promotion costs that eroded profits. "This is XX I bought at Dewu. They are having a promotion now. Not only are there many styles, but the brands are also authentic." Many people have seen the content placement ads of Dewu and Douyin bloggers. An industry insider revealed that the Star Map advertising costs of Dewu's cooperation with Douyin influencers for three months were at least in the hundreds of millions, which supported many Douyin bloggers.

Image source: TikTok

In addition to content marketing, Dewu has been ranked No. 1 on the App Store Sports Chart for a long time in the past year, and has maintained its position in the top 50 of the Free Chart and the Overall Chart. Considering that the cost of ranking and maintaining the App Store chart has risen sharply in recent years, the cost of acquiring customers on the App Store is also a considerable expense for Dewu.

Image source: Qimai Data

On a deeper level, the doubts about the model of first identification and then delivery, the bottlenecks encountered in overseas markets, and the uncertainty of Dewu's future. Under various realistic pressures, Dewu can only achieve "cost reduction and efficiency improvement" by laying off employees. However, whether layoffs can bring greater opportunities for Dewu is still worth discussing.

1. Identify before delivery: this is both honey and poison

Dewu's "authentication before delivery" is its "golden signboard". This model ensures the authenticity of goods through a strict identification process, and continuously expands its user base while gaining the trust of consumers. Dewu also has the right to veto the identification results, which to some extent combats the problem of only refunds and high refund rates on other e-commerce platforms, thereby reducing the shipping insurance costs of merchants.

A Feike dealer revealed that Dewu adopts a weekly settlement model, the actual order fulfillment rate is about 90%, and the return rate does not exceed 10%. This is attractive to merchants, and both the supply and demand sides of Dewu are expanding. Dewu also generates commission income, product identification income, and value-added service income.

Among them, commission sharing is the biggest part, and the platform charges technical service fees, operation service fees, transfer service fees, etc.: in the price range of 400 yuan to 5,000 yuan, the platform commission rate for new products is 7%-15%, and the platform commission rate for second-hand products is 8.4%-19.2%.

However, judging from the fact that Dewu, a black cat complaint platform, has received more than 20,000 consumer complaints, the commercial closed loop created by this model is also questionable. It is not just Dewu. Zhuanzhuan and Guazi, which have similar models of first identifying and then shipping, are questioned by consumers for charging low prices and selling high prices. Some consumers of the latter claim that they bought tampered cars or accident cars on the platform.

Image source: Black Cat Complaint

Image source: Black Cat Complaint

Although the model of first identifying and then shipping has been questioned by consumers as the platform acting as both an athlete and a referee, overseas e-commerce platforms StockX, GOAT, and Stadium Goods have all adopted this model and have already been successful. StockX has even been called the "stock exchange" of the sneaker market.

The success of the overseas e-commerce model is based on the relatively mature sneaker culture in the United States. In 1985, Michael Jordan and Nike jointly launched the Air Jordan 1, which not only set off a trend on the basketball court, but also caused a huge response in street fashion and trend culture. Since then, limited edition and special edition sneakers have become the target of sneaker enthusiasts and collectors, and the American sneaker speculation culture has gradually formed.

After three or four decades of exploration, the sneaker trading chain in the United States has become quite complete. For example, on the StockX platform, the historical transaction price, transaction volume, and future growth trend of each shoe can be given, thereby increasing market transparency and promoting transactions between supply and demand. The market size is large enough. Inquirer Global Nation predicts that the size of the secondary sneaker market in the United States may reach 6 billion US dollars in 2025. In addition, the high labor costs in the United States and the strict protection and punishment policies for intellectual property rights have made many companies dare not easily produce counterfeit sneakers.

Image source: StockX official website

This means that platforms such as tockX, GOAT, and Stadium Good do not have to bear high authentication and labor costs. In addition, the market size is relatively large, and these platforms can rely on economies of scale to make profits without expanding into more categories. StockX focuses more on sneakers, streetwear, electronics, and watches, GOAT focuses on the sneaker market, and Stadium Goods specializes in sneakers and streetwear. Years of deep cultivation around fewer categories have helped the platform build long-term trust among users and form a relatively deep moat.

Image source: StockX official website

Dewu, which started out as a sneaker company, has rarely mentioned the concept of sneaker speculation in recent years, but sneakers are still the key to Dewu's customer acquisition and retention. Compared with the US market, the domestic sneaker market is still imperfect, and Dewu still faces a lot of resistance if it wants to truly implement the model of first identification and then delivery in the domestic market.

Domestic sneaker culture started at the beginning of this century, and the market gradually emerged after being amplified by social media platforms. Relevant data shows that the scale of the domestic secondary sneaker market in 2020 was only US$1 billion. Putian, known as the "capital of fake shoes", has a large number of fake shoes flowing into the market, which is restricting the expansion of the entire market scale. When it was passed to the Dewu platform, Dewu had to face several thorny problems:

First, in order to ensure the authenticity of the sneakers on the platform, Dewu needs to cooperate with relevant institutions to establish an authentication center, and recruit a large number of personnel for a large amount of training and authentication, which undoubtedly increases the operating costs of the platform. Based on this, expanding product categories and launching Dewu Xiao, which has a relatively high gross profit margin, have become the focus of Dewu's operations in recent years. However, this has fallen into a vicious cycle of increasing product categories → increasing authentication costs → continuing to expand products → continuously raising authentication costs.

When orders continue to increase, investors put pressure on growth, and increasing platform revenue and profits become the focus, and cost reduction becomes the development focus of Dewu, it can no longer explain why a large number of consumers on the Black Cat Complaint Platform claim that there are quality problems with the goods they purchased from Dewu.

Image source: Black Cat Complaint

Second, the categories added later, such as watches, trendy toys, and second-hand luxury bags, are similar to sneakers, and are all opaque markets. Adding the diversity and complexity of human nature, as well as the pursuit of profit maximization by both supply and demand parties and the platform, customer complaints from Dewu will naturally rise.

Such as inconsistent appraisal results, large disputes between buyers and sellers, etc. However, whether Dewu needs to rely on continuous genuine products to establish long-term trust among consumers and form long-term repurchases, or a large number of disputes and customer complaints to discourage consumers, Dewu has to face the problem of user loss.

Third, Dewu’s current products are provided by brands, distributors, and agents, but the basis of Dewu’s hot products is based on the brand’s livestock, rarity, and high collectibility. For example, at the beginning of the white wine bull market and the iPhone’s explosion in the domestic market, there were many scalpers who relied on speculation on Moutai and iPhone, and the same was true for big-name sneakers.

In order to achieve long-term retention of brands, Dewu needs to continue to strengthen selling points such as young people and high orders. However, user loss means that Dewu needs to invest in acquiring customers for a long time, and high investment flow will undoubtedly affect Dewu's profitability. Considering that the establishment of market transaction transparency in many categories in the domestic market may take several years to form, Dewu's after-sales problems may exist for a long time.

2. How does Dewu continue to attract young people overseas?

In the current wave of domestic e-commerce going global, Dewu launched POIZON in the global market as early as October 2021. Judging from Dewu's overseas official website, the products currently sold mainly include shoes, sports shoes, clothing, accessories, and toys. Compared with Dewu in China, the overseas operating categories have been greatly reduced.

Image source: Sensor Tower

Image source: Dewu overseas official website

After several years of exploration, POIZON is still struggling to explore the overseas market. Sensor Tower data shows that from August 1, 2023 to August 5, 2024, POIZON's cumulative global downloads were only 2.1 million. The best-selling Air Jordan 1 on POIZO's official website had a cumulative sales order of 2,238 pieces, and the order volume was limited.

According to Sensor Tower data, POIZO's next-day, 7-day, and 30-day user retention rates are approximately 15%, 6%, and 2%, respectively, which are significantly lower than the global e-commerce industry averages of 20%-27%, 10%-14%, and 6%-8%.

Image source: Dewu overseas official website

In addition, the economic development, income and trend culture of different countries around the world vary greatly, which adds a lot of resistance to Dewu's global expansion. In the past two years, Alibaba, Pinduoduo and ByteDance have all entered the Southeast Asian market, but the income of young people in many countries in Southeast Asia is relatively low, which conflicts with the relatively high price of trendy cultural products.

According to data from the Vietnam Statistics Office, although the income of Vietnamese workers continued to increase in the first half of 2024, the average monthly income in many industries was around US$400. In other words, the Air Jordan 1 sold on the POIZON platform is equivalent to half a month or a full month's salary for an average young Vietnamese person.

Source: Vietnam Statistics Office

POIZON's downloads in many Southeast Asian countries are relatively sluggish. Tower data shows that from August 1, 2023 to August 5, 2024, POIZON's cumulative downloads in Indonesia, Malaysia, Thailand, the Philippines, and Vietnam were 854, 6267, 7721, 7952, and 15811, respectively. The downloads in many countries in one year were less than 20,000.

Compared with Southeast Asia, the Middle East has a higher level of economic development, but POIZON has encountered more bottlenecks in the Middle East. In addition to the fact that the wealthy in the Middle East prefer offline purchases and electronic payments have not yet been widely popularized, there are many races and ethnic groups in the Middle East, and each country and even region has its own values ​​and traditions.

For example, Islam prohibits drinking alcohol, and many Middle Eastern countries are particularly taboo about pork. This means that POIZON's trendy products sold in the Middle East need to be adjusted on a large scale from materials to packaging to publicity in order to cater to the local market, which places extremely high demands on POIZON.

More importantly, the Middle East is a relatively conservative region in the world in terms of clothing, and fashion culture has not yet been truly popularized on a large scale in the region. As early as March 2018, Crown Prince Salman publicly stated that there is no legal requirement for Muslim women to wear burqas and face masks, but social customs are far behind the changes in administrative laws.

Many tour guides and global travel bloggers often recommend that when traveling to the Middle East, men should wear long trousers to cover their legs and tops to cover their arms. Women's dress code is more stringent. In addition to women being advised to wear clothes that cover their shoulders, arms and legs, they are also advised to wear headscarves to cover their hair and face to avoid conflicts with local culture.

The existence of multiple problems has resulted in POIZON's cumulative downloads in many Middle Eastern countries being less than 1,000 in the past year, and in some countries less than 100. It may not be easy to change the deep-rooted dress culture in the Middle East in the short term, which also restricts POIZON's user growth in the Middle East.

Image source: Sensor Tower

The United States, where the culture of shoe speculation is relatively mature, is Dewu's second largest overseas market. However, as mentioned above, StockX has formed user advantages, brand advantages, merchant advantages, and functional advantages in the United States over many years of operation, which are difficult for POIZON to match in the short term.

Image source: Sensor Tower

More importantly, fashion products involve a lot of second-hand goods, and the platform needs to have strong trust in users to promote more transactions. However, regardless of POIZON's popularity in the US market, or the fact that some domestic merchants previously sold a large number of fake shoes from Putian to the US in order to maximize their profits, which in turn caused a crisis of trust among American consumers, this has become a barrier for POIZON in the US market.

In the past year, POIZON's daily active users in the US have continued to rise, but there is still a big gap with StockX. According to data from Sign House, StockX's website visits in the US are about 16.2 million per month, and the total global visits are about 34.6 million. In other words, StockX's daily active users in the US and global daily active users are 540,000 and about 1.15 million respectively.

Image source: Sensor Tower

At present, the Russian market is the "hope of the whole village" for Dewu's overseas expansion. As the market that can carry the greatest hope for Dewu's overseas expansion, Russian fashion culture is rapidly rising in recent years, driven by the wear and match of TIK TOK, Instagram, and YouTube social platforms, and Russian local fashion designers Gosha Rubchinskiy Nike, Adidas, Supreme and other brands have entered the Russian market. POIZON's daily active users in Russia have been stable at around 10,000 in the past year, and there are even bloggers on Russian local websites who specifically share how to place orders from POIZON.

Image source: Sensor Tower

Image source: vc.ru

But the sudden rise of Dewu in the Russian market is largely related to low prices. According to content shared by relevant Russian netizens, the shoes sold by Dewu are 4-6 times cheaper than the same models in the Russian market. In addition, the geographical advantages of Russia and China provide Dewu with a unique advantage in domestic market distribution. However, Russia's cold and long winter also poses considerable challenges to Dewu's product selection and supply chain around the Russian market.

Image source: vc.ru

3. Confused and uncertain future

Looking at Dewu from the perspective of global e-commerce, in the future will Dewu become a large-scale comprehensive e-commerce platform, or will it continue to stick to being a trendy e-commerce platform?

Whether it is domestic JD.com, Douyin, Taobao Tmall, or TEMU, Xiyin, and TIK TOK e-commerce companies that are expanding wildly in the global market with low prices, Amazon is blocking TEMU and Xiyin with low prices. The reason behind the global e-commerce platforms offering low prices is not only related to the increasingly K-shaped differentiation of the global consumer market mentioned by Bain Consulting.

The deeper reason is that low prices are used to attract new users, retain existing users, and repurchase users, and to maximize the value of user and platform traffic through cross-selling of products. However, Dewu does not have a low-price foundation, and Dewu’s existing users cannot accept that Dewu is flooded with a large number of low-priced goods, and it is competing with large domestic and overseas comprehensive e-commerce platforms for low prices. Dewu’s brand, merchants, and supply chain do not have an advantage in low prices.

If Dewu insists on being a trendy e-commerce platform and wants to turn it into the next StockX, it will also face a lot of resistance. On the one hand, as domestic consumers increasingly pursue personalization, youth, and self-expression, the entire consumer market is gradually changing, and global luxury goods are facing a difficult time.

In addition to the fact that domestic new energy high-end cars are gradually replacing the luxury positioning of BBA in the minds of young people, the new generation of young people who have grown up with intelligence are pursuing smart watches, which puts pressure on the world's top watch manufacturers in the domestic market. Second-tier luxury brands represented by Burberry, Balenciaga, and Versace have reduced prices in the domestic market for promotions. Gucci, a subsidiary of Kering Group, has had its brand story interrupted due to the resignation of former designer Alessandro Michele, and consumers have been increasingly controversial about Gucci's product design.

The rise of domestic brands is not just luxury goods, but also puts pressure on Nike and Adidas. According to the financial report, at the end of Nike's fiscal year 2023 (natural year June 1, 2023 to May 31, 2024), the company's inventory value is US$8.5 billion (about RMB 61.7 billion), accounting for 16.6% of its annual revenue.

On the other hand, Chaoliu is a vertical e-commerce in a sense, but there are countless vertical e-commerce platforms that have closed down or crashed in China in the past few years. After years of fierce competition, the industry is still dominated by large-scale comprehensive e-commerce platforms. And compared with vertical e-commerce platforms that provide standard products, the cost of order fulfillment is greatly increased by identification before delivery. But without this selling point, how can Dewu rely on long-term customer acquisition?

In the overseas market, there are only a limited number of countries left for Dewu to focus on. E-commerce platforms are based on the relatively balanced interests of supply and demand parties and platforms. However, under the siege of StockX, how can Dewu recruit more brand merchants to continue to settle in Dewu in the US market and expand its product library?

What's more, is Dewu willing to accept the losses brought about by the various high-cost investments and short-term operations, such as the expansion of supply and demand, identification costs, cloud warehouse construction costs, and customer acquisition costs?

So, what is the future of Dewu? How can it attract more young people around the world by spreading poison?