Previously Convicted E-Commerce Platform Yunji Files for IPO
Yunji has submitted its IPO application form to SEC on 21 March 2019
Yunji (云集) -a multi-layer retail marketing platform- has submitted its IPO application form to SEC on 21 March 2019. Yunji proposes USD 200 million as the maximum offering price. The form has been signed by Morgan Stanley, Credit Suisse, JP Morgan and CICC.
Yunji defines itself as a “Membership E-commerce Platform.” The Business Model of Yunji originates itself from the idea that “people buy what their circle consume”.
Yunji provides a platform between retailers and Online Store Owners so that the online sellers could reach new customers; which are generally the friend circle and relatives of the Store Owners. Ultimately, goods are transported by the sponsorship of the retailer so that Store Owners do not waste their time and energy with any logistical detail, including customer support. Mainly, Online Store Owners create a market for the products and earn commissions from the products traded. The business model of Yunji is an “innovative” one, and it has its own categorization: S2B2C.
The business model creates a natural social loss since it adds additional intermediaries onto the supply chain. However, “the networking type” marketing was so prolific that it had created economies of scale within the platform by minimizing the other costs. The model also creates a Win-Win between supplier and the Store Owner.
As of November 2018, Yunji has had around 45 million MAU in which 7 million of it are “subscribed users”. The paying “subscribed users” are the Store Owners, and they are the primary source of revenue for Yunji. They are incentivized by the commissions and gift bags (福袋). Gift bags are overpriced product bags that can only be bought from an existed Store Owner; to become a Store Owner. The platform has its own ways to prevent Ponzi Scheme formation, and there can only be up to three layers of membership promotion via Gift Bags.
"…we believe that our current business model is not in violation of applicable PRC laws and regulations, including the Regulations on the Prohibition of Pyramid Selling. However, there is no assurance that the competent governmental authorities in China that we communicate with will not change their views, or the other relevant government authorities will share the same view as our PRC legal counsel…" Yunji, SEC Registration File
China is not a country where one would want to start a Ponzi or Pyramid schemed business. After several cases, the Chinese Government began a severe crackdown on all the Ponzi and Pyramid formations. According to the Economist, the social cost of Pyramid Schemes in China is estimated to tens of billions of CNY. What is more, the iconic P2P Landing platform Ezubao could manage to deceive over 900,000 investors to join its platform. The number is higher than the entire population of the European Union…
Yunji’s business model should not be labelled as a pyramid formation; however, such a model would always be on the radar of Chinese Regulators. It is known that the Chinese Government approach regulations from the activity-based perspective; if C2B2S model creates a social crisis even by another company, Yunji’s business will be under tremendous risk as well. Yunji is aware of the risks.
“We will not be able to exert the same level of influence or control over members and service managers as we could if they were our employees, and we may be subject to significant costs and reputational harm in the event our members violate any laws or regulations applicable to our operations.” Yunji, SEC Registration File
Yunji has increased its revenues 102% from CNY 6,444.1 million to CNY 13,015.2 million between 2017 to 2018.
“People are unrealistically optimistic even when the stakes are high. About 50 percent of marriages end in divorce, and this is a statistic most people have heard. But around the time of the ceremony, almost all couples believe that there is approximately a zero percent chance that their marriage will end in divorce—even those who have already been divorced” says Nobel awarded economist Thaler in his Behavioral Economics masterpiece. Yunji’s magnificent growth can be explained by Thaler’s human rationality terminology.