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2024.07.26

Word count: 3049, reading time: about 5 minutes

Introduction: The development of a live streaming e-commerce company requires not only top anchors but also complete supply chain support.

Author |First Financial Daily Lv Qian

On July 25, Oriental Selection (1797.HK) announced that Dong Yuhui had resigned. Previously, Dong Yuhui served as a senior partner of Oriental Selection, cultural assistant to the chairman of New Oriental Education & Technology Group (EDU.N), and concurrently as vice president of New Oriental Culture and Tourism Group.

In an open letter, Yu Minhong, founder of New Oriental and CEO of Oriental Selection, stated that Oriental Selection's wholly-owned subsidiary Yuhui Tongxing will officially become independent from Oriental Selection, with Dong Yuhui personally holding 100% of its shares.

After the announcement of the listed company, Yu Minhong and Dong Yuhui spoke out one after another, wishing them a farewell. However, the development of a live broadcast e-commerce company requires not only the top anchors, but also a complete supply chain support. The products need strict quality control, after-sales, and logistics resource support. These are also the resources that Dongfang Zhenxuan has continuously invested in since its establishment, and the newly independent Yuhui Tongxing does not yet have.

Yesterday, Yu Minhong and Dong Yuhui "broke up" amicably. In the future, in the live e-commerce track, the two companies that have changed from "compared" to "compared" may still have the opportunity to "join hands".

What else do you need after the 218 million “breakup fee”?

Capital is an essential element for the establishment of a new company, and it is also the first thing disclosed when Yu Minhong and Dong Yuhui "break up".

According to the announcement of Oriental Selection, Dong Yuhui (buyer), Beijing New Oriental Xuncheng Network Technology Co., Ltd. (seller) and Yuhui Tongxing (Beijing) Technology Co., Ltd. (target company) entered into a sales agreement. The seller agreed to sell and the buyer agreed to acquire 100% of the equity of the target company for RMB 76.5855 million.

Yu Minhong emphasized in the comments section of the open letter: "Yuhui holds the equity purchase funds needed by Yuhui Xingtong, and I have also arranged payment in accordance with the rules of listed companies and the company's articles of association. This means that I arranged the money for Yuhui to purchase the company, and the company is a gift to Yuhui."

In addition to the equity purchase money, Yu Minhong said, "Yihuixing will be independent. In order to express my gratitude to Yuhui, in addition to paying all the promised benefits, I have asked the board of directors and the compensation committee and obtained their consent to award all the net profits of Yihuixing to Yuhui."

According to the announcement of Dongfang Zhenxuan, Yuhui Tongxing Company was established on December 22, 2023, and the company's net profit was 141 million yuan from December 22, 2023 to June 30, 2024. In other words, if the progress goes smoothly and there is no overlap between the equity purchase amount and Yuhui Tongxing's net profit, in order to complete this "cut", Yu Minhong needs to pay a total of 218 million "breakup fee" to Dong Yuhui on behalf of the investors behind him.

Dong Yuhui posted on TikTok that the purchase price of the shares of Yuhui Tongxing was settled by Yu Minhong in accordance with the rules and articles of association of listed companies. Yuhui Tongxing is also able to maintain the company's operating, rent, employee wages and other expenditure costs for a period of time. In the future, Yuhui Tongxing will operate independently. However, Dong Yuhui did not explain the huge supply chain and logistics business of the live e-commerce company. The reporter asked Dongfang Zhenxuan for confirmation, but no response was given as of press time.

An e-commerce industry insider told reporters, "If you don't build your own supply chain, you certainly can't control the quality. The products in the live broadcast room are not just rice, flour, grain and oil. Or you can establish a strict quality review reward and punishment mechanism like Taobao."

Sun Dongxu, then CEO of Oriental Selection and current non-executive director, also emphasized in an interview with reporters that in the future, Oriental Selection will focus on supply chain construction and the cultivation of self-operated products. At present, Oriental Selection has reached cooperation with domestic leading logistics companies. "The optimization of warehousing, logistics and distribution can greatly improve customer satisfaction and reduce operating costs. It is beneficial for the platform to give more profits to customers and industrial chain links, which is conducive to maintaining the healthy development of the ecological system of Oriental Selection's self-operated products." Sun Dongxu said.

In April this year, Dongfang Zhenxuan launched the "Hourly Delivery" service and started broadcasting on the Douyin account "Dongfang Zhenxuan Hourly Delivery". The service first targeted the Beijing market and has established cooperation with 17 forward warehouses. The delivery range covers 80% of the area within the Fifth Ring Road of Beijing, and will cover more cities in the future.

In addition, self-operated categories are also a key investment focus of Oriental Selection. In the second half of fiscal year 2024, the GMV of Oriental Selection's self-operated products exceeded 3.6 billion yuan, a year-on-year increase of 108% and a month-on-month increase of 74%.

The construction of these resources all incurs high costs. In the first half of fiscal year 2024, Oriental Selection's net profit was 249.2 million yuan, a year-on-year decrease of 57.4%; sales and marketing expenses increased by 145.6% to 560 million yuan from 228 million yuan in the same period last year, mainly due to the increase in employee costs caused by the recruitment of self-operated products and live broadcast business operations and the attraction of more talents; due to the increase in the proportion of self-operated products in total revenue and the rapid development of live broadcast e-commerce business, the company's gross profit margin fell from 47.2% to 39.1% during the reporting period.

Yu Minhong said in the earnings call that if even the product system and platform are in the hands of others, it will only take one day for them to be willing to cooperate, and it will also take one day for them to be unwilling to cooperate. When Dongfang Zhenxuan was first established, it determined the strategy of using self-operated products as the cornerstone of the company's long-term development. If it is just a platform for selling goods, it can only be prosperous for a while, and the business model is unstable. It is also hard to imagine that a large number of shareholders will infinitely recognize the value of this company just because a few anchors sell a lot of goods.

If Dong Yuhui agrees with and continues to implement this logic, then his next decision will be either to invest heavily in building his own supply chain system, or to actively seek supply chain partners for resource docking, and Oriental Selection may also be one of the options.

From "xing" to "hang"

In the past six months, Oriental Selection has been plagued by disputes, and the number of fans in the live broadcast room and the stock price have continued to decline due to public opinion issues.

From "peers" to "peers", to today's point, Yu Minhong said in an open letter: "I have always maintained good communication with Yuhui, urged the management to give Yuhui as much support as possible, and mediated possible misunderstandings and conflicts between the two parties from time to time. However, the sudden outbreak of what netizens defined as the "small essay incident" caught us off guard and exposed many problems. Yuhui and I fell into an embarrassing situation, and the company also fell into turmoil."

The "small composition" incident is an important turning point in the development of Oriental Selection. On December 5, 2023, Dong Yuhui used a short composition of about 700 words to warm up for the "Jilin trip". The next day, the Oriental Selection content team pinned a comment in the Douyin comment area, saying that the "small composition" copy used for opening or transitioning at the live broadcast site was completed by the anchor, copywriting team, shooting team, and editing team. It was this comment that triggered strong dissatisfaction among Dong Yuhui's fan group, and the conflict broke out.

Yu Minhong said that the complicated public opinion disputes, coupled with the guidance and rumors of a few forces with ulterior motives, directly led to the rift between Dongfang Zhenxuan and Yuhui Tongxing. Yu Minhong said that he was deeply trapped in the tide of public opinion, constantly attacked and stigmatized, and Dong Yuhui also suffered a lot of unwarranted accusations and harm, which has continued to this day. This public opinion environment has led to huge uncertainty in the development of both companies, the stock price fluctuated violently due to external influences, and the company's credibility and reputation have dropped sharply.

In the following eight months, Dongfang Zhenxuan dismissed Sun Dongxu from his position as CEO and executive director, established Yuhui Tongxing (Beijing) Technology Co., Ltd., Yu Minhong apologized for expressing the view that "Dongfang Zhenxuan is a mess", and anchor Dun Dun publicly expressed his disappointment with the company in the live broadcast room. In the secondary market, the Hong Kong stock market closed today, and Dongfang Zhenxuan's share price was HK$12.4, down 83.6% from its historical high of HK$75.55.

According to Chanmama data, in the past 90 days, except for an increase of 122,000 fans on July 12, the number of fans of Dongfang Zhenxuan's live broadcast room has almost continued to drop, from 30.593 million to 29.866 million as of press time. The number of fans of "Walking with Hui" has risen to 20.549 million. At 9:00 p.m. on the 25th, the number of viewers of Dongfang Zhenxuan's live broadcast room was 40,000, and the number of viewers of "Walking with Hui"'s live broadcast room was over 100,000.

Regarding the future trend of both parties, Zhuang Shuai, founder of Bailian Consulting, told reporters that Dong Yuhui's resignation will have a relatively large impact on Dongfang Zhenxuan's live e-commerce business in the short term, but in the long run, the impact is controllable. Based on the Dongfang Zhenxuan matrix account, each account has several anchors, and it is predicted that future sales will be relatively stable.

According to statistics from Zheshang Securities, in addition to the sales of Dongfang Zhenxuan's self-operated products on Douyin channels, in the field of shelf e-commerce, Dongfang Zhenxuan's stores on Tmall, JD.com, Pinduoduo, Xiaohongshu and other platforms have also achieved stable growth. In terms of self-owned channels, 90% of Dongfang Zhenxuan's self-operated new products will be launched on the App first. The GMV of some popular self-operated products on the App has accounted for more than 40% of the GMV of the entire network. The APP has also become an important channel for self-operated products.

According to previous disclosures, there are approximately 200,000 paid members on the Oriental Selection App. Considering that Sam's Club has over 4 million paid members in China, Zheshang Securities believes that there is still a lot of room for development for paid members of Oriental Selection. With rich SKUs and preferential prices of self-operated products, it will further enhance consumer stickiness and expand paid membership.

E-commerce strategic analyst Li Chengdong believes that this divestiture will have more serious consequences for the Oriental Selection business. He told reporters that in the live e-commerce business, the top anchors and the traffic they bring are the core assets. For Oriental Selection, the core asset is the popular Dong Yuhui and the traffic he brings. If we use 1 and 0 as an analogy, Li Chengdong believes that Dong Yuhui is the 1, and the premise for the establishment of resource cooperation, including the supply chain, may be the existence of Dong Yuhui. Unless other top anchors can be cultivated, but this is difficult, even Luo Yonghao, who previously announced that he would "withdraw from Weibo and all social platforms", will regularly return to the camera to bring goods.

When the U.S. stock market opened yesterday, New Oriental’s share price fell 3.74%.

WeChat Editor| 73