Deal focus: Baibu broadens its fabric scope

China is the dominant force in soft fabrics, generating RMB1.5 trillion ($217 billion) in revenue in 2018, which amounts to 23% of the global total. But the manufacturers responsible for this output are a fraction the size of the brands they ultimately serve, and fragmentation creates inefficiencies in the supply chain. Venture capital investors have flocked to start-ups that aim to remove the frictions.

Baibu might claim to be the most prominent of these B2B trading and services companies, having recently raised $300 million Series D funding. Not only is this the largest-ever funding round in the space, it has also made Baibu a unicorn. DST Global took the lead, with additional commitments coming from Yunqi Capital, CICC Capital, Source Code Capital, Tiger Global Management, Chengwei Capital, and Bull Capital Partners.

The company was founded in 2014 to address three key problems: low utilization rates in upstream fabric mills; opacity of information for downstream small and medium-sized garment manufacturers; and high inventory digestion risks for distributors who sit in the middle.

The initial offering was an online marketplace that connects fabric distributors and garment manufacturers, aggregating orders issued by the latter to the former. It cuts costs by eliminating layers of intermediaries and reduces information asymmetries by bringing demand closer to supply. Baidu also provides supply chain finance solutions.

“For a small garment manufacturer, one order might only be worth RMB8,000 ($1,100), so it’s hard for them to access financing. Baibu’s service adds stickiness to the platform,” says Michael Mao, co-founder and managing partner of Yunqi.

In 2019, revenue reached RMB10 billion and Baibu began moving upstream. The company established a cloud factory that has consolidated the power of 100,000 textile machines – or 8% of total industry capacity – through an internet-of-things (IoT) platform developed in-house. There are plans to reach 400,000 machines by the end of this year.

Baidu now has an integrated supply chain whereby it buys mass-market gray fabric from mills, sells it to distributors, and then buys finished cloth – featuring different patterns and colors – from distributors for sale to garment manufacturers. “Gray fabric is a standard item with low inventory risk. Baibu monitors capacity utilization in factories within its network and assigns orders to idle machines,” Mao explains.

The next step in the company’s development involves aggregating demand from fabric mills and submitting orders to yarn producers. This will further reduce costs for small fabric manufacturers.

One of Baibu's main competitors is Smart Fabric, a VC-backed platform that created its own cloud factory and brought together 2,000 small-scale fabric manufacturers that mainly serve foreign brands. Though their business models are similar, Mao observes that Baibu differs from Smart Fabric in that it focuses on small local customers rather than large overseas brands.

“One trend we see in China is ‘customer to manufacturer,’” he says. “Even though Baibu is a B2B player, its approach is a good fit for the small order-fast turnaround-tailormade product model.”

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• Topics
• Greater China
• Expansion
• Technology
• Industrials
• China
• manufacturing
• Growth capital
• DST Advisors
• Yunqi Partners
• CICC
• Source Code Capital
• Tiger Global Management