China luxury goods player Secoo gets private equity bailout
Secoo Holding, a US-listed Chinese luxury goods retailer that has seen its stock price fall by 95% since the start of 2020 and has filed for bankruptcy twice in the past eight months, has received USD 4m in funding.
Beijing HCYK Corporation Management Partner – described as a private equity firm – will subscribe to 3.75m class A ordinary shares for USD 3m, while Timing Capital will pay USD 1m for 1.25m class A ordinary shares, a filing stated. Richard Rixue Li, CEO of Secoo, said the investment represented “a strong vote of confidence in our position as a prominent destination for luxury online shopping in China.”
The company still counts IDG Capital, CMC Capital, and Ping An Ventures – which invested prior to its 2017 IPO – as significant shareholders. L Catterton Asia and online retailer JD.com came in a year after the listing through a subscription to a USD 175m convertible note. This was refinanced in March, with the original note replaced by a two-year guaranteed secured note worth USD 203.2m plus interest.
Meanwhile, local micro-lender Qudian built up a 24.5% stake in 2020 as part of efforts to diversify from micro-lending into consumer services.
Founded in 2008, Secoo claims to be Asia’s leading integrated upscale products and services platform, offering more than 420,000 product lines across 3,800 brands – typically watches, bags, clothing, footwear, jewellery, cosmetics, skincare, and consumer electronics. Lifestyle services such as access to sports events were added in 2014. It had around 5.3m registered members as of year-end 2021.
Nearly all of the company’s revenue is generated through online sales, but as of year-end 2021, it also operated four offline experience centres located in Shanghai, Xiamen, and Malaysia. In 2017, there were eight experience centres and Secoo secured partnerships with the likes of China-based department store operator Parkson Group and outlet mall operator Sasseur Group to build out its offline presence.
Lockdowns imposed to curb the spread of COVID-19 in China severely impacted business. Revenue fell from CNY 6.85bn in 2020 to CNY 6.02bn in 2021 and then CNY 3.13bn in 2021, largely because of slowdowns in discretionary spending and delayed logistics.
Gross merchandise value (GMV) from online operations rose from CNY 13.1bn in 2019 to CNY 15.6bn in 2020, but then dropped sharply to CNY 10.1bn in 2021. Over the same period, offline GMV slipped from CNY 706.6m to CNY 190.1m to CNY 52.5m. Having posted a net profit of CNY 161.7m in 2019, Secoo racked up losses of CNY 87.4m and CNY 565.7m in 2020 and 2021.
The company’s stock price dropped below USD 1 in November 2021 and has yet to recover, although the recent investment prompted a 45% rally over the course of five days. It closed at USD 0.37 on August 23. Following warnings from NASDAQ for consistent trading below the USD 1 threshold, Secoo moved from the main board to the lower-tier NASDAQ Capital Market in June.
Li submitted a take-private bid for the company in January 2021, offering USD 3.27 per American depository share, or USD 6.54 per class A share, but withdrew it in May, citing unfavourable market conditions.
An onshore affiliate of Secoo filed for bankruptcy in Beijing in January and subsequently retracted the petition. A second filing was made earlier this month, local media reported, citing public records. There have also been numerous reports of contract disputes – a court action saw Prada impose a freeze on CNY 11m in assets – staff layoffs, and empty experience centres. Secco has denied some of these reports.
It is not the only US-listed Chinese internet company to run into difficulty. Last month, online grocery delivery platform Miss Fresh, which listed in 2021 with a market capitalisation of USD 3bn, sold a one-third stake to a state-owned enterprise at a valuation of USD 90m. This followed an accounting scandal, concerns about business model sustainability, and price corrections in US-listed Chinese concept stocks.
As of late July, the transaction wasn't closed and Miss Fresh had yet to receive any new funding. The company responded by temporarily closing its on-demand distributed mini warehouse service, which accounts for the bulk of revenue.
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