Based solely on its performance, Ziel Home Furnishing Technology, a cross-border e-commerce company that went public less than a year ago, has delivered commendable results. In 2023, it achieved RMB 6.074 billion (USD 840.6 million) in revenue, marking an 11.34% increase year-on-year. The net profit attributable to Ziel’s shareholders was RMB 413 million (USD 57.1 million), a 65.08% surge from the previous year.
Global inflation has driven up prices, prompting consumers to seek more affordable products, inadvertently benefiting Ziel, which targets the mid-range market. Its expansion into channels such as Shein and TikTok has also contributed to its double-digit growth in revenue and profit.
However, beneath this prosperity may lie hidden concerns, as a fast-changing domestic and international environment shakes up the dynamics of the industry.
Ziel primarily targets overseas markets, drawing RMB 3.728 billion (USD 515.9 million), or 62%, of its revenue from Europe in 2023, marking a 21.6% increase from the preceding year. North America accounted for 36%, contributing RMB 2.173 billion (USD 300.7 million), a 3.2% decrease year-on-year. Japan and other markets only account for a small proportion of Ziel’s revenue.
For large furniture exports, sea freight is the primary mode of transportation. Currently, the direct concern lies in fluctuating sea freight prices, exacerbated by the Red Sea crisis and compounded by the Panama Canal drought. Whether shipping through Europe or America, time cycles and freight costs have become new challenges.
Furthermore, Ziel, dubbed the “online Ikea,” relies heavily on China’s supply chain advantages, collaborating with numerous original equipment manufacturers (OEMs) to mass-produce at low cost. However, this edge is blunted by the emergence of competitors as more companies eye this market. The recently listed Aukey, for instance, is among the direct competitors of Ziel, having recovered financially through the furniture business.
Previously affected by Amazon’s banning of various Chinese sellers, Aukey closed 276 stores and returned to its old focus on furniture and home furnishings. In 2023, it raked in RMB 5.337 billion (USD 738.6 million) in revenue from this product category, around 75.9% of its revenue for the year. The revenue gap between Aukey, which pursues a boutique strategy, and Ziel, has narrowed to only RMB 700 million (USD 96.8 million).
Logistical issues hard to avoid for Ziel
For medium and large cross-border e-commerce companies, logistics are an unavoidable challenge that influences not only costs but also supply chain turnover rates.
When sea freight prices surged during the pandemic, most cross-border e-commerce companies were affected, including Ziel. However, they have since fallen significantly, with average freight rates on the Europe and Mediterranean routes decreasing by 81.8% and 70.8% respectively, compared to 2022. Charges for western and eastern US routes also decreased by 71.6% and 70.3%, respectively.
While the Red Sea crisis might have initially resulted in sea freight prices fluctuating in the short term, it is unlikely to catapult them back to the range witnessed in 2022, at least in the long run. This is a conducive development, as it represents the likely stabilization of first-leg transportation costs.
However, since the incident unfolded in November last year, the unstable situation, with no signs of easing, has forced large shipping companies to change their routes. Alternative routes bypassing the Cape of Good Hope directly disrupt the global supply chain, leading to higher sea freight prices and longer shipping cycles. At the same time, companies also face multiple problems such as increased production costs due to longer shipping cycles, reduced turnover efficiency of goods, rising logistics costs, and extended accounts receivable periods.
According to 36Kr, Ziel responded to investor inquiries by highlighting delays in shipping cycles to Europe by about 15–21 days, after considering relevant factors. Some SKUs in Europe and the UK are likely to be short in supply as a result. Some companies have already started switching to transportation methods such as intercontinental trains or express trains to mitigate the impact of disrupted sea freight.
It’s worth noting that even intercontinental train freight has also become less stable in recent years, since the Russia-Ukraine conflict unfolded. Moreover, the countries served by such routes are generally limited, and with smaller capacities than sea freight.
It can be foreseen that, in 2024, Ziel will face a series of problems due to limited capacity and longer cycles: shortages, increased financial pressure, thereby affecting performance.
This is not an issue of corporate management itself, but the cost that cross-border companies have to bear in the face of unpredictable geopolitical changes.
Apart from first-leg transportation issues, cross-border e-commerce companies in the furniture industry also face problems such as warehousing costs and last-mile delivery. Different companies have come up with different solutions.
Aukey has entered the logistics business and provides logistics services through Shenzhen-registered Western Post. Its services cover various components of the supply chain such as international first-leg and last-mile delivery, spanning domestic collection, overseas transit, overseas warehousing, and order delivery.
Since 2021, Aukey has continuously expanded this business. As of now, Western Post has operated 27 overseas warehouses with a total area of over 465,000 square meters. In the past three years, it has served 7 million sellers, with orders exceeding 3 million, 4 million, and 6 million respectively.
At the same time, developing its own logistics system has helped cut costs, from RMB 2.58 billion (USD 357 million) in 2021 to RMB 1.86 billion (USD 257.4 million) in 2023, reducing logistics costs by over RMB 700 million.
Loctek is also involved in the logistics business and have even become “landlords” of overseas warehouses. It buys land overseas to build warehouses and sells land in the form of “small warehouses for large warehouses,” making a profit.
Overseas warehousing has become the second-largest business of Loctek, and the company launched public overseas warehouse cross-border logistics services starting in 2020. As of the end of 2023, the company operates 12 self-owned overseas warehouses with an area of 289,600 square meters, serving more than 600 foreign trade companies, achieving annual revenue of RMB 951 million (USD 131.6 million), a year-on-year increase of 94.03%, and a gross profit margin of 12.69%, an increase of 9.32 percentage points year-on-year.
Ziel’s pace is relatively conservative, employing a combination of warehouses that are operated either by platforms, third parties, or itself. In terms of self-owned warehouses, the domestic and foreign areas reached 280,000 square meters in 2023. Platform-run warehouses cooperate with DPD and UPS. Third-party warehouses have also been pre-positioned in France, Mexico, and other areas, facilitating deliveries to most of Europe within 3–4 days.
It is worth noting that Ziel’s overseas warehouses are mainly leased, and if competition intensifies in the future, warehouse rental prices are bound to rise, potentially becoming a new problem.
Competition tightens for the “online Ikea”
The global furniture market is vast and quite dispersed, with Ikea holding only 11.8% market share in Europe and 3.27% in North America. Europe and the US account for the bulk of the global furniture market.
The largest exporters globally primarily hail from China, with the US and Europe being the largest overseas e-commerce markets for furniture and home furnishing products. Chinese furniture and home furnishing sellers achieved a B2C GMV of RMB 773.8 billion (USD 107.1 million) in 2023, with a compound annual growth rate of 37.4% from 2018 to 2023. Among them, the GMV of Amazon, Wayfair, and Walmart were RMB 321.3 billion (USD 44.4 billion), RMB 31.5 billion (USD 4.3 billion), and RMB 23.8 billion (USD 3.2 billion), respectively.
Ziel has been deeply cultivating the European market for many years and expects its revenue to mainly come from the region in 2024. However, for the US market, Ziel’s revenue has declined slightly, and it expressed hopes of penetrating the market in its annual report.
Firstly, in terms of platform channels, it prioritizes Amazon Vendor—selling products directly to Amazon rather than consumers—and designs and develops targeted products. For self-operated channels, it focuses on distributing popular products to increase market share. Secondly, in terms of local fulfillment, it aims to increase the proportion of self-initiated last-mile delivery and delivery efficiency while reducing last-mile costs. Finally, in terms of products, it focuses on developing serialized products to differentiate itself from competitors.
Moreover, Ziel plans to expand the scope and intensity of procurement in Southeast Asia in 2024, unifying planning and allocation of raw materials, production sites, and sales locations. It also aims to increase the proportion of shipments from Southeast Asia to the US to around 20%, reducing the impact of tariff costs on product competitiveness.
However, competition in the US market will only intensify in 2024, making it a betting ground for many cross-border e-commerce companies. In China alone, Aukey already presents a formidable competitor that Ziel will find challenging to surpass.
According to Frost & Sullivan data, based on GMV calculations, Aukey’s six product categories, comprising bed frames, food cabinets, dressing tables and stools, bookcases, dining cabinets and side cabinets, and refrigerators, rank first on Amazon’s US site. Including beds, wardrobes and cabinets, electric screwdrivers, and high-pressure washers, Aukey targets ten product categories and holds over 10% of the market share on the site. Among Chinese cross-border furniture sellers, it ranks first.
From the perspective of the supply chain, Aukey told 36Kr that it can design and put new products into trial production within 40 days and deliver them to consumers within 50 days after trial production, far exceeding the industry norms of 45 days and 90 days, respectively. This is attributed to its supply chain management capabilities, quality control, and digital technology, with its return rate on all third-party e-commerce platforms averaging less than 3.5% in 2023, within the industry’s lowest range.
Both Aukey and Ziel have been criticized by the outside world for relying too heavily on the Amazon platform. The former’s rampant “store group model” caused it to stumble during the ban wave, prompting a reassessment of its business focus, while the latter has developed three major brands through a boutique strategy: Songmics, Vasagle, and Feandrea. In the B2C business last year, Amazon contributed 68.55% of its revenue.
However, truly branded products can also have good sales and broad prospects outside of Amazon. At this stage, Ziel still has a long way to go in terms of branding if it hopes to compete with Aukey.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Leslie Zhang for 36Kr.