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Used books find new homes thanks to this firm: Inside China’s Startups

While Alibaba’s second-hand exchange platform Xianyu and Tencent-backed used electronic marketplaces are already big, startups look to niche verticals for opportunities.

<span>Photo by <a href="https://unsplash.com/@jerry_318?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Jerry Wang</a> on <a href="https://unsplash.com/?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a></span>

A second-hand online textbook trading platform might not sound like the most promising business opportunity, but considering China’s sprawling education system, with nearly 40 million students spending over RMB 1,000 (USD 143) per year on textbooks, Beijing-based Yuelin has its eyes set on the market. 

The startup, born in 2017, has already collected over 7 million registered users across more than 1,600 universities and colleges in China, and last year, reported revenues of RMB 50 million (USD 7.16 million), according to its co-founder and chief operating officer, Yang Yuhuan, who recently spoke to KrASIA.

Yuelin (meaning “reading” and “neighbor” respectively), is a second-hand item e-commerce startup born on Peking University’s campus. The firm currently operates WeChat mini programs to facilitate second-hand trading, mostly books, among its users. It now also runs seven physical stores where people can sell used items and buy things on the shelves. 

“The traditional second-hand book fair on our campus was ordered to close in 2015 and suddenly students didn’t know where to resell and buy books anymore,” said Yang, as some old blogs and posts confirmed.

Recognizing the opportunity to penetrate this niche market, in 2017, Yang, a computer science graduate student at Peking University, partnered with Cai Wenyuan, who was a PhD student at Guanghua School of Management (now Yuelin’s CEO), to establish a platform for selling second-hand books.

After one month of coding, the two released the first version of Yuelin, running via a mini program within Tencent’s super app WeChat.

“The application got a first wave of usage during the graduation season. Quickly, we got RMB 2.5 million (USD 0.36 million) investment from angel investor Unity Ventures in October 2017,” Yang recalls.

So far, the company has closed five financing rounds. It announced its latest B+ round in June, totaling an undisclosed amount of “tens of millions of yuan”. Other existing backers include Gobi Partners China, 36Kr Venture Capital Fund, and online good-exchange platform Xiangwushuo.

For 2020, the firm has set an ambitious annual revenue target of RMB 150 million (USD 21.4 million) and expects to break even by the end of 2020, for which the firm will spend RMB 10 million (RMB 1.43 million) to RMB 20 million on repurchases, a confident Yang told KrASIA. 

Yang Yuhuan, the COO of Yuelin. Source: provided by the interviewee

A collector and reseller of books 

Yuelin was originally a simple customer-to-customer (C2C) platform where users could post used goods and wait for potential buyers. Yang and Cai also initially tried to develop the platform into a comprehensive student service, similar to Chegg, an American technology company that provides textbook rentals and online tutoring.

Yet, both founders realized that the C2C model was not the best for their new business, as booksellers and buyers needed to spend a lot of time negotiating details like price, payment, and delivery. At first, Yuelin didn’t want to get involved in the negotiation process but then realized that it could help to increase the efficiency of transactions.

Currently, Yuelin runs a “customer-to-business-to-business model” (C2B2B), which means it plays the role of a middleman who sources, renews, and resells used books. Meanwhile, the company has also expanded its services to more than just second-hand books, including used electronic devices, and clothes.

“In other words, students sell used books to us and the price is determined by an algorithm based on the conditions and prices on other platforms. Then our “recycle-ers”, who are usually part-time students, will go to users’ locations to pick up these books and send them to a central warehouse for further revamps. Then, we sell these re-packaged second-hand books to students or bookstores,” Yang explained.

The re-packaging process allows Yuelin to ensure the products are in good shape, securing users’ trust, and enabling the company to increase the prices of products.

Although the establishment of logistics facilities is costly, and the company needs to hire over 100,000 part-time recycle-ers who get commissions based on how many books they collect, the new model has boosted Yuelin’s revenue, Yang said.

The automatic pricing system and pickup service can attract more new users, while the in-house disinfection and refurbishment add value to the products, and as the market scales up, the cost for each book’s refurbishment lowers, Yang explained.

Yuelin operates warehouses to collect and revamp used textbooks. Source: provided by the interviewee

Although it currently specializes in second-hand textbooks (sales of books made up around 70% of its total revenue), the startup has a plan to also provide a trustworthy electronic product recycling service, and gain a presence outside of campuses.

Yang told KrASIA that Yuelin is also looking into the overseas markets, since the net profit on textbooks is greater in markets with higher retail prices, while demand climbs for second-hand electronics, especially in Southeast Asian countries. 

Overcoming the Chinese taboo against second-hand goods

Unlike the US, Japan, and some European countries where thrift stores thrive, the idea of buying pre-owned stuff is not a widely-accept concept in China. For example, it is still very likely that Chinese parents will scold their millennial children for buying vintage clothes from second-hand shops, as they believe that “used clothes are not clean.”

However, more and more Chinese millennials are starting to enjoy thrifting. They relish the chance to get what they want for a lower price or find collectibles and vintages that are not widely available in conventional marketplaces. Moreover, they have a place to offload their belongings when drifting from apartments to apartments, cities to cities. The same applies to books.

“I’ve noticed a trend where consumers have a higher acceptance of second-hand items,” Yang said.

He also mentioned that as the government is promoting an environment-friendly society amid slowing economic growth, citizens’ idea of consumption is changing, following the trends of other markets such as Japan, where the second-hand goods market is more mature.

Yuelin opened brick-and-mortar stores for both sellers and buyers. Source: provided by the interviewee

A growing plethora of online second-hand goods marketplaces is also giving traditional offline sellers and consumers more efficient solutions.

In China, the biggest second-hand exchange platform is Alibaba’s Xianyu (meaning “Idle Fish”) which operates a C2C model, akin to eBay. For the 2020 fiscal year, Xianyu generated RMB 200 billion (USD 28.54 billion) in gross merchandise value, up 100% year-on-year (YoY), according to the e-commerce powerhouse’s latest earnings. Buyers can find everything from limited edition sneakers, jewelry, and pets, to motorcycles.

Zhuanzhuan, a second-hand trading unit of Chinese Craigslist 58.com, backed by Tencent, is also a major player in the sector. It sells mainly consumer electronics, including phones, computers, and other gadgets, allowing both individuals and businesses to list used products.

On the other side, second-hand book platform Duozhuayu is perhaps a more direct competitor to Yuelin. Duozhuayu repurchases and repairs used books and resells them to booklovers. It secured an investment of an undisclosed amount from Tencent in 2018.  

When asked about Yuelin’s advantages versus these competitors, Yang said that his startup will continue to strengthen its businesses in the textbook market by enlarging the recycle-er teams on campuses. 

In Yang’s prospect, when graduates enter society, they will keep the habit of using Yuelin as long as the platform enables the exchange of more used products.

China digest

Per local e-commerce industry research firm 100ec’s, the market volume of second-hand e-commerce reached RMB 259.7 billion (USD 37.05 billion) in 2019 in China, up 53.2% YoY, with over 144 million users.

Yuelin continues to harbor ambitions outside of just books. In a fundraising round closed in 2019, Yuelin secured funds from private investor Huang Wentsai, chairman of Star River Group, a luxury residential property developer.

“Star River wants us to solve a problem, as the throwaway of large amounts of used items, like handbags, clothes, electronics, and house appliances, is a burden for the management of a property,” Yang said. Yuelin is set to bring its recycling solution into some communities soon, although Yang didn’t tell us a detailed plan.  

“We want to lengthen the life cycle of items,” he emphasized.

This article is part of KrASIA’s “Inside China’s Startups” series, where the writers of KrASIA speak with founders of tech companies in the country.