Binding Philips, Xiaomi, but being sued by Midea

Text｜Edited by Pan Xiaoyu｜Peng Xiaoqiu

Source: 36氪South China

Foshan will welcome a small household appliance listed company again.

After submitting the prospectus in June 2021, Delmar recently updated the prospectus again and went through two inquiries. Although the road to IPO is not smooth, the heart of ringing the bell will not die.

According to the Shenzhen Stock Exchange's inquiry, Delmar's main problems focus on the adopted live delivery model, ODM business and accounts receivable. On the one hand, these problems exposed the possible risks of Delmar, and on the other hand, they also revealed another growth path of domestic small household appliances.

Delmar is a home appliance brand enterprise integrating independent research and development, original design, own production, and self-operated sales. Its brands include "Delma", "Philips", "Weixin", etc. The main product types cover four categories: home environment, water health, personal care health and living bathroom.

Coming out of the red sea market of small household appliances lined with giants, Delmar has found a barbaric path of his own. In terms of effect, Delmar's revenue is relatively considerable and shows a year-on-year growth trend. From 2018 to the first half of 2021, its revenue was 967 million yuan, 1.517 billion yuan, 2.228 billion yuan and 1.248 billion yuan respectively. Net profit was 47 million yuan, 106 million yuan, 170 million yuan, and 47 million yuan respectively.

However, in contrast to revenue growth, Delmar's gross profit margin has been declining year by year, at 33.16%, 36.33%, 32.27% and 27.80%, respectively.

Delmar performance

In this regard, Delmar explained in the prospectus that the main reasons for the decline in gross profit margin are, on the one hand, the increase in labor costs and raw material prices; It also lowered the overall gross profit margin.

Delmar grew out of the Red Sea, determined by its strategic choices. However, behind the binding of big names such as Xiaomi, Philips, and Vantage, it also pushed the company to a high-risk road.

Taking Delmar as a mirror, we can have a glimpse of the development and changes of my country's small household appliance market in recent years, and also put forward new thinking about my country's small household appliance brands: under the monopoly market of giants such as Supor, Midea, and Joyoung, what kind of breakthroughs do domestic brands need to make? Way?

Del Mar's Red Sea Breakout Road

Speaking of brands today, marketing is inseparable. At this point, Del Mar has genes and advantages.

Before founding Delmar, founder Cai Tieqiang established Feiyu Advertising Company in Beijiao, Foshan in 2007, and then founded Feiyu E-commerce and Feiyu Marketing, shifting the business focus to e-commerce agency operations. However, the operation process of the agency operation is not cumbersome. When the merchants realized this, the agency operation market of Feiyu soon began to shrink.

At that time, in Shunde, which is known as "the home appliance capital of China", a large number of home appliance companies such as Midea and Xinbao were withdrawing from the price war and began to move towards the door of technological innovation and brand upgrade. For example, Midea and Toshiba Carrier have established a joint R&D center for inverter technology to master the "black box" technology of inverter air conditioners; Xinbao and Mofei have joined forces to open up the Chinese market.

It is also under such a wave that in 2011, Cai Tieqiang made a decisive transformation and launched his own brand of small home appliances - Deerma. At the same time, it also provides operation services for Vantage, Wanhe, Galanz and other brands, and launched the first popular humidifier product.

The birth of the explosion model is that Delmar found a big enough market pain point: most of the humidifiers on the market at that time were 1L and 2L in size, and the price was around 199 yuan and 299 yuan, but this capacity could only last until 2 or 3 in the morning. ; And the price of a 4L capacity humidifier exceeds 1,000 yuan. Therefore, Delmar has developed a product that "uses it overnight" and is priced at a 30% discount on the market. Relying on this high cost performance, Delmar got the platform flow tilt, and it became an instant hit.

With the continuous expansion of revenue, in 2014, Delmar began to build its own production capacity by leasing factories, and then built its own production workshops and park facilities. At the same time, a product self-research team was also formed, starting from a small team of about 10 people, to carry out independent research and development of vacuum cleaners and other products, and since then, the research and development categories have been expanded to more directions.

The time has come to 2018, a crucial turning year. In June of that year, Delmar acquired Philips' water health business, and successively obtained the exclusive authorization of Philips brands including water purifiers, water heaters, smart bathrooms, mobile massages and other products. After tasting the sweetness, Huaju Sanitary Ware, a subsidiary of Delmar, also reached a brand authorization cooperation with Vantage.

Delmar water health category

From 2018 to the first half of 2021, Philips and Vantage contributed 15.15%, 28.54%, 39.44%, and 33.88% of the total revenue to Delmar, and the revenue amounted to 146 million yuan, 432 million yuan, 877 million yuan, and 4.21 million yuan. billion.

Relying on the brand agency to achieve a leap in performance, it was also from this time that Delmar began to embark on the road of capitalization and opened the first round of financing. In June 2018, Delmar received an investment of 500 million yuan from CITIC Industrial Fund, corresponding to a valuation of 2 billion yuan.

At the same time, Delmar has also established its own brand "Weixin WellSkins", which mainly focuses on Chinese personal care, health massage, beauty, body and hairdressing and other segments.

After that, Delmar made great progress all the way. In 2019, it reached a cooperation with Xiaomi and began to provide ODM business for Mijia, mainly providing Mijia customized products for Xiaomi Group. Except for a few raw materials such as WIFI modules and power cords purchased from Xiaomi Group, the rest of the main raw materials are purchased independently. From 2019 to the first half of 2021, the revenue of Mijia's ODM business has increased year by year, bringing it 72 million yuan, 271 million yuan and 292 million yuan in revenue.

It is worth mentioning that Delmar, which started with advertising and marketing, also stepped on the live broadcast and brought goods. They have reached cooperation with leading anchors such as "Weiya", "Simba" and "Luo Yonghao" respectively.

In today's era of short video flooding, Delmar's marketing strategy is the epitome of countless emerging brand strategies. Undoubtedly, this has also paved the way for its brand to increase its popularity and quickly seize the market.

Delmar's live delivery mode

The risk of military action is bound to be accompanied by great risks

Relying on the outlet of brand agency, Xiaomi OEM and live broadcast delivery, Delmar has come out of the small home appliance market, which is already a red sea. However, under the seemingly unpredictable means, there are also huge risks hidden.

The first is the novel marketing form of live streaming, which frequently overturned last year. After Sydney, Wei Ya and other top anchors were exposed to large amounts of tax evasion and were punished, they pointed to the financial compliance of the marketing model of Internet celebrities bringing goods.

The two inquiries by the Shenzhen Stock Exchange also pointed to this issue. This includes requiring Delmar to explain whether there is a transfer of benefits or other benefit arrangements with MCN, and whether there is any payment to MCN, the anchor through personal bank accounts such as employees and related parties, or other cooperating with MCN and the anchor to evade tax. Irregularities.

Interestingly, despite the large investment in live broadcast delivery, Delmar’s online revenue has shown a downward trend year by year. According to the prospectus, from 2018 to the first half of 2021, its online revenue accounted for 70.56%, 71.58%, 61.68% and 45.03% respectively.

To split Delmar’s online channels, it mainly adopts online direct sales (opening direct sales stores through third-party B2C platforms such as Tmall Mall, Xiaomi Youpin, JD POP), online distribution (authorized dealers in the agreed e-commerce There are three modes: the platform opens stores for sales) and the e-commerce platform (sale through e-commerce platforms such as JD.com, Yunji, Vipshop, etc.). Among them, the proportion of direct sales model has increased year by year, while the proportion of e-commerce platforms has shown a downward trend.

Delmar revenue from various channels

In addition, in terms of distribution channels, the number of Delmar dealers has increased year by year. However, its top five dealers are not stable, and the number of dealers exiting in 2020 and the first half of 2021 is 60 and 67 respectively. The exiting dealers contributed 34.09 million yuan and 15.91 million yuan in revenue.

In addition to dealers, Delmar's other instability also comes from the top five customers. According to the prospectus, from 2018 to the first half of 2021, seven new customers were added to the top five customers. Delmar's explanation for this is that due to the development of distributors and cross-border trade, sales to related customers have increased; in addition, customer concentration has decreased.

But in fact, the concentration of the five largest customers has only dropped from 49.67% in 2018 to 47.77% in the first half of 2021, and the change is not obvious. The five largest customers still account for nearly half of the revenue, so risks due to customer changes still exist.

Then there is the issue of brand agency. According to the "Philips Trademark License Agreement" signed by Delmar, within the period from July 1, 2018 to June 30, 2038, if Delmar ceases normal business operations, becomes insolvent, leads to bankruptcy, damages the licensor's reputation, etc. There is a risk of revocation of the trademark license. In addition, there is a risk of not being able to renew the contract.

So, what will happen to Delmar, who has left the blessing of Philips? An obvious data is that from 2018 to the first half of 2021, the sales revenue brought by Philips was 137 million yuan, 309 million yuan, 697 million yuan and 326 million yuan respectively, accounting for 14.21%, 20.38% and 31.35% of revenue. % and 26.18%.

On the other hand, its own brands Delmar and Weixin, the proportion of revenue is showing a downward trend year by year. Especially the Weixin brand, its performance has been declining, and its revenue share has dropped from 9.92% in 2018 to 3.42% in the first half of 2021.

This also shows from another aspect that the road to building its own brand is not easy to take, and once the bundled big name is lost, the company will inevitably suffer a great blow.

Revenue share of Delmar brands

At the same time, according to data from platforms such as Tmall and JD.com, the sales of Delmar products under its own brand are not high. Taking January to June 2021 as an example, its main vacuum cleaner products are ranked 7th, 4th, 6th, 8th, and 9th in the Tmall ranking; humidifiers are outside the 10th and 10th.

Again, a negative net cash flow. From January to September 2021, the net outflow of cash flow from Delmar's operating activities was 112 million yuan. The reason given in the prospectus is because the scale of inventory has expanded and more suppliers have been paid. During the same period, the net cash flow from investing activities was -163 million yuan, compared with -0.91 billion yuan in the same period of the previous year, mainly due to the payment for land purchase.

cash flow

Poor cash flow performance can be said to be a common problem in e-commerce. Especially when starting a cross-border e-commerce business, if you want to ensure timeliness, it means that most of the company's cash flow needs to be on the goods. To make matters worse, in the small household appliance industry, with the development of the epidemic in recent years, the cost of upstream raw materials has also increased significantly.

Taking the raw materials and components required by Delmar as an example, it mainly includes electronic appliances, plastic raw materials, motors, packaging materials, electronic components and hardware products. Among them, the price of electronic appliances with the largest proportion has doubled from 1.4 yuan in 2018 to 3.3 yuan in the first half of 2021. Delmar's perception of rising raw material prices is particularly evident. After all, from 2018 to the first half of 2021, its raw material costs accounted for 80.10%, 82.54%, 82.98% and 82.28% of the total cost, respectively.

One way to liberate cash flow is through the ODM model. After all, compared with the overseas e-commerce model, the domestic payment has a time advantage. But in the ODM business, Delmar is bound to Xiaomi.

This also leads to Delmar's accounts receivable, which is not very good-looking compared to its peers. From 2018 to the first half of 2021, Delmar's net accounts receivable were 149 million yuan, 187 million yuan, 335 million yuan, and 276 million yuan; accounts receivable turnover ratios were 9.61, 9.03, and 8.53 and 8.16. The main reason for the increase in revenue accounts and the decline in turnover rate is the increase in Xiaomi's accounts receivable, and there is a certain cycle of Xiaomi's payment collection.

In the first half of 2021, taking Xiaoxiong Electric, Beiding Co., Ltd., and Joyoung Electric as examples, the accounts receivable turnover ratio (the average number of times accounts receivable is converted into cash) are 22.8, 19.98, and 19.27, respectively, which is Delmar nearly three times. Therefore, for the extremely strong Xiaomi, Delmar's bargaining power is obviously not strong.

Delmar's Accounts Receivable Turnover Ratio vs. Peers

Capital blessing, is it a boost or a game?

Compared with star companies on the same track, such as Ecovacs and Stone Technology, Delmar's capitalization came relatively late.

After Delmar completed its first financing in 2018, it took 2 years before it ushered in a 336 million A+ round of financing. This time, the capital that entered the game included Hongzhang Capital, Oppai Home, etc. Delmar’s valuation also rose to 3 billion.

Since then, in July 2020, Delmar received another 380 million B round of financing from Cathay Capital, Jinyi Capital, and Dachen Caizhi. But what is confusing is that, after 4 months, the business has not changed significantly, but Delmar's valuation has risen sharply, reaching a valuation of 5 billion yuan.

Finally, in November of the same year, Delmar received an investment of 80 million yuan from Tianjin Jinmi, a subsidiary of Xiaomi, and a personal investment of 150 million yuan from Dong Haifeng. Before going public, Delmar was last valued at nearly 5.3 billion.

Among them, Xiaomi and OPPEIN are both shareholders of Delmar and their downstream customers. Although this has brought more advantageous resource channels to Delmar, it has also weakened the voice and bargaining power of the company itself to a certain extent.

At the same time, it is worth noting that although Delmar has successively received a total of 946 million investment. However, the amount of financing it actually received was much less. The prospectus showed that the cash received from absorbing investment was only 778 million yuan.

Cash actually absorbed for investment

Fortunately, the global market for small household appliances is still very large. According to Euromonitor data, the market size of the global small household appliance industry (in terms of retail sales, excluding water purification) has increased from US$175.57 billion in 2015 to US$207.99 billion in 2019. , with a compound annual growth rate of 4.33%. Moreover, it is expected that the global small household appliance industry will maintain a growth rate of about 5% to 6% in the future, reaching a market of 257.40 billion US dollars in 2025.

Coupled with the advantages of China's supply chain, there is undoubtedly a lot of imagination for small household appliances to go overseas, which is also the source of capital's patience.

An investor told 36Kr that the cross-border e-commerce industry was turbulent last year, and while the market began to become standardized, capital would also favor companies with supply chain capabilities, flexibility, and intelligent manufacturing advantages. Then, through self-built factories and deep cultivation of the supply chain, it may also be an optimal path for small household appliance companies to win from the Red Sea.

At the same time, the industry inflection point of small household appliances has come, and product changes have moved towards the direction of appearance and intelligence. This also means that the ability of small home appliance companies to compete in the future is no longer at the micro-innovation level such as appearance design, but needs to make truly innovative products in terms of product performance advantages and functions.

However, according to the proportion of Delmar's capital investment, it will be found that it is still an enterprise that focuses on marketing and less on R&D. Taking the first half of 2021 as an example, its R&D investment was 51.29 million yuan, accounting for 4.11% of its operating income, while its marketing investment was 188 million yuan, nearly four times its R&D investment.

At the same time, Delmar is also involved in lawsuits on the issue of product infringement. Among them, there are 5 disputes arising from patent rights and Midea, and Delmar is the defendant, involving a total amount of 28.2 million yuan.

However, according to the use of funds raised in the prospectus, it can be seen that Delmar has clearly realized the importance of product innovation. The main funds raised after the listing will be used to build a smart home appliance manufacturing base, R&D quality control center construction and informatization construction.

Use of raised funds

This has also brought a clear signal to the industry: the upgrade of the small household appliance industry has come, whether it can step on the wind and stand out, the test for each enterprise, once again returns to its foundation - the product itself.