Vancl In Arrears, Struggles For Direction
Online apparel retailer Vancl continues to struggle, with media reporting the former e-commerce rising star has fallen into arrears in payments to many of its suppliers, including more than 10 million yuan ($1.6 million) owed to sporting apparel maker Li Ning (HKEx: 2331). The latest reports are citing company chief Chen Nian saying that Vancl experienced its darkest period late last year, and is now on the mend. But if reports of the arrears are true, Vancl’s failure to pay its suppliers could mark the beginning of the end for the company, which has made a number of major adjustments over the past 2 years in a bid to find sustainable long-term profits.
It may be too early to write a death notice for Vancl, which is having difficulty competing with bigger and better funded e-commerce companies like Jingdong and Alibaba, which count clothing as one of the biggest sellers among their broader product lines. I’ve previously said that specialty retailers could thrive on China’s Internet if they can find an audience. But Vancl finds itself in the awkward space of being too large to be a niche retailer, since much of the clothing it sells can also be purchased on e-commerce sites operated by big names like Alibaba, JD and Amazon (Nasdaq: AMZN).
All that said, let’s take a closer look at the latest reports, which cite an e-commerce executive saying on his microblog that Vancl is overdue in payments to many of its suppliers, which are threatening strong action if they are not paid soon. (Chinese article) Li Ning is one company owed the most, with Vancl’s arrears adding up to more than 10 million, the report adds. Vancl’s Chen responded to the complaints of arrears by saying that operations remain normal at his company, and any problems may be the result of disorder created by a recent company relocation.
Obviously it’s impossible for an outsider like me to know if these arrears are a temporary issue or signs of more serious problems at the company. But based on Vancl’s record over the past year, which includes major layoffs and several reorganizations, this latest report of arrears certainly looks like a troublesome sign.
Vancl is almost certainly still losing money despite reports it may have turned profitable briefly late last year, as it struggles to find a winning formula to earn money in the competitive online apparel market. The company tried to make a New York IPO to raise more cash a couple of years ago, but that bid ultimately fizzled as investor sentiment turned chilly towards money-losing China Internet companies. Sentiment has finally started to improve in the last few months, but investors continue to disdain companies that are losing money with no near-term prospects of sustainable profitable.
A separate report says that Chen has recently held lengthy consultations with his good friend Lei Jun, co-founder and chief executive of the more successful smartphone start-up Xiaomi. (Chinese article) The report says that Lei held more than 60 hours of discussions with Chen, and that Lei has also proposed some broader strategic moves to help Vancl become more focused. The report even suggests that Lei could become more involved in Vancl, perhaps as an investor or consultant to the company.
While all of this sounds interesting and Lei certainly has a strong track record at Xiaomi, I think his arrival to Vancl may be too late. What’s more, Lei is far too busy trying to expand Xiaomi’s product lines and boost its international sales to spend too much time trying to fix Vancl. Accordingly, I really don’t see too much hope for Vancl, which is probably running low on cash and could soon get cut off by its suppliers. All that said, I would expect we’ll see Vancl either close up shop or get purchased within the next year, with the former outcome more likely.
Bottom line: Vancl is likely to run out of cash in the next 12 months, forcing to company to either close or sell itself.
Related posts:
