By JIA Linwei
Hangzhou Ruhnn Holding Limited, China's first public multi-channel network company (MCN), released its Q1 financial report for fiscal year-ending 2021 on Monday. Ruhnn had a net income of 280 million yuan (US$40 million), down 10 percent from last year. Profit settled at 10.7 million yuan. Last year, the business made a loss.
The fiscal report brings Ruhnn’s platform business model into question. The number of brands working in tandem with Ruhnn has risen from 700 last year to the current 1,200. Under the platform model, presenters who earn more than 10 million yuan are “top” wanghong (internet celebrities), of which Ruhnn has eight. Nineteen more made 3 to 10 million yuan, and a further 18 made themselves 1.2 million to 3 million. Having declared partnerships with a current 173 “celebrities,” these numbers beg the question of what the other 128 wanghong are actually doing.
Absolutely fabulous
"We had a robust start to Q1 by shifting our business focus to the platform model," said CEO SUN Lei.
Platform revenue has been on the up since Q1 of fiscal 2020 and now brings in 41 percent of all revenue, compared with 9 percent back then. Ruhnn's previous wanghong-based model seems to be on the way out and a brand repositioning is in the offing.
Established in 2001, Ruhnn was one of the earliest acolytes of the wanghong phenomenon. These so-called stars attract fans on social media while Ruhnn provides a product supply chain and clicks. There is an abundance of commercial encumbrances to be considered, including clothing, logistics, makeup, promotions, and warehousing.
The market is very competitive and has developed very fast, causing all kinds of troubles, including an absence of regulation, oversight, or standards.
Ruhnn's first financial report after going public in the United States in April 2019 showed massive expenditure on wanghong recruitment and fabrication. The company forked out millions of dollars, but revenue came only through a very few top wanghong. As a result, it had been losing money from 2017 to 2019.
This propelled the transformation of Ruhnn's business model. The "celebrities", or influencers are now matched with third-party stores or merchants to provide advertising on social media. In H2 of fiscal 2019, Ruhnn opened proprietary stores on Taobao and collected commissions based on sales. Compared with other online celebrity shops, Ruhnn’s stores eliminated upstream and downstream supply and value chains and left the wanghong with little to do except to be fabulous in their product selection and courting of fans.
In Q1 2021, revenue through these stores increased by 62 percent year-on-year, accounting for 15 percent of total platform revenue.
By the grace of wanghong
The platform model is now standard for most MCNs. They set up matrices of online celebrities to cheer for the brand, create content, host events, and grace offline events with their radiant presence. The precise operations vary from company to company.
MCN Chandan owns about 90 percent of featured brands. Its gross merchandise value exceeded 3.3 billion yuan in 2019, taking the crown in women’s clothing at Taobao. Ruhnn is catching up with its platform, bringing in more revenue than its own brands.
Despite the celebrity faade, the real MCN business is technology: analysis and optimization of the fan base, products and supply chain. In the future, they will no longer be about "people," but devoted to synergizing people, goods, and locations.