Chinese secondhand consumer electronics recycling and trading group Aihuishou, which is valued at over $2.5 billion and counts e-commerce giant JD.com as its largest shareholder, is ramping up its expansion in both its home market and internationally.
In 2019, JD.com merged its secondhand commodity trading platform Paipai.com with Aihuishou, and led a $530-million Series E round funding in the firm.
“Our working capital flow is positive, but we will need more strategic investments for a further business extension,” Xuefeng Chen, co-founder and CEO of Aihuishou, told DealStreetAsia.
Launched in 2011, Aihuishou is a customer-to-business (C2B) platform offering auction-like solutions for digital items including cameras, phones and laptops among others.
Aihuishou operates three secondhand trading platforms: aihuishou.com specialising in 3C (computer, communication, consumer electronics) products; pai.aihuishou.com with a focus on digital products, and paipai.com. It also owns over 600 brick-and-mortar stores. Its on-site service network covers about 120 first and second-tier cities in the country.
As of 2019, Aihuishou recorded more than 20 billion yuan ($2.8 billion) in annual transactions. In 2019, it recycled and traded over 22,000,000 digital goods, with 50,000 transactions per day.
Its CEO Xuefeng Chen details the opportunities and his business plans for the near future.
Edited excerpts of an interview:-
How has COVID-19 impacted business at Aihuishou? Has there been a decline in the number of transactions?
Our offline stores did suffer during the COVID-19 pandemic due to the fact that a large number of shopping malls were in lockdown, but it didn’t deteriorate once we intensified our online services. On the whole, the business moved to the online domain. Once it became a new normal, we found that secondhand tablet computers were in demand. As China reopens its economy, our business is back to functioning properly with operational data exceeding that of December 2019, before the epidemic outbreak.
Have you found enough business solutions to drive growth this year?
“Trade-in” is trendy, and makes a significant contribution to product sales and recycling. Via partnerships with JD and many other distributors, we offer one-stop digital product replacement solutions. For instance, in 2019, the transaction for the replacement business was up 237 per cent over a corresponding period in the previous year. We will continue to expand our value-added services.
Can you give us an insight into the merger with JD.com unit paipai.com – one of the largest secondhand trading platforms in China?
We specialize in C2B and business-to-business (B2B) solutions in the industry, but we were less competitive in the business-to-customer (B2C) space. Paipai.com is a B2C platform, so the merger enables us to connect all the niche markets and align them with the supply chain.
Is the secondhand business emerging in China? What are the unique opportunities and challenges you are seeing in the industry?
It definitely is a nascent business in China as more and more venture capital is flowing into it. When 5G networks offer an unprecedented leap in bandwidth speeds, we do see great potential in trade-in services. In addition, the huge size of secondhand 3C products trading globally is also an opportunity.
What’s your assessment of the competitive environment in China in this space? Is there enough room for more players?
The competition in the secondhand automobile and residential property space has always been intense. It is getting diverted to the 3C products as people realize they are in demand. Although we have to spearhead the secondhand 3C product niche, we believe it will become much more competitive as its size keeps scaling up. However, all of the players should be aware that the industry is driven by the supply chain and thus needs efficient social infrastructure.
What is your business model? Is your operation profitable?
Our business model is to build an advanced secondhand 3C product platform, besides creating a supply chain for the reuse and recycling businesses. Since 2017, we have turned profits. As mentioned, 5G based trade-in services must drive our business growth and it is expected to surge rapidly in 2020.
What do you consider as the three most important turning points of Aihuishou’s development over the past few years?
At the very beginning in 2011, we concentrated on developing offline stores and terminal business operation centres in a bid to build a standardized quality management mechanism and create a relationship of trust with customers. Now with we have developed seven operational centres across the nation. Secondly, we made a foray into going global in 2018 by launching pai.aihuishou.com operating as a cross-border e-commerce trading platform. Thirdly, the merger with paipai.com marked a milestone for us to revamp our strategies and future development in the next few years.
Traditionally, the industry has not heavily relied on technology. How has technology accelerated the transformation of this industry?
The recycling industry is in need of technology to promise operational efficiency management and risk control. Take one of our operational centres, Asia No.1 Operational Center, for example. The smart assembly line system covers machinery testing, items classification, and distribution, which shows that high-performing automation maximizes efficiency, over three times when compared to work-force.
How do you assess the industry development in the next one to three years? What’s your business plan?
It can be seen that the transaction size of global secondhand 3C products will skyrocket to a trillion yuan ($141 billion). Currently, the industry is undergoing rapid growth and the supply chain is being revamped. Thus, the future looks positive. We believe that a new wave of trade-in business will be irresistible in the next one to three years. Following the trend, we firmly insist on the plans to create a competitive 3C replacement platform through partnerships.
Are you planning for an IPO?
We have no rush to proceed with an IPO. First and foremost, we will continue to strengthen our capacities, as well as accelerate our business development.