According to a report by Sina Tech today, SaaS service provider China Youzan has launched its first round of layoffs this month. The first employees to be cut are product and technology R&D staff. In addition, Chen Jinhui, Vice President of China Youzan, left in October 2021.
Some insiders predict that there will be more than 1,500 layoffs in this round of downsizing. The company had more than 4,700 employees at its peak.
China Youzan has a relatively high turnover rate, with only about 50% of its employees working at the firm for more than a year. On the contrary, its top executive team is relatively stable. Most of the senior executives introduced from outside report to the founding team, while Chen Jinhui is one of the few relatively senior executives introduced from other companies. In April 2014, Chen became Vice President of Baidu, where he was in charge of channels. Following Baidu, he joined China Youzan in June 2017, where he was also responsible for channels.
For this reason, Chen’s departure seems abrupt. In October 2021, he resigned from the company. According to insiders, his departure was due to physical reasons. In December, Chen’s assistant at China Youzan also left.
China Youzan, formerly known as China Innovationpay Group Limited, is an investment holding company principally engaged in the merchant services business. The Hong Kong-listed company helps merchants open online stores, engage in social marketing, improve retention and repurchasing, and expand omni-channel new retail business. In the past few years, it has received strategic investment from Tencent and Baidu.
Amid the COVID-19 pandemic, online transactions and live commerce have become the main sales methods since the beginning of 2020. Therefore, SaaS (Software as a Service) service providers such as Weimob and China Youzan are also highly sought after by investment companies. In the healthy financing environment and with a large amount of investment, China Youzan was continuously raising capital and expanding its business. As a result, its losses are also gradually expanding.
According to the company’s financial report for the first three quarters of 2021, revenue during the period was 1.18 billion yuan ($185.34 million), down 9.9% year-on-year. The operating loss was 759 million yuan ($119.62 million), more than double the operating loss of 356 million yuan ($56.11 million) in the same period of 2020.
In the first three quarters of 2021, the number of new paid merchants with China Youzan was 32,700, including 13,700 new paid merchants in the third quarter, an increase of only 6% year-on-year.
In fact, the company’s earnings contraction came in the second quarter of 2021, mainly affected by the rapid shrinkage of GMV (gross merchandise volume) on Kuaishou, a popular Chinese video-sharing platform.
In order to build the service system of merchants quickly in the early days of e-commerce layout on Kuaishou and Douyin, the two companies generally choose to cooperate with SaaS service providers to quickly build corresponding e-commerce trading capabilities for SMEs (small and medium-sized enterprises) on the two video-sharing platforms.
China Youzan provides software, payment and other tool kits for SMEs on platforms such as Kuaishou, Douyin and WeChat to help them quickly commence business operations. Kuaishou was once the largest source of GMV for China Youzan, accounting for 40% overall.
However, with the gradual growth of the platforms’ e-commerce business, platforms all began to provide merchants with self-developed tool kits, instead of China Youzan’s tool kits. According to China Youzan’s financial report in the first half of 2021, the company’s GMV in the first half of 2021 did not meet expectations, mainly due to the decline of GMV earned from Kuaishou, and the proportion of GMV earned from the platform in the overall GMV dropped to 20% in the first half of 2021.