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The Background

Name any Chinese bike-sharing company that you know of and chances are that ofo and Mobike are among your top choices. There is however, another bike-sharing company worth talking about.

Founded as early as November of last year, Bluegogo is a Tianjin-based bike-sharing firm and has quickly become the third largest company of its kind in China, following, of course, ofo and Mobike.

Similar to its competitors, the dockless bike-sharing brand is equipped with a GPS tracker and users book the bikes through the Bluegogo app.

Because the bikes are station-less, they are scattered random spots throughout the city. In the first half of 2017 alone, Bluegogo already has 70,000 bikes in three Chinese cities: 35,000 in Shenzhen, 25,000 bikes in Guangzhou, and 10,000 in Chengdu.

Source: Mashable

Bluegogo has drawn several investors to fund its business and was valued at $140 million after pocketing a Series A round of $21 million in November last year and $58 million earlier this year.

With two large funds raised within a single year, the company seemed to be performing well in China that it began looking into overseas expansion to leverage the hype surrounding the share economy. What could possibly go wrong?

The Challenge

Like other share-economy startups, think Uber, ofo, etc., Bluegogo needed to find a way to become profitable.

One way to prove its worth to investors is its ability to expand.

“Bluegogo, being a latecomer to the bike-share game, needs to be aggressive” – Mashable

Bluegogo has not only been aggressive in expansion at home but also reaching as far as the US. The Chinese company chose San Francisco, the second most bike-friendly city in the States as its first venture into North America.

In January this year, the company was the first smartphone-enabled bike-sharing platform to launch some 20,000 dockless bikes in San Francisco, USA.

However, Bluegogo’s American Dream was not smooth sailing. Instead of a warm welcome by SF city dwellers accustomed to miles of bike lanes and high quality cycling facilities, Bluegogo faced angry lawmakers.

The company having achieved rapid success in China, implemented the same strategy in the US by placing dockless bikes everywhere on the streets of San Francisco. The problem was that the city ended up with large, messy and unsightly piles of bikes.

Leftover bikes from bike-sharing firms such as Bluegogo pile up in China. Source: Mashable

San Francisco has historically been known for its welcome mat, but in recent years we’ve let ourselves become a doormat. It’s time to put the public’s interests first, even if that means disrupting the disruptors,” said Aaron Peskin, Supervisor of the San Francisco Board.

Peskin even called the bikes a “public nuisance,” and vowed to destroy or even sell the bikes if they clogged up city streets.

In Bluegogo’s defense,

There was a problem in communicating,” said Ilya Movshovich, BlueGoGo‘s North America VP of Operations. “The people we reached out to initially were not the people we needed to get to. We didn’t quickly enough communicate with the appropriate heads.”

Until even now, San Francisco has yet to approve Bluegogo’s presence and even imposed a new law to increase the penalty for Chinese bike-sharing companies planning to litter its city.

If expansion wasn’t success, monetization would have to come from deposits provided by Bluegogo’s claimed 20 million cumulative users. If only 10 million users paid a $14.96 deposit, it would mean the company has collected around $149 million in deposits, in addition to the $0.08 per half hour charge to ride.

So why was the company owing roughly $30 million in total outstanding payables to vendors, unpaid rent and overdue salaries?

Bluegogo’s empty Beijing office. Source: China Money Network

It also owed users $15 million worth of deposits as of November 2017.

To make things even worse, Bluegogo’s CEO Li Gang went missing early November 2017 and was later discovered to have fled the country. What was this once promising company going to do?

Li Gang, Bluegogo’s CEO. Source: Linkedin

The Strategy

In attempt to explain the disastrous situation, Li released an open apology letter. As cliché as it sounded, he blamed the company’s state on lack of financial support, claiming that Bluegogo was ‘on thin ice in the face of two well-funded players’, pointing fingers at ofo and Mobike backed by Tencent and Ant Financial, respectively.

The bike-sharing market is full of challenges, and my mind is too childish and naive to succeed in the sector.” – Li Gang

But there could be some light at the end of the tunnel. Li took the opportunity to announce a partnership with another small bike-sharing startup called Biker, who would be in charge of operating Bluegogo as usual under its management.  

The Future

The merger of small startups like Bluegogo and Biker is considered to be a typical one for competitive and costly markets. Li admitted that he will use the revenue generated from the partnership with Biker to pay off its debt.

Bike-sharing is an asset-heavy industry. As investors become increasingly cautious and reasonable about their bet, a timely merger or acquisition may be the only chance for second-tier players to survive,” – said Shi Rui, Analyst with consulting firm iResearch

Despite a promising partnership with Biker, there has been no word from the company itself to confirm the partnership.

The fall of Bluegogo has spurred the question, has the bike-share economy bubble finally burst?

There have already been three Chinese bike-sharing startups – Xiaoming Bike, Mingbike, and Coolqi – collapsing within a span of one year; the latter actually teaming up with Biker.

Even ofo and Mobike investors are said to be in talks for a possible merger to survive in China’s bike-sharing market, which was estimated to be worth $1.5 billion this year. Is the future of bike-sharing M&A and endless funds?

Without support from a wide range of investors and good financial planning capabilities, even the best bike product is powerless,” wrote Li Gang.

We beg to differ. A company that relies on solely on funding in the long run needs to rethink its business model. Good luck Bluegogo/Biker/Coolqi.

THE BACKGROUND

It’s safe to say that Toys ‘R’ Us is one of the most popular places on earth for kids everywhere. With an endless variety of toys stacked in high racks, it is a heaven created for kids or kids-at-heart alike.

The toy retailer was born after founder Charles Lazarus came back from serving in the World War II and decided to build a baby furniture business during the baby-boom in 1948.

Lazarus started featuring assortments of toys in the store then named “Children’s Bargain Town” after receiving a high demand from parents and soon learned that unlike furniture, toys would keep customers coming back, either for an upgrade or a replacement.

Less than a decade later, he restructured his business to solely focus on toys and opened the first Toys ‘R’ Us store in 1957 — with the iconic backward R giving a childlike impression. To date, the company has 1,600 stores across 38 countries.

“What we are is a supermarket for toys. We don’t have a competitor in variety, there is none,” told Lazarus to the Washington Post.

Toys R Us bankruptcy ecommerce

Toys ‘R’ Us founder Charles Lazarus retired as CEO and president in 1994 while remain chairman. Source: Getty Images.

For decades, the US company was so unbeatable that it had become a classic example of a category killer — a business that successfully specializes in one sector that it pushes out competition from both smaller specialty stores and larger general retailers.

So what happened to the once-booming business that the company filed for bankruptcy earlier this week?

THE CHALLENGE

When news of the Chapter 11 filing (“reorganization” bankruptcy”) by the toy retailer broke, media was quick to blame Amazon and the rise of online retail as the reason of yet another traditional retailer struggling to stay in business, known commonly as the Amazon Effect.

But the real reason for the bankruptcy is more complicated than this and what set off “a dangerous game of dominoes” was actually accumulated debt.

Toys ‘R’ Us had managed to sustain a crushing debt for more than a decade after getting bought by KKR and Bain Capital in 2005. The private equities bought the retailer, which at that time was valued around $7.5 billion, for $6.6 billion that consists only of $1.4 billion in equity.

They then used the company’s assets to raise $5.3 billion in additional debt, creating a total debt of $6.2 billion — based on the assumption that they would be able to cut the retailer’s operating costs and sell under-utilized assets to raise cash and repay the debt.

But they failed to predict the retail shift to ecommerce, which created a completely different competitor from the ones Toys ‘R’ Us had been facing in the past such as Walmart or Target.

The assumption that retail real estate would increase in value also failed them as the US became saturated with retail space once businesses began shutting down.

The company barely had enough money to repay its $5 billion debt and fight traditional retailers, let alone build a major online presence to go up against Amazon.

Given its fragile situation and end year sales around the corner, the company was forced to file for bankruptcy protection in order to provide the vendors with cash in advance as nearly all of them refused to ship products to fill the retailer’s inventory for the holiday season.

THE STRATEGY

With the new protection, Toys ‘R’ Us received a commitment for over $3 billion to help address the financial constraints in a lasting and effective way, as stated by Toys ‘R’ Us CEO Dave Brandon in the courts filling.

“Together with our investors, our objective is to work with our debtholders and other creditors to restructure the $5 billion of long term debt on our balance sheet.”

The company doesn’t plan to close stores and its operation in location around the world will continue normal operations. Toys ‘R’ Us also plans to spend $64.8 million before 2022 to make it more enjoyable to shop in its stores.

“Toys ‘R’ Us stores will be interactive spaces with rooms to use for parties, live product demonstrations put on by trained employees, and the freedom for employees to remove products from boxes to let kids play with the latest toys,” explained Brandon.

The plan also includes the creation of augmented-reality video games that customers can play on their smartphones while shopping at the store.

Toys R Us bankruptcy ecommerce

The iconic Indoor Ferris Wheel in Toys ‘R’ Us’s Time Square store that was closed in 2015 because of its high rental cost.

The suppliers’ support for the reorganization plan for Toys ‘R’ Us is also key to dragging them out of bankruptcy.

“Vendors are why they are in, they will be a big part of why they get out,” said Bloomberg Intelligence analyst, Noel Hebert.

Some of the key vendors such as Hasbro and Matte have rallied support and stated they were standing by the company.

Earlier this year, the company also expressed its commitment to take action towards the lack of its online experience with a $100 million investment to revamp its website.

“Some organizations recognize faster than others there are shifts in the ways customers want to be communicated with and the way customers want to purchase products,” said Toys ‘R’ Us CEO David Brandon. “It probably took us awhile.”

Toys R Us bankruptcy ecommerce

The company’s current ecommerce website: www.toysrus.com

CEO Dave Brandon has said that the company will not engage in a “race to the bottom” of a discount war that is usually employed by online retailers in order to gain new customers.

Despite accusations of being slow to adapt to the online shift, Toys ‘R’ Us was, in fact, one of the first companies to sign a deal with Amazon in 2000 to sell toys exclusively through the online retailer.

The exclusive agreement marked the first “click-and-mortar” collaboration between traditional and online retailers but Amazon broke the deal and began allowing other toy sellers in its platform because Toys ‘R’ Us stock couldn’t keep up with the high demand.

Toys ‘R’ Us sued in 2004, and Amazon ended up having to pay $51 million out of the $93 million that the toy retailer asked for to settle the lawsuit five years later.

THE FUTURE

Despite the woes of the company in the US, its Asian operations remained unaffected.

In April this year, the company unified its Japanese business with the operations in Greater China and Southeast Asia — bringing together 223 subsidiaries stores across Asia and 34 licensed retail locations in Macau and the Philippines.

“Toys ‘R’ Us (Asia) is open for business and continuing to serve our customers as we always do. We are financially robust and self-funding retail operation, which continues to significantly grow and invest in this region,” said Toys ‘R’ Us Asia president, Andre Javes.

The company even plans to open another 22 store in China the coming weeks.

The journey that Toys ‘R’ Us facing will not be easy but the CEO remains optimistic.

“As the holiday season ramps up, our physical and web store are ones for business, and our team members around the world look forward to continuing to put huge smiles on children’s faces,” said Brandon.

Toys R Us bankruptcy ecommerce

Here’s what you should know:

1. Vietnam’s online travel market is valued at $9 billion in 2020

Up to 45% of Vietnamese internet users book hotel services or air tickets, with the figure increasing by 11% annually, according to Vietnam’s deputy director of the Ecommerce and Information Technology Agency, Lai Viet Anh.

The number of travelers booking tours online has increased considerably in the last two years. About 4,000 travelers booked tours online in 2015 and it increased by threefold last year (12,000 travelers). In the first half of 2017, the number of travelers booking tours online was equal to that of the entire year of 2016.

Forecasts say Vietnam’s online tourism market’s value may reach $9 billion in the next three years.

Read the full story here.

2. Didi Chuxing partners with car booking company Careem

Chinese ride-hailing company Didi Chuxing has announced a new partnership with Middle East transportation company Careem to further its expansion in North Africa and the Middle East.

With 12 million customers, Dubai based Careem has overtaken Uber within the Middle East since its launch five years ago, with investors such as Germany auto company Daimler, and Japan’s Rakuten.

Didi’s expansion into the Middle East will put it head-to-head with Uber, who have already gained ground within the region.

Read the full story here.

3. Payless emerges from bankruptcy

Payless is set to emerge from bankruptcy after disposing of half of $847 million of debt it had built up under its private-equity ownership.

Payless has closed roughly 700 mostly mall-based US stores, but is opening four mega stores here to add to some 3,200 post-bankruptcy locations in the US and abroad, and plans to invest $234 million over five years.

The company is banking on a strategy focused primarily on brick-and-mortar sales at a time and can withstand the onslaught of ecommerce.

Read the full story here

Here’s what you should know for today.

1. China’s SF Express is the most valuable company in the stock exchange 

Shares of SF Express Co, China’s largest express delivery company, soared by 10% daily limit for a third time in five trading days since its debut, making it the most valuable company in Shenzhen Stock Exchange.

One month earlier, Maanshan Dingtai Rare Earth & New Materials Co., Ltd. and SF Express completed an asset swap that valued S.F. Express at an estimated $6.8 billion. The combined company now has 4.18 billion shares, and is currently worth S$25.5 billion.

S.F. Express’ IPO comes at a time when Chinese courier companies were hit by a lack of delivery staff and negative news reports revealing that major courier companies are mistreating delivery personnel. Listed companies including YTO Express and STO Express saw their shares plummet as a result during the past few days.

Read the rest of the story here and here.

 

2. China prepares its own digital currency

After assembling a research team in 2014, the People’s Bank of China has done trial runs of its prototype cryptocurrency. That’s taking it a step closer to becoming one of the first major central banks to issue digital money that can be used for anything from buying noodles to purchasing a car.

Chinese people are embracing the online currency-paying for cokes using the QR code on their phones, and even going as far as issuing online money transfers instead of handing out red envelopes during Chinese New Year.

The People’s Bank then, is adopting the attitude “if you can’t beat them, join them.”

Read the rest of the story here

 

3. Recommended Reading: Nasty Gal, once a fashion world darling, is now bankrupt. What went wrong?

By 2011, its annual sales hit $24 million, an 11,200% jump from three years earlier, the company said publicly. Sales leap-frogged again in 2012 to nearly $100 million.

But it wasn’t long before sales started dropping — to $85 million in 2014, and then $77 million in 2015, according to bankruptcy documents.

Analysts said that Nasty Gal’s rapid growth was fueled by heavy spending in advertising and marketing. It’s a strategy that many start-ups use, but one that only pays off in the long-run if one-time buyers become loyal shoppers.

Read the rest of the story here.