Letao rent two floors of a nice office building near Beijing’s prosperous Wangfujing walking street and stuffed more than 400 staff into the office at its peak in middle 2011.
In 2012, with the transition to its own-branded footwear, the Beijing-based startup shrank dramatically from 400 to 40 staff within one year. Additionally, its Hangzhou-based operational team downsized from 20 to less than 10.
And now it is not a good time for internet companies to build its own footwear brand. The biggest problem is, will consumers easily get attached to a newly created brand? Brand building couldn’t be finished in a day, and do Letao and its investors have the patience and enough cash to wait for that day?
Three years ago, it was the agents rather than the footwear brands paid more attention to online sales. Nowadays, however, footwear brands realized the potential of ecommerce thus bought more people and investment into the internet market, with better consumer awareness and brand resources than internet companies.
Letao is aware of the difficulties to launch its own footwear brand, however, the transition is a helpless choice. The consignment business is at a loss which isn’t sustainable, therefore the building of its own brand is the only way out.
On June 2012, Letao launched 5 brands at the same time, including Chancechance, Lavislavie, Imosii, Manwill and Canvasclub. The sales of July exceeded 5 million RMB. However, after this Letao remained silence to focus on the transition through two approaches.
Letao promoting own-branded footwear
The first approach is supply chain shake-up and layoffs. Before the transition, Letao is a retailer that is burdened with the responsibilities of category management, sales and obtaining traffic. After the transition, Letao only needs to do branding and supply chain management. There is a huge internal structure adjustment for Letao from the channel system to buyer system, with the shake-up throughout the entire supply chain. The staffs who cannot adjust to the new context have to leave.
The second approach is to nest on open platform including Tmall, 360buy, Amazon China etc. Letao now sells own brand on both its official website and those 3rd party B2C platforms.
Currently, Letao faces some challenges for managing its own brand. Firstly, The layoffs is the most direct way to reduce costs, however, the personnel adjustments has demotivated the team and reduced the operation capacity. Secondly, the operation team lacks the capacity to manage 5 brands at the same time with insufficient resources and experience. Letao cut the consignment brands immediately and rely solely on the 5 its own brands, which put the company in a difficult situation.
Judging by Letao’s case, are vertical B2Cs doomed in China?
Industry insider Jia Penglei said that there are two ways out for vertical B2Cs. They can either raise the threshold by providing more choices in their specific genre in a way to compete against platforms which are more general. Or they can launch its own brands to increase profit.
By choosing the second option, Letao not only faces short-term difficulties but also has a chance to grab long-term opportunities. However, investor will not leave Letao too much time. Letao has completed four rounds of financing with over ten million dollars from Ceyuan, Tiger Fund, DT Capital and other investors. Under the capital pressure, Letao has less time for trial and error.