Beidian, a Chinese social retail startup, is reportedly in arrears with their payments to thousands of merchants. According to several Chinese media news reports, the company may owe at least RMB 130 million ($20 million) to about 1,300 merchants.
Why it matters: Beidian may become another small Chinese social e-commerce platform facing a cash shortage, as it reportedly utilizes the controversial sales strategy of multi-level marketing, also known as pyramid selling.
- In 2017, China fined NASDAQ-listed social commerce company Yunji RMB 9.6 million for pyramid selling, the country’s first penalty against such practice. A court in Hunan province froze RMB 30 million of online seller Zebra Prime in 2020. Online retailer Peanut Diary fined RMB 9 million for pyramid selling in February.
Details: Beidian announced on Monday that it plans to change its business model from a direct-sale online retailing platform to a shopping guide site, which redirects shoppers to other e-commerce platforms like Alibaba’s Taobao. The announcement, made public on Tuesday, prompted merchants to travel to Beidian’s head office in the eastern city of Hangzhou, asking for money back.
- On Monday, more than 60 merchants and suppliers gathered at the headquarters of Beibei, the parent company of Beidian, demanding the company to return their owed payments and deposits, Chinese media 21 Tech reported. However, the crowd found the company had moved out and emptied its head office in Hangzhou.
- A merchant surnamed Sun told (in Chinese) media site Lanjinger that Beidian stopped paying her in May. Sun started selling on Beidian in late 2018.
- Beidian merchants sell a wide range of products, including fresh groceries, food, baby products, skin care products, toys, and cosmetics. Normally, Beidian takes a 25% commission and pays merchants a month after sales close. Merchants told Chinese media that many of them are owed several months’ worth of payouts. The highest overdue payment is about RMB 5 million. It’s still unclear what triggered Beidian to withhold merchants’ payments.
- Beibei Group, Beidian’s parent company, reportedly cut around 500 or half of its headcounts in April.
- Beidian could not be reached for comments on Friday.
Context: Beidian was founded by Alibaba alumni Allen Zhang in August 2017 as a subsidiary of Beibei Group, a maternal and children’s product e-commerce platform. Apart from its social e-commerce business, the firm drew controversies for adopting a multi-level revenue-sharing model that’s similar to some pyramid schemes. It encourages existing store owners to recruit more members with cash incentives. Members get paid in commission based on the referrals they attract.
- Beidian closed a $126 million financing round in 2019 from Hillhouse Capital, Sequoia Capital, Sinovation Ventures, and others.
- Beidian’s parent company Beibei Group is a major player in China’s baby product market. The group operates maternal and infant product marketplace Beibei.com and Ximei, an invite-only e-commerce app for premium brands. The company has received a total of over $224 million in four funding rounds from investors like IDG Capital and Sequoia Capital China.