Vancl to follow Xiaomi’s model, laying off 20% of staff
Vancl has faced a rough two years. Now Lei Jun, founder of Xiaomi, may take over Vancl and could even replace its current CEO and founder, according to Tencent’s technology news portal.
The trouble began when the online retailer started cutting inventory last year. Now it has become one of the main platforms to dump excess inventory.
In May, Vancl tried to introduce third-party brands into its channels. In September, it tried to become its own brand. The industry began to wonder: is Vancl a product brand or a channel brand?
Since June, major investors in Vancl’s board meetings have repeatedly questioned its direction and strategy, with CEO Chen Nian finally deciding to stick with starting its own brand of apparel, the report said, citing unnamed insiders.
Chen has consulted with Lei several times since June, whose ideas and his unqiue way to run Xiaomi have been stimulating to Chen, the Vancl CEO told the tech site. “Lei’s advice has a direct impact on Vancl’s following adjustments,” Chen said.
Vancl recently moved headquarters to a Beijing suburb from the downtown district, cutting rent from six yuan per square meter to just one yuan. Along with the move, Chen integrated the company’s three business units into one — resulting in the layoff or early retirement of 20% of its staff. During the process, Vancl delayed payments to its suppliers, the report said.
Chen said investors have given him pressure on him, but not to the point of replacing him. Vancl will soon get new financing to cover its delayed payments to suppliers, according to the report.
Chen emphasized that Vancl’s operations remain normal, but it will begin restructuring based on Xiaomi’s model, which focuses on simple, attractice products and continuously improving product quality. Vancl aims to be profitable and cleared of inventory, Chen said.
After meeting with Lei for a total of 60 hours, Chen decided to adopt his advice wholesale, simplifying management levels and focusing on making a few products well.
In 2011, Vancl expanded excessively in anticipation of an IPO, which failed. The quick expansion pushed up Vancl’s inventory to 1.445 billion yuan (US$237 million) by the end of 2011, with a total loss of nearly 600 million yuan (US$98 million), while its 2011 sales reached only 3.8 billion yuan (US$623 million), far below its goal of 10 billion yuan (US$1.6 billion) set in early 2011.
When Vancl was full steam ahead between 2007-2010, it was capitalizing on a high profit margin thanks to its empty inventory. Vancl’s inventory level now is just one-fifth of its level a year earlier after it practically gave it away for dirt cheap prices, Chen said.