AuGroup's Survival Guide: From Amazon Ban to IPO
Aukey's Story From Crisis to IPO
After a 14-year journey and four attempts, AuGroup (formerly known as AUKEY) has finally listed on Hong Kong's main exchange as of November 8.
AUKEY ranks among Shenzhen's cross-border e-commerce "Big Four," alongside Tomtop, Sailvan Times, and YOUKESHU, all based in China South City, a hub for sellers targeting global markets. While the others have already gone public on China's A-share market, AUKEY's journey to an IPO has been far more complex.
Initially listed on China's National Equities Exchange and Quotations (NEEQ, also known as the New Third Board, a financing platform for small and medium-sized enterprises) in 2015 as the first cross-border e-commerce company to go public, AUKEY delisted in 2019 to pursue an IPO on Shanghai's STAR Market, also known as the Sci-Tech Innovation Board, but ultimately failed to meet the criteria.
In 2021, AUKEY made another attempt, this time aiming for the ChiNext board, but suffered a major setback after Amazon suspended hundreds of its accounts. The fallout was significant: 276 stores were shut down, ¥236 million ($32.58 million) in assets were frozen, and the company posted a ¥589 million ($81.32 million) loss.
AUKEY suffered the heaviest blow during Amazon's crackdown on Chinese sellers. Rumors even spread that the company was facing bankruptcy.
However, three years later, the company made a successful comeback and went public. How did they pull it off?
Who's AUKEY
AUKEY's founder, Lu Haichuan, was born in 1979 in Wenzhou, Zhejiang, a city known for its business culture. His entrepreneurial career started with reselling Chinese goods in Germany.
In 2001, Lu moved to Germany to study at the University of Mannheim, where he enrolled with excellent academic performance. Like many Chinese students, he worked part-time to fund his studies, taking jobs as a flyer distributor, promoter, and dishwasher. During this time, he befriended Ze Huiyue, a fellow student, and they became close friends.
The turning point came when Lu needed to buy furniture. Local prices were high, so he turned to second-hand Chinese furniture online, which was available for as little as 20 or 30 euros. This experience highlighted a key business opportunity: China's manufacturing advantage meant its products were significantly cheaper than those abroad. The price difference extended beyond furniture to electronics like car DVD players and GPS systems, with gaps as large as 500 to 600 euros. This insight led to AUKEY's eventual founding.
In the summer of 2003, Lu Haichuan and Ze Huiyue visited Huaqiangbei, Shenzhen, one of the world's largest electronics hubs. They purchased items like laptops, GPS devices, and car navigation systems, which they began selling on eBay. At the time, cross-border e-commerce was largely unknown, but demand was strong, and nearly everything they posted turned a profit. "All we had to do was list it online, and we were making tens of thousands of yuan a month," Lu said.
Within two years, Lu was earning millions, covering his school expenses and supporting his family. By 2004, as he completed his master's degree, he had already hired six employees in Germany to help manage his growing online store. In 2005, he officially founded AUKEY International in Germany, later known as AUKEY Germany.
As the business expanded, Lu chose to return to Shenzhen to be closer to the supply chain. Initially, operations were set up in Huaqiangbei, but by 2007, AUKEY had grown to over 100 employees. Facing high rents in Huaqiangbei, the company moved its headquarters to China South City in Shenzhen, positioning itself for further expansion.
China South City provided AUKEY with expansive office space, financial incentives, and a well-developed cross-border e-commerce infrastructure, which allowed for rapid growth. By 2009, AUKEY Germany's annual transactions had reached nearly ¥100 million ($13.81 million), securing the company the top spot on eBay's Asia-Pacific sales rankings.
In September 2010, Lu Haichuan and Ze Huiyue co-founded Shenzhen AUKEY E-Commerce Co., Ltd. (AUKEY), leveraging Shenzhen's rich supply of electronics—including power banks, car chargers, electronic components, and computer peripherals—which they sold on eBay. They later expanded to other cross-border platforms like Amazon, which was still in its nascent stage in China.
By 2014, AUKEY’s annual revenue had risen to ¥480 million ($66.27 million). That same year, AUKEY embarked on a brand transformation, launching its own label, "Aukey," and shifting from pure reselling to a dual strategy of branding and distribution.
Reflecting on the evolution of cross-border e-commerce, AUKEY founder Lu Haichuan noted, "From 2003 onward, the landscape changed significantly over the decade. By 2012, as global information became more accessible, we realized price wars and low-quality products were not sustainable. That pushed us to rethink our strategy, and by 2013, we committed to building our own brand as the key to long-term growth."
AUKEY's shift to a brand-driven strategy was a turning point, driving substantial growth. By 2015, the company reported revenue of ¥910 million ($125.64 million), establishing itself as an industry leader. That same year, AUKEY made headlines by becoming the first cross-border e-commerce company to list on the NEEQ, also known as the New Third Board.
The growth continued. In 2016, AUKEY's revenues soared to ¥2.218 billion ($306.22 million), with net profits reaching ¥128 million ($17.67 million), a remarkable 639% year-over-year increase. By 2018, the company's revenue had surged to ¥5.109 billion ($705.35 million), with net profits of ¥199 million ($27.47 million), solidifying its dominance in the industry.
However, AUKEY wasn't satisfied with staying on the NEEQ. In 2019, the company delisted, aiming to list on the Shanghai Stock Exchange's STAR Market to align itself with China's innovation-driven capital market.
AUKEY's Setback
In 2020, as the COVID-19 pandemic locked down entire populations, online shopping became the lifeline for millions. AUKEY, capitalizing on China's robust supply chain, experienced a surge in demand that propelled it to new heights. By 2021, AUKEY's revenue exceeded ¥9 billion ($1.24 billion), marking a decade of rapid growth.
But this success came with a price. AUKEY had grown heavily reliant on Amazon, with the platform accounting for 83.9% of its revenue by 2021, up from 49.02% in 2016. This overdependence soon exposed the company to significant vulnerabilities.
In May 2021, Amazon's mass account suspensions rocked the cross-border e-commerce industry, impacting nearly 50,000 Chinese sellers by July. AUKEY, a major player, was hit hard. According to its prospectus, the company saw 276 of its Amazon stores shuttered, with ¥236 million ($32.58 million) in funds frozen.
AUKEY's gross merchandise value (GMV) on Amazon plummeted by 44.1%, from ¥8.79 billion ($1.21 billion) in 2021 to ¥4.91 billion ($677.88 million) in 2022. Annual revenue dropped 21.7%, from ¥9.07 billion ($1.25 billion) in 2021 to ¥7.1 billion ($980.23 million) in 2022, resulting in a net loss of ¥589 million ($81.32 million) for the year.
This crisis marked the beginning of AUKEY's next transformation: reducing its reliance on Amazon. The company scaled back its presence on the platform, trimming its Amazon stores from 645 in 2021 to 303 in 2022, with only 98 stores remaining as of April 2024.
Concurrently, AUKEY cut back its Walmart stores from 50 in 2022 to 33 and reduced its presence on eBay from 156 stores to 52. This retrenchment marked a strategic shift from a broad, inventory-heavy model to a more focused approach emphasizing premium products and a strong brand matrix.
Despite a decline in order volumes on Amazon—from 19.67 million orders in 2021 to 6.2 million in 2023—the company saw its average order value nearly double, climbing from ¥447 ($61.71) to ¥823 ($113.62). AUKEY also reduced its return rate, which dropped from 6.7% to 4%.
As part of its reorientation, AUKEY streamlined its product portfolio, phasing out brands with damaged reputations and focusing its efforts on building a renewed brand matrix designed for sustainable, long-term growth.
AUKEY's product offerings are divided into six key categories: Furniture & Home, Power Tools, Home Appliances, Consumer Electronics, Sports & Health, and Others, with a diverse array of brands supporting each category. By April 2024, AUKEY had expanded its brand portfolio to include 211 different brands.
However, the company has been actively streamlining its brand matrix. According to its prospectus, the top 10 brands by GMV had 4,946 SKUs as of April 2024, a significant reduction from 10,366 SKUs in 2021, 10,205 SKUs in 2022, and 10,614 SKUs in 2023.
AUKEY has also reduced its number of suppliers. As of April 30, 2024, the company worked with 575 manufacturers as OEM partners, down from 1,517 in 2021, 865 in 2022, and 810 in 2023.
AUKEY's Comeback
In its prospectus, AUKEY highlights its focus on furniture and home goods, marking a strategic pivot in its revenue composition. The share of revenue from consumer electronics and power tools fell from 29.4% in 2021 to 9.1% in 2023, while home goods climbed from 41% to 75.9%, becoming the company's main income stream.
According to Frost & Sullivan, AUKEY leads six subcategories on Amazon U.S., including bed frames, food cabinets, dressing tables and stools, bookshelves, dining cabinets, and refrigerators. The company also commands a market share over 10% in 10 categories on Amazon U.S. In 2023, 11 of AUKEY's brands each achieved a GMV of over 100 million yuan ($13.81 million).
AUKEY's rise in the furniture and home goods sector is closely tied to its strategic logistics operations. In 2020, the company acquired Western Post to combat rising logistics costs and long shipping times for large, bulky furniture. To address these challenges, AUKEY focused on direct sea shipping to overseas warehouses as its primary logistics model.
AUKEY has since accelerated its logistics expansion. As of April 2024, Western Post had set up 27 overseas warehouses, spanning over 5.5 million square feet (around 510,000 square meters). This self-managed logistics network has led to significant cost reductions, with logistics expenses decreasing from ¥2.58 billion ($356.2 million) in 2021 to ¥1.86 billion ($256.79 million) in 2023. This resulted in savings of over ¥700 million ($96.64 million). By April 30, 2024, logistics costs had dropped further to ¥556 million ($76.76 million), down from ¥612 million ($84.49 million) the previous year.
AUKEY has turned its logistics services into a competitive edge, with Western Post at the forefront. According to its prospectus, Western Post uses advanced warehouse and transportation management systems, allowing it to offer delivery prices that are 30% lower than Amazon FBA. In 2023, over 95% of medium and large-item orders were transferred to last-mile delivery providers within 24 hours.
Western Post has also expanded its influence within the e-commerce ecosystem, serving 700 e-commerce companies in the past three years. It completed 3.2 million, 4.4 million, 6.1 million, and 2.5 million orders in 2021, 2022, 2023, and the first four months of 2024, respectively.
Logistics revenue surged from ¥490 million ($67.65 million) in 2021 to ¥775 million ($107 million) in 2022, ¥1.65 billion ($227.80 million) in 2023, and ¥583 million ($80.49 million) in the first four months of 2024. Logistics contributed to 5.4%, 10.9%, 19%, and 20.6% of AUKEY's total revenue during these periods.
Frost & Sullivan ranked Western Post fourth among all B2C cross-border logistics providers in China in 2023, with a 1.2% market share. Additionally, it was the top provider for large and bulky B2C cross-border logistics solutions among Chinese companies.
AUKEY has bounced back from Amazon's account suspensions by strategically adjusting its product offerings, sales channels, and logistics. In the first four months of 2024, revenue increased by 16.9% to ¥2.83 billion ($390.71 million), compared to ¥2.42 billion ($334.11 million) in the same period in 2023. Net profit surged by 96.8%, rising from ¥96 million ($13.25 million) to ¥189 million ($26.09 million).
AUKEY is now approaching its peak financial performance. In 2023, the company reported ¥8.7 billion ($1.2 billion) in revenue, close to the ¥9.07 billion ($1.25 billion) it achieved in 2021. By April 2024, AUKEY's gross profit margin had grown from 20.9% in 2021 to 34.5%, while its net profit margin rebounded from -6.5% to 6.7%.
AUKEY's profitability is in line with industry norms. From 2023 through April 2024, AUKEY's gross profit margin of 34.5% was closely aligned with SONGMICS HOME (formerly Ziel Home), which reported margins of 36.32% and 34.92%, respectively. Net profit margins stood at 6% in 2023 and 6.7% by April 2024, while SONGMICS HOME posted 6.8% and 4.61%, respectively. SONGMICS's dip in net margins was attributed to rising shipping costs, while AUKEY benefited from its in-house logistics network.