In an unexpected corporate shake-up,the beauty e-commerce company LiRenLiZhuang recently announced that its second-largest shareholder,Hangzhou Haoyue,intends to transfer up to 70.37 million shares,representing 17.57% of the total equity.This move will plunge LiRenLiZhuang into a new phase,bereft of Hangzhou Haoyue’s presence following a significant decade-long partnership with Alibaba’s ecosystem.Such developments signal a crucial juncture,reflecting not only the fate of an influential beauty franchise but also marking the waning of the e-commerce third-party (TP) service model that thrived in China's rapidly evolving online marketplace.

The inception of this model can be traced back to the transformative year of 2008 when the B2C (Business to Customer) paradigm was officially adopted in China.It was during this time that major players like JD.com and Alibaba established their foothold in the burgeoning e-commerce landscape,with Alibaba launching its B2C arm,Taobao Mall,which evolved into today's Tmall.The early stages of B2C witnessed Taobao serving as merely a platform for business transactions,providing little direct operational support to merchants.Thus emerged the concept of e-commerce TP — dedicated service providers offering comprehensive operational assistance to online sellers,aiding in areas such as store setup,product listings,marketing initiatives,and advanced analytics.

E-commerce TPs became instrumental for retailers,allowing them to focus on their core competencies while outsourcing cumbersome operational responsibilities to adept service providers.This shift not only enhanced efficiency but also bolstered competition within the arena.With TPs understanding platform operational rules effectively,they served as critical liaisons,addressing brand operational requirements while simultaneously engaging directly with customers.

LiRenLiZhuang was born in this fertile ground,initiated by the entrepreneurial couple Huang Tao and Weng Shuhua through a humble Taobao shop.Recognizing the burgeoning potential in the beauty sector,the couple pivoted towards managing cosmetic brands,gaining momentum through the agency of the well-regarded domestic brand Yuyuan Herbal.The partnership with Alibaba soon followed,resulting in substantial investments from the tech giant in 2012 and 2015,leading to a tightly interwoven relationship between LiRenLiZhuang and Alibaba.

As international beauty brands began to acknowledge the significance of online presence in China,LiRenLiZhuang emerged as a pivotal partner for numerous illustrious names seeking to penetrate the Chinese e-commerce market.The firm garnered representation rights for renown brands such as Sulwhasoo,Schwarzkopf,and Avene,both amplifying its prominence and cementing its status as a go-to TP in beauty e-commerce.

Such a knack for generating revenue and profitability attracted considerable interest from private equity investors,including Meidun Investment and Hanri Capital.However,the principal investor in LiRenLiZhuang was still Alibaba,which served as a vital enabler in terms of online resources and operational expertise,holding a substantial equity stake over time.By the time of its IPO in 2020,LiRenLiZhuang racked up an impressive revenue figure of 4.6 billion Yuan,basking in the growth narrative of China's digital economy.

Fast-forward to today,the sinking signs for the TP model are painfully visible.With the rise of new players such as Kuaishou and Douyin entering the fray with their live-stream e-commerce models,the landscape of consumer engagement and traffic allocation has drastically shifted.Consequently,the legacy of being deeply tethered to Taobao as a primary channel laid a precarious foundation for many early TPs,LiRenLiZhuang included,during this period of transition.

After peaking revenue in 2020,the company's financial prospects declined sharply,with a staggering loss of 139 million Yuan in 2022.While there was a minor rebound in profits with a net income of just 29.5 million Yuan in 2023,this starkly contrasted the robust figures achieved in 2020.The root cause of this downward spiral lay in the broader industry shift,as more e-commerce platforms began to assume operational roles once exclusive to TPs,exacerbating competition and stress for firms like LiRenLiZhuang.

The major shopping event of Double Eleven in 2024 further illustrated the implications of these market dynamics,with platforms like JD.com and Tmall unveiling strategies to attract and retain merchants by expanding operational support,thereby diminishing the necessity for specialized TPs.This tilted the competitive balance,leaving traditional TPs scrambling to maintain relevance.

In this new phase characterized by decentralized traffic and platform competition,many brands have opted to internally fortify their operational capabilities rather than relying on external operators.A case in point is Proya,which established its e-commerce division as early as 2014.The current head of Proya,Hou Yameng,originates from the e-commerce team,underlining the brand’s commitment to enhancing its online business acumen.

Concerns have arisen surrounding the future of TPs,as numerous companies gradually severed ties with them.For instance,Qingmu Co.,in a pre-IPO disclosure,noted multiple partnerships with brand clients had been terminated,while Baijia Ling's cooperation transformed into a less favorable service arrangement with a long-time TP.The implication is unmistakable: the TP model is losing the vitality it once thrived on.

As evidenced by the 2023 annual results,LiRenLiZhuang is not immune to these changes.While the firm undertakes efforts to transition via proprietary product lines,the reality remains that its previous operational model is struggling to adapt in this new paradigm.

Seeking new avenues for growth,traditional TPs,including LiRenLiZhuang,are at a crossroads.They are expanding their product categories and even incubating self-owned brands.Moreover,firms like Ruoyu Chen have ventured into health and wellness,pet industries,and more.The product line diversification from household cleaning to scents showcases the need for adaptability within the evolving landscape.

Innovative brands within this space are continuously reforming their strategies through acquisitions and investments,exemplified by Ruoyu Chen’s expeditions into baby products and luxury skincare brands both domestically and abroad.The objective remains clear: to revitalize the brand while confronting and assimilating with the fundamental shift in consumer purchasing behaviors.

Conclusively,the evolution of LiRenLiZhuang delineates the broader narrative of e-commerce TPs — a domain that must critically reassess its operational frameworks.As they navigate this transformative period,TPs are compelled to shift from a narrow focus on operational representation to a holistic approach encompassing brand management.Forging a pathway to a fruitful transitional journey is not only essential for survival amidst increased competition but also vital for long-term sustainability in the nascent e-commerce ecosystem.Only through discovering inner industry logic and adapting to the rising trends of consumer engagement will these traditional entities find their footing in the future market landscape.