Wish e-commerce marketplace filed its IPO prospectus on Friday, giving plenty of reasons to be skeptical to investors who may be concerned about an over-reliance on China.
Founded in 2010, Wish is an online marketplace with a variety of discounted goods, from cheap housewares and clothing to electronics and toys. The app offers a range of products for just a few dollars to target low to middle income consumers with cheaper options than those found on other websites, including Amazon.
Valued at $ 11.2 billion by private investors, the company has managed to keep prices down in part by sourcing most of its products from sellers in China. Wish doesn’t break down which part of its more than 500,000 salespeople come from the region, but rather Market square pulse Previously, 94% were based in China, with the remaining 6% from the US, UK, Canada and India.
“We first expanded our platform and focused on distributors in China, the world’s largest exporter of goods for the past decade, as these distributors are able to sell quality products at competitive prices,” the prospectus says.
Amazon and Walmart also have a growing percentage of sellers in China, but they’re not as dependent on Chinese merchants as Wish is. Wish’s prospectus contains a number of risks associated with its concentration in China.
Sales in the market were down 8% year over year in the first quarter due to the initial outbreak of Covid-19, which caused “severe disruption to production and supply.” Business rebounded, growing 67% in the second quarter before declining to 33% in the third quarter, partly due to ongoing “global logistics network disruption”.
Changes in postal grants could harm the company in other ways in the future. Wish has long benefited from an agreement between the U.S. Postal Service and China Post, China’s official postal service, that allowed packages weighing 4.4 pounds or less to be shipped to the United States cheaper than it would cost them to ship between US states
In July, the Universal Postal Union, a United Nations agency, ended the subsidy and set higher rates for incoming mail from China. To offset the surge, Wish’s Chinese merchants could be forced to raise the price of their products, the file said, undermining one of the company’s key assets.
Wish’s reliance on Chinese merchants is also particularly exposed to U.S.-China trade relations, which became openly hostile during President Donald Trump’s tenure. If the US imposes new tariffs on Chinese imports, wishful sellers may need to raise prices on their products.
The company cited the latest threats by the US to impose tariffs on imports of US $ 500 billion from China as a specific risk.
“A further escalation in trade tensions between the United States and its trading partners, especially China, could lead to long-term changes in world trade, including trade retaliatory measures that restrict the flow of international products,” the prospectus read. “Changes to our business strategy or operations that are made to adapt to or comply with such changes would be time consuming and expensive, and some of our competitors may be better able to withstand or respond to these changes.”
Wish said steps have been taken to diversify its trading base geographically. In the past year the company has added more distributors from North America, Europe and Latin America. U.S. retailers have grown 268% since 2019.
The company has also invested in its own logistics offerings and has worked with third-party suppliers on cross-border shipments. The company is also expanding its line of private label products, which are items that Wish wholesalers or buys and sells on its platform.
CLOCK: Airbnb, DoorDash, Wish, and more announced IPOs this week