Following the collapse of Zhongshan billion-dollar enterprise Xiongji Lighting Factory last year, the collapse of Fengguang Legend once again aroused heated discussions in the industry. Since Phoenix Legend entered the LED field, Phoenix Legend has spent a lot of money to build momentum and made great efforts in channel brand building. From a huge momentum to losing contact, it only took 3 years.
In the past three years of restoring the legend of Fengguang, the reporter of "Daily Economic News" found that under the fierce competition of homogeneity, if new companies entering the industry make efforts to build channels, they will face the resistance of traditional giants, as well as risks such as huge capital investment and less than expected results; and if they do not expand channels, they will face the risk of the market being divided. Small and medium-sized LED companies seem to be trapped in the dilemma of "seeking death if they do, waiting for death if they don't" in terms of channels.
The dilemma behind the LED explosion
This year is called the "outbreak year" of LED. The industry's prosperity continues to rise, and the performance of related listed companies has increased significantly year-on-year. "The dual superposition of replacing traditional lighting and new markets has brought about the high growth of LED lighting." Regarding the industry's performance growth this year, Dou Linping, secretary-general of the China Illuminating Society, said at the recent Guzhen Lighting Expo.
Ou Bingwen, president of the Zhongshan Lighting Electrical Industry Association and chairman of Huayi Lighting Group, told the "Daily Economic News" reporter that thanks to technological progress, the price of LED lighting products has dropped by about 80% in the past five years, and the overall cost performance of most products exceeds that of traditional lighting products, which has led to the explosion of the LED market.
The tempting cakes have also attracted capital from all walks of life, and homogeneous competition is inevitable. "In 1999, the total number of large and small companies in the ancient town was about 400. Now there are more than 20,000 lighting companies. No matter how big the cake is, it is impossible to divide it equally." Ou Bingwen said.
The reporter found that relying on the "China Lighting Capital" has a complete industrial chain, and the spare parts needed by enterprises can be easily purchased, so the entry threshold is low. The streets and alleys here are full of lighting enterprises or workshops. Previously, some business owners said that you can get into the industry with only 100,000 yuan in the ancient town. You can rent a factory, buy a few soldering irons, hire two workers, and you can start work.
The reporter had previously seen a "factory within a factory" in the ancient town. The boss had been a civil servant and was in his early 30s. Seeing that the LED industry was profitable, he started his business. In order to save rent, the boss "opened up" a small space in a relative's factory, set up two desks, used a soldering iron to weld the accessories together, and then shipped them out box by box.
But a lot of homogeneous competition leaves no one making money. Dou Linping said that the current total output value of the LED lighting industry is about 500 billion yuan, with more than 20,000 companies, and this situation will not last long. "With the completion of LED lighting replacing the traditional lighting market, it is more reasonable to leave about 5,000 to 10,000 companies in the end, which also means that 50% to 75% of companies will be ruthlessly eliminated."
Phoenix Legend spends tens of millions to subsidize channels
Phoenix Legend has focused on channel construction and brand promotion. According to its official website, in 2012 Phoenix Legend spent 3 million yuan to sign a contract with "Phoenix Legend" and invited it to become the company's brand image spokesperson. "In 2013, Phoenix Legend's endorsement fee rose to about 5 million yuan. This was done entirely to build a brand and please the market." Liu Jun, director of Guangdong Guangya Lighting Research Institute, told the "Daily Economic News" reporter.
Xiao Jin, chairman of Fengguan Legend, once said, "When an enterprise develops to a certain level, its development will be restricted by all aspects, and building a brand has become an important strategy for the sustainable development of the enterprise."
He also said, "Building a brand is a never-ending road. There is no turning back. You have to keep going." The official website of Phoenix Legend was also opened on January 19, 2013, becoming its window to promote the brand and build momentum.
At the same time, Phoenix Legend has laid out sales outlets on a large scale. In the past 10 years, the company has built more than 800 sales outlets in the terminal market. In just one year in 2012, it developed nearly 1,000 sales outlets based on the original ones.
On March 31, 2013, Phoenix Legend held its 10th anniversary celebration at the local ancient town gymnasium. According to Sina Leju's report at the time, the company said that at that time, Fengguan Legend's channels covered 70% of the provinces in the country, with more than 300 core dealers and more than 1,000 distributors, and would cultivate more than 1,000 core dealers and 3,000 distributors nationwide in the future. Open 3,000 image stores and exclusive areas across the country, allowing more than 50% of prefecture-level markets to see Fengguang Legend's bus advertisements, outdoor advertisements, etc.
"Actually, there are currently about 20 Phoenix Legend general agents in each province like me in the country, and each province has a maximum of about 50 distributors. Therefore, there are about 100 distributors nationwide in prefecture-level cities and counties. There is some exaggeration in store promotion." Li Hou (pseudonym), the general agent of Phoenix Legend in Jiangsu, said.
"Fengguang Legend has established channels across the country. The store subsidy introduced to franchise dealers before is 1,000 yuan per square meter, usually more than 100 square meters. The decoration subsidy alone requires an advance payment of 100,000 yuan. Large dealers will give 100,000 yuan, and ordinary dealers will give about 50,000 yuan." Gu Baoqiang, an e-commerce operator of Mejuya Lighting in Zhongshan, said that the subsidies for hundreds of dealers are tens of millions of yuan.
Li Hou also said that Phoenix Legend spent mainly on singing fees, advertising and promotion fees, material display cabinets and decoration fees in laying out channels. "Perhaps in order to give dealers confidence, many of Phoenix Legend's provincial dealer meetings are arranged in five-star hotels, and the cost of each meeting is two to three hundred thousand."
"The most important issue in channel construction is capital investment. New LED companies do not have core competitiveness. If they adopt traditional sales channels and continue to build warehousing logistics and lay channels in large quantities, they will inevitably invest a lot of money. If they are not listed companies, they generally cannot afford such a large capital investment. This method is more dangerous." said Shao Shibin, O2O project director of Unilumin Technology.
It is difficult to enter traditional channels
At present, domestic LED lighting companies mainly sell through engineering channels and dealer channels. However, for late entrants, the investment and output in these traditional channels are gradually disproportionate.
Traditional lighting companies such as NVC Lighting, Opple Lighting and Sanxiong Aurora, etc., their huge terminal sales and brand influence come from having a nationwide distribution network. For example, NVC Lighting has 37 operation centers and more than 3,000 stores across the country.
"Those who win the channels win the world" is a recognized truth in the industry. Many companies entering the LED field hope to make efforts in traditional sales channels to promote sales growth. Phoenix Legend, which collapsed this time, wanted to copy the way traditional lighting companies such as NVC Lighting set up channels to expand nationwide, but it eventually collapsed due to a break in the capital chain.
"In terms of channel construction, it is difficult for newly-entered LED companies to break the channel pattern of the traditional lighting industry, and it is also difficult to break through the game between manufacturers and dealers," said Gu Baoqiang, e-commerce operator of Zhongshan Mejuya Lighting. Companies such as NVC Lighting have accumulated nearly 20 years in the channel field. They have cooperated with large dealers across the country for many years and have formulated many channel rules. Newly entered LED companies generally poach their dealers, but it is difficult to shake them.
"Distributors with annual sales of tens or even hundreds of millions of yuan represent many traditional product brands, and there is no shortage of goods at all." Gu Baoqiang said, "Newly entered LED companies have little visibility. To enter the channel, large dealers will raise the threshold and put forward stringent conditions such as distribution and subsidies."
Traditional lighting sales channels are controlled by the original giants. If new LED companies rashly expand, they will need to invest a lot of money and may not even achieve the expected results. If they do not expand channels, it means that the "cake" will gradually be taken away by others. LED companies seem to be stuck in the dilemma of "seeking death if they do it, and waiting for death if they don't" in terms of channels.
Industry insiders: Product quality is fundamental
Why have traditional channels become a difficult "bone" for LED companies? Are there new ways to break out?
"Traditional channels are controlled by giants such as NVC Lighting. It is not something that new entrants want to change overnight. They need to try new ways to break through." Shao Shibin said.
The new method he refers to refers to the O2O sales model. In 2013, Unilumin Technology began to build an online platform for offline services, and developed new distribution channels for dealers through online order taking and offline delivery. At the same time, brand communication is quickly realized through mobile applications, product cartoons, micro-films, Weibo, WeChat and other media communication channels.
Under this model, the company’s investment in offline physical stores is very small, only the cost of a sign. Offline stores are mainly used for consumer experience. The company will place a TV terminal online and guide customer flow from offline to online through the terminal. This method also has almost no product inventory problems. Especially in the LED field, there is currently no mature channel construction model to imitate. “We can only explore and prioritize the construction and layout of the backend.”
“At present, the main sales model of lighting products in Guzhen is still the commercial real estate hypermarket model, with stores on the lower floors and star hotels above. E-commerce has indeed brought an impact to these traditional sales methods.” Ou Bingwen said.
"For small and medium-sized enterprises, it is really expensive to build channels in the early stage. Enterprises without capital strength can choose to cooperate with large enterprises. After they have capital strength, they can gradually develop sales channels and e-commerce channels." Ou Bingwen said.
"However, e-commerce cannot cater to all products. Traditional specialty stores still play the role of windows for factories and enterprises, especially for some high-end products. Many buyers will go to specialty stores to inspect and compare in person, which is incomparable to e-commerce." Ou Bingwen said. Therefore, in terms of channel development, Ou Bingwen suggested that small and medium-sized LED companies "walk on multiple legs" and gradually expand engineering channels, retail channels and e-commerce channels while ensuring stable revenue.
Gu Baoqiang, an e-commerce operator of Zhongshan Mejuya Lighting who has many years of experience in channel construction, also believes that the most fundamental way out for manufacturing companies is to build a brand. "A strong brand of a factory is its core competitiveness. It is necessary to study the manufacturing process, materials and design of the products, extract these unique things and show them to customers. When customers trust you, orders will naturally come, because the brand is determined by the product."
Ou Bingwen also deeply agrees with the emphasis on product research and development before opening up channels. "If a brand is not supported by good quality, no matter how good the channels are, it will be in vain. For example, Qinchi Winery, its channels and brand were very famous at the time, but the product quality was not good, and it could not escape the fate of being dumped in the end." Ou Bingwen said.
ANNA