Starlight dimming – Influencer agencies go it alone with in-house brands

By SHE Xiaochen

There was a time, not so long ago, when China’s urban youth lived very adequate lives without such intrusions as vacuums and humidifiers. Now, these selfsame questionable household devices are must-haves.

Not only must-haves, but must-look-like-they-fell-off-a-spaceship, and be wifi-connected.

Breath of fresh air conditioning

A maker of such IoT appliances - Deerma - went public on the Shenzhen Stock Exchange on May 18. One of the happiest about the successful IPO is LEI Haifeng who invested 150 million yuan (US$21 million) in Deerma in 2020. Lei is the husband of China’s most-fallen influencer, Viya.

The deposed live-streaming queen stepped away from the camera when she was fined 1.5 billion yuan for tax evasion, but the agency she founded with her husband is doing very nicely.

Influencing is a fading star: today the sky is lit up by “direct-to-consumer.”

Influencers have founded their own brands since the early days and now agencies are leaning heavily on propriety brands.

Agency Jiaoge Pengyou (Let’s be friends), launched clothing label Reloading Peacemaker in 2021 and now makes 200 million yuan a year from the brand.

Also that year, after the tutoring school crackdown, private education company New Oriental started an e-commerce business Dongfang Zhengxuan, where tutors-turned-streamers sold fruit and veg. Now more than half of the products sold on the site are proprietary.

Founder of Jiaoge Pengyou HUANG He says fewer middlemen means better prices for customers, a highly-questionable statement at best. Whether influencer-owned brands are cheaper is a topic for another day.

Straight-to-pocket profits

What fewer middlemen mean, is bigger margins for agencies. Dongfang Zhengxuan has a gross margin of close to 40 percent. In comparison, Yowant, an agency that represents multinationals Unilever and L’Oréal among others, reports around half that.

Huang launch his own brands when he realized that it was no problem to find factories that made the same or better products than his clients’.

Best of all, all the proceeds, rather than commissions only, go straight into Huang’s cavernous pockets.

Behind the rise of direct sales is agencies’ strong desire to wean themselves off annoying celebrities with silly demands. Viya all but disappeared after the tax evasion fine. Since then, new regulations, the tribulations of big tech, and the whims of the online crowd have stripped “influence” of its previous twinkle.

In 2020, 32 juicy fundraising deals were completed in live-streaming. In 2021 - the year Viya was fined, Dongfang Zhenxuan was founded, and Jiaoge Pengyou started its own label – it was only 13.

“The consumer market will keep growing. But right now, it’s not a good time to become an influencer,” says Nan Shan, founder of May Beauty Makeup.

The company started as an agency for beauty influencers but launched its own line in 2021, the year everything changed. Agencies who don’t care for the trouble of founding their own brands opt for buying existing ones, or, as in Viya’s husband’s case, buying a stake.

‘The team liked sneakers’

Customer taste and founders’ personal preferences do matter. Small agencies like May Beauty usually stick to the area they specialize in. But the choice for large ones selling everything from food to vacuum cleaners is not always intuitive.

Huang He of Jiaoge Pengyou wasted his time trying over 30 different categories before settling on sweatshirts and sneakers because “the team liked sneakers.”

The supply chain, more often than not, is the make-or-break factor.

Product cycles for agency-owned, internet-sold brands are short – 45 days versus the traditional six months in the case of apparel – that’s a lot of quality, reliability and speed to be squeezed through a very small window.

Tale of the River-snail Maiden

Celebrity-bound agencies may initially be able to secure suppliers and impose their own terms, but sooner or later, sales are still king. Most agencies treat proprietary brands as a supplement or booster to their bread-and-butter influencing business. But this gives rise to new issues.

There is no formula for how much traffic to allocate to clients’ brands versus yours. And when live streaming no longer sells, what happens to influencer-owned brands? Where are all those river-snail noodles that Viya used to force down the audience’s throats now? Who is feeding the snail farmers’ families today?

The answer, funnily enough, is good old brick-and-mortar.

Agency brands are more like traditional retailers rather than influencers. Some agencies, such as Wei parted ways with star Li Ziqi and got out of influencing altogether. Wei is now just another vanilla consumer brand among many.

Viya’s snail goop can now be bought at supermarkets and convenience stores. The company aims to lower the percentage of sales through live streaming from 50 percent to 20 percent.

If live-streaming encourages impulse purchases, brick-and-mortar builds trust and connections, which brings customers back, says Zhang Heng, manager at apparel brand ZMOR, owned by a live-streamer agency and is now in boutiques.