What’s Been Happening?
China is in a sharing economy boom. Car-sharing, bike-sharing and even basketball-sharing have been some of the latest ventures that have prompted more innovative businesses. Over the past month, three umbrella sharing start-ups have raised financing of several million RMB despite critics questioning the viability and profitability of such business models.
Sharing E Umbrella is one of those start-ups that was launched in April with an investment capital of 10 million yuan ($2 million AUD~). Customers use an app on their smart phone to pay a deposit fee of 19 yuan to borrow an umbrella from stands mostly found at subway and bus stations and for every half hour of use they paid a fee of 0.50 yuan. Within a few weeks of rolling out umbrellas in 11 cities in China, the company had lost nearly its entire supply of umbrellas due to people borrowing the rain protectors and not returning them. According to South China Morning Post, there were approximately 300,000 umbrellas that have gone missing. There is unfortunately no way to track where each umbrella went.
Although it costs the company about 60 yuan or $11 AUD for each umbrella lost, the company founder and CEO Zhao Shuping is determined to press ahead with 30 million of them to be available across the country by the end of the year. He’ll do it in a slightly different manner this time by spending the next few months devising a way of adding GPS to the umbrellas to keep track of them.
Even if Sharing E Umbrella succeeds in their second round release of umbrellas later in the year (and preventing them from being stolen), maintaining a steady operating cash flow and profit for the company may prove to be challenging.
- China receives most of its rain in the summertime only and in regions with frequent rain, it is likely that people would buy their own umbrellas which would make it impossible to maintain a positive cash flow in drier months
- Based on the low rates and likely low margins, it would be hard to turn a profit especially when there is an extremely high rate of theft (the deposit fee of 19 yuan barely covers the cost of the actual umbrella)
A third point is that cheap umbrellas are already sold everywhere in subway stations and public locations on rainy days. The price of the umbrellas range from 10 to 40 yuan, so there is an implied price ceiling on how far profit margins can grow and rise before alternative options become more attractive to consumers.