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SINGAPORE (July 10): In 2003, Alex Low was a University of Washington sophomore running out of funds to pay his tuition fees.

He convinced his brother, Adam, who was then living in Singapore, that they should start a business selling used Singapore textbooks on Amazon.com. With $10,000 in capital from his brother, Low sold enough books on the e-commerce platform to finance the rest of his degree.

Today, the Low brothers’ textbook venture has become a full-fledged e-commerce distributor and retailer spanning 24 marketplaces in the US, Europe, Taiwan, Singapore and Indonesia. Called Y Ventures, it distributes books, home and décor items, and fast-moving consumer goods such as soy milk powder. It recently started selling Korean skincare products.

The company is now seeking a listing on the Catalist board. Y Ventures is placing out 35 million shares at 22 cents each. This will give it a market capitalisation of $44 million and a price-to-earnings ratio of 18.3 times post-placement, assuming a service agreement with Adam and Low had been in place since the start of FY2016.

Y Ventures will use $5 million of the $7.7 million in gross proceeds it raises from the IPO to boost its data analytics capabilities, increase its advertising and product range, as well as expand into new markets.

Y Ventures says one of its unique selling points is its proprietary data analytics software, which Low began developing in 2010. The system ploughs through data from a vast number of online marketplaces to analyse demand trends, competitors’ prices and inventories, as well as consumer sentiment — from social media feeds to product reviews.

The insights help Y Ventures better position its pricing strategies and inventory levels.

“We rely on this information to secure favourable prices from our suppliers and manufacturers,” says the group in the prospectus.

Y Ventures may also create more products under its private label, JustNile. Another $1 million from the proceeds will be used for general working capital.

Data-driven online seller
Y Ventures gets most of its revenue from the sale of third-party products. Last year, this segment contributed 87.3% of revenue. About 62% of its sales are in the US, on platforms such as Amazon.com, eBay and Jet. Y Ventures has 12,000 listings and 5,500 stock-keeping units from more than 24 brands in its inventory.

Zhoukoudian Trading, a book wholesaler, accounts for 33.8% of total revenue. Low hopes to bring more brands into the company’s fold.

“[We are looking for] merchants who appreciate the use of analytics and are open to using our insights to improve our products,” he says. Y Ventures shares some of its data with suppliers, which can use it to improve their business.

For instance, the company’s data showed that publisher Elsevier was seeing demand for its technical books from second- and third-tier cities in Indonesia.

“We flagged that out to Elsevier so that they could target their marketing campaign more effectively,” says Low.

Data is also what drives Y Ventures’ inhouse JustNile brand of home and décor items. JustNile’s product line-up is based on consumer trends identified through data analytics. Two years ago, for instance, Y Ventures identified interest for round wall clocks. Based on this insight, Y Ventures manufactured and sold 20,000 such clocks.

“When we try out something, we don’t go in and order a container load of stuff. We would try a smaller volume where you don’t subject yourself to too much risk,” says Low. This segment accounted for just 8.4% of last year’s revenue. But it could well become a drive of Y Ventures’ growth as Low seeks to grow the JustNile brand.

Satish Meena, a forecast analyst at Forrester, says: “Private labels are increasingly becoming more important for online retailers, owing to the high margin they offer. We expect the same trend to follow in Southeast Asian markets too. As online retailers look for profita bility, the hunt for private label brands will increase.”

Risks and rewards
Given how easy it is to sell something online these days, will Y Ventures continue to be able to sign up new customers? Industry observers say major brands are increasingly using distributors to sell online.

 But Y Ventures faces competition from distributors such as Luxasia and DKSH — firms that have dominated the physical distribution space and are now moving online. Data analytics will therefore become more important over time.

“The interconnected nature of data that retailers accumulate on consumer behaviour from internal and external sources will continue to be the source of competitive differentiation in 2017,” says Clement Teo, an analyst at Ovum.

For the full-year ended December 2016, Y Ventures reported a 36% rise in revenue to US$12.1 million ($16.7 million), owing to higher sales of third-party products. Earnings for the year slipped 8.3% to US$1.5 million. This was attributed to a change in product mix, as the company experimented with different products.

Y Ventures intends to pay annual dividends of at least 20% of earnings in FY2017 and FY2018. The IPO, which opened for placement on June 30, will commence trading on July 11. 

This article appears in Issue 787 (July 10) of The Edge Singapore which is on sale this week