Chinese luxury e-tailer Secoo (NASDAQ:SECO) recently announced a "strategic partnership" with Oracle (NYSE:ORCL) to upgrade its enterprise infrastructure. Secoo states that it will use Oracle's cloud solutions in its ERP (Enterprise Resource Planning) and HCM (Human Capital Management) systems alongside Accenture's (NYSE:ACN) management consulting service.

Secoo CEO Li Rixue claims that the company will launch a "new office automation system" with Oracle, and that platform will enhance its "accounting processes, integrated business and financial systems." Secoo also claims that Oracle will implement "cutting-edge technologies" into Secoo's platform, and that Oracle's cloud services will complement its other blockchain, machine learning, IoT (Internet of Things), and mobile app efforts.

A shopper checks a handbag's price on a smartphone app.

Image source: Getty Images.

Secoo states that working with Oracle and Accenture will "empower" its "leading position in the luxury e-commerce industry" and "enhance" its digital capabilities. Secoo's hyperbole-filled press release initially sounds impressive, but it also seems like it's merely becoming one of Oracle and Accenture's many enterprise customers -- instead of actually becoming a "strategic" Chinese partner for those two tech giants.

So will using Oracle's cloud services and Accenture's consulting services actually move the needle for Secoo, which is still struggling to compete against larger e-tailers like Alibaba's Tmall and JD.com? Let's dig deeper into its business to find out.

Understanding Secoo's business

Secoo claims to be the largest online marketplace for luxury goods in Asia based on a controversial Frost & Sullivan study, but that claim is tough to prove -- neither Tmall nor JD reports their luxury sales separately.

Secoo is much smaller than either Tmall or JD in terms of its annual GMV (gross merchandise volume), and it isn't even included in eMarketer's latest rankings of the top e-commerce platforms in China. Jumei, which ranks tenth on that list, has a market share of just 0.1%, so Secoo's slice of the pie is likely even smaller.

Secoo serves a tiny percentage of China's e-commerce customers, but that sliver is growing. Last quarter its total number of active customers grew 92% year over year to 304,000. The company's revenue rose 60%, its GMV climbed 57%, and its non-GAAP net income grew 23%. Here's how those figures compared to its growth over the past year:

 

Q4 2017

Q1 2018

Q2 2018

Q3 2018

Revenue

61%

43%

56%

60%

GMV

44%

43%

45%

57%

Non-GAAP net income

224%

47%

26%

23%

YOY growth, RMB terms. Source: Secoo quarterly reports.

Secoo's revenue and GMV growth look healthy, but its net income growth is clearly decelerating. 

Expanding margins and automated platforms

On the bright side, Secoo's gross margin rose 20 basis points annually to 17.2% last quarter, and its operating margin increased 130 basis points to 4.5%.

A network of human connections on the cloud.

Image source: Getty Images.

That's where Secoo's deals with Oracle and Accenture come in. Secoo stated that it's using Oracle and Accenture's services to "automate" its operations, which could significantly reduce its operating expenses -- which jumped 47% last quarter over the prior-year period. Cutting some staff would also reduce Secoo's stock-based compensation (SBC) expenses, which already fell 28% last quarter.

Oracle's ERP platform helps companies transform large amounts of business information into actionable data, which helps companies eliminate layers of redundant middle management. Its HCM platform can replace large numbers of HR employees and help companies quickly streamline their workforces by cutting inefficient positions. Accenture's management consulting service also helps companies streamline and restructure their businesses.

Secoo likely thinks that using Oracle and Accenture's services will buoy its operating margins and spur an acceleration of its net income growth again. That's a nice vote of confidence for the two mature tech giants, but Secoo's business probably won't move the needle for either company on its own.

A step in the right direction

Secoo has a tendency to exaggerate the impact of its new services or "strategic partnerships." In early 2018, it revealed that it was developing a blockchain platform, which caused its stock to briefly rally, but this didn't generate any real revenue growth. The company has also announced in the past a wide range of "strategic partnerships" with companies like LVMH's fitness subsidiary Will's Group, mobile app maker Meitu, and even a resource-sharing deal with its rival JD.com, but the benefits were all vaguely defined.

Therefore it's wise to take Secoo's "strategic partnerships" with a grain of salt. Still, the organization's recent deals with Oracle and Accenture could meaningfully reduce its operating expenses over the next few quarters -- which could help the stock finally bounce back above its IPO price.

Check out the latest Secoo earnings call transcript.