Chinese Online Retailers Ready to Take off – StarWatch Report Nov Edition Released

[This article is extracted from our StarWatch report (November Edition). To read the full article, please download the report English version and Chinese version for free. The English edition of this report will also cover other hot topics such as mobile internet industry in China, and startup profile including Sky-Mobi, D.cn etc.]

On October 26, the first Chinese online retailer, Mecox Lane, was listed in the U.S. Its share gained as much as 68% in its Nasdaq debut, as investors grabbed a piece of the online clothing and accessories shop.

Online retailing is red-hot in China. Total transaction volume of Chinese online retailers more than doubled to RMB 252.77 billion (US$38 billion) last year, according to Beijing-based market research firm Analysys International. The trend continued in the first half of this year, when total transactions surged 103% to RMB 213.31 billion from the same period in 2009. Nevertheless, the country’s online retail market is still at an early stage and has lots of potential. Where about 4% of consumer goods in the United States were sold online as of the end of last year, only 1.98% were sold via the Internet in China, a figure that could more than double to 5% by 2014, estimates Shanghai-based iResearch. The overall business-to-consumer (B2C) market will be worth RMB 1.27 trillion in 2013, or up over 380% from the 2009 level, the research says. After Mecox Lane, Dangdang, the largest online bookshop in China, will be the next to go – probably list in Nasdaq this month. IPO of Vancl, another leading online clothing and accessories shop, and 360Buy, the largest online electronic store, are also in the pipeline. They are expected to be listed next year in the U.S.

Founded in 1999 by ex-investment banker Peggy Yu and her husband, Li Guoqing, vies to be the leading online bookstore in China with Joyo, Amazon’s subsidiary in the country. After selling book for over 10 years, Dangdang has about 10% of China’s overall book market (excluding academic books). But growth in its core business is slowing down. Last year, its revenue from selling book grew only 60%, while other online retailers grew over 100%, on average. To boost sales, Dangdang introduced a new business line in 2008, which sells a wide range of products from electronics to linens, slippers, home decor and milk powder. The new line grew about 230% last year, although it is still only a small portion of Dangdang’s overall business.

Vancl was founded by Chen Nian in 2007. It started from selling men’s shirts under its own brand, and then expanded to women’s and children’s clothing, shoes and other accessories. Recently, apart from products of its own brand, it also sells other manufacturers’ merchandise. Chen Nian was also a founding member of Joyo. He has a deep understanding of how e-commerce works in China. Selling clothes can be more profitable than selling books as the margin is much higher. On average, books has only 5-10% gross margin, while gross margin for clothes can be 20-50%. Vancl, however, has not yet broke even as it is still expanding its scale and infrastructure. Its market share in overall B2C sector is 5.3%, while Dangdang has 8.9%, iResearch estimates.

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