Intro: Being the leading Chinese online shoe store, Letao to date has 123 brands with 12,734 collections, while expecting to widen its portfolio to 400 by the end of this year. Sales in 2011 is forecasted to reach RMB700 million-$800 million (US$107 million to 122 million), up from RMB100 million in 2010. Its total headcount of over 300 people serves over 2 million users. Its Las Vegas-based counterpart Zappos recorded over US$1 billion sales last year with 2,800 employees.
On a Thursday afternoon in early May, I had a chance to sit down and talk to Mr. Chen Hu, co-founder and VP of Operations at Letao, the Beijing-based leading online shoe store, to get in-depth insights into the Zappos-alike vertical’s latest financing, its crave for customer satisfaction and more.
Off to a good start: Highest inventory turnover versus Chinese counterparts
Letao’s new office is situated at Macau Center in Wangfujing area, one of the most prosperous business sectors in Beijing which is always flooded with tourists from every region of the world. The vigorous company moved here last month, after its tens of millions worth of Series C funding in this January, which is also the first round of funding in China B2C area this year. Letao got off to a good start.
We talked about Letao’s unique business model of consignment sale, which is different from Zappos’s distribution model. By virtue of consignment sale, Chen said, Letao could enjoy almost the highest inventory turnover in comparison with its counterparts in China. For instance, Letao turns over its inventory every 4.5 weeks whereas Okbuy, which just raised $60million from Tencent, takes 90 days. On top of faster circulation, the outstanding model brings many other benefits, including better capital turnover, no upfront payment, less risky regarding capital employment and sales uncertainties.
Chen believes that most Chinese online shoe retailers follow the Zappos’ way, by which one has to buy at wholesale from brands and agencies, paying upfront fees, stocking in one’s own warehouses, then selling via web. Under such a model, online retailer has to pay in advance and sell at their own risk. While Letao doesn’t have such worries, up to a point, the company is capable of satisfy its customers with better price. Apart from these benefits, this model also allows Letao to return unmarketable collections to suppliers.
Hitting the threshold of RMB1 billion…
Although Letao’s ingenious operation model leads to so many advantages, helping the company better positioned in the fierce competition against its rivals, they come at a price. According to Chen, since such cooperation hadn’t forged or used before, Letao spent lots of time to enlighten suppliers and talk them into this. Once the big suppliers got onboard, it’s relatively easier to convince the minor ones into this.
Letao to date has 123 brands with 12,734 collections, while expecting to widen its portfolio to 200 brands by this June and 400 by the end of this year. Sales in 2011 is forecasted to be over RMB 700 million to 800 million (US$ 107 million to 122 million), up from RMB100 million. Its total headcount of over 300 people serves over 2 million users. While its Las Vegas-based counterpart Zappos recorded over 1 billion sales last year with 2800 employees.
Whilst on Alexa, Letao is the No.1 trafficked online shoe retailer, ranked at 250 in China whereas Okbuy ranked at 457, Okbuy claimed annual turnover of over RMB 200 million yuan (US$ 30.7 million) in 2010 (2X of that of Letao’s), and was targeting over RMB 1 billion yuan (US$ 153 million) of sales in 2011 (20%-30% higher than that of Letao’s). The gap is narrowing.
It is well-believed that annual sales of over RMB 1 billion in China is a threshold for verticals going IPO; cross it, you are ready to go public. We concluded from Okbuy’s sales expectation that the company is set to go public in two years, while Letao, which is expecting an annual sales of over RMB 8 billion yuan, is planning an IPO in 2012.
“We don’t need too much money”
Letao had raised a total of over US$42 million in three rounds of financing, including 2 million from Ceyuan Capital for Series A, over 10 million from Tiger Fund and DTCapital Partners for Series B, and more than 30 million from Tiger Fund and DTCapital for Series C. Meanwhile, Okbuy, one of the biggest competitor to Letao, raised over US$87 million in three rounds of funding. When asked about why Letao is more cautious about attracting capital, Chen replied:”We don’t need that amount of money. We really don’t.”
Letao announced receiving Series C early this year, remarking that the funding would be applied to expand technology team, refine ERP system, uplift customer services and so on. Letao now owns 6 warehouses in China, including three massive one (over 10,000 square-meters) in Beijing, Shanghai and Guangzhou that max out at millions pairs of shoes, and three smaller ones in Wuhan (in central China), Shenyang (in northeast China) and Chengdu (in southwest China). These 6 warehouses located separately in central, northern, southern, eastern and western China to cover the whole country.
Promoting brand name in 2011
Letao used to stick to the principle of “marketing rather than advertising”. But now it’s changing. According to Chen, wherever he went, some acquaintances told him that “never heard of Letao before”, given Letao’s huge sales of over 10,000 orders recently, its name recognition seems a little lackluster. So Letao is launching a campaign to market its brand in 16 cities.
As for operational expense, Chen pointed out that with massive money flowing into ecommerce area, competition becoming more fiercely, all B2C sites were strived to attracting customers by bidding for ads on navigation sites (like hao123.com) and participating in affiliate programs. New customer acquisition expense is skyrocketing, that’s why observer once said after this round of “Irrational exuberance”, most of well-funded B2C sites might go down while navigation sites go up with lucrative ad sells.
Mary Meeker said: “You Will Win”
Aside from the mobile initiatives, Letao is also being innovative in many areas. Instead of buying customized ERP from third-party developers, the Chinese online shoe retailer developed its own ERP, which was adapted to Letao’s business needs. Also, Letao valued user experience very much, attaching much importance to reduce the homepage loading time, streamlining the shopping process and adhering to data-driven operations.
Expects Letao to reach “3X Zappos’ sales and market cap”, father of Zappos’ founder
Although all focusing on online shoe business, Chen believes Letao is different from its competitors by virtue of its “Just a little bit more advanced” principle, which means keep ahead of the counterparts with small edge. For example, stocking a little bit more collections than the rivals, having a little bit more flexibilities regarding market strategies, being a little bit more advanced with respect to technology, going beyond a little bit more in terms of customer experience and satisfaction etc..
Chen also mentioned that Richard Hsieh, father of Zappos’s founder, said that Letao’s future sales and market cap would three times Zappos after visited Letao and looking around its grand-scale warehousing last year. Letao CEO Bi Shen also paid a return visit to Zappos’s headquarters in Las Vegas to closely watch how every part of Zappos works, including operations, customer services, supplying and innovative marketing and so on.
Richard’s remarks might be true, according to a Credit Suisse research, China is likely to outstrip the US in e-commerce market in three to four years. And 80% of the world’s shoes are made in China.
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