E-Commerce Sites Have Chinese Consumers Tossing The Catalog

China’s 21st century shoppers are trading in their catalogs for Web sites as new and specialized e-commerce companies come of age and raise venture capital to meet the demands of the country’s growing consumer class.


In the first half of 2010, six venture-backed e-commerce companies in China raised at least $180 million to reach out to buyers increasingly comfortable with shopping online, according to reporting in VentureWire and local Chinese media outlets.

It’s a sign that investors have recovered from any concerns associated with the global financial crisis’ impact on China’s domestic merchants. In 2009, during the throes of the economic downturn, Chinese venture capitalists invested at least $57.3 million in eight reported deals, according to data from the industry tracker Zero2IPO.

Recipients of the new money range from specialized sites selling shoes, handbags, lingerie or non-perishable teas, wines, and spices to wholesalers and retailers of multiple products and online clothing stores, investors said.

Among the largest of these deals was the May investment in Beijing-based VANCL Co., an online retailer of men’s and women’s clothing. That $50 million round was backed by the Tiger Fund, IDG Capital Partners, and Qiming Weichang Venture Capital Management (Shanghai) Co. (Qiming Venture Partners).

RedBaby Internet Technology Co. reportedly has also raised at least $50 million for its own online shop, which sells everything from baby care products to clothing for kids and adults and appliances. The company had previously raised money from New Enterprise Associates, Northern Light Venture Capital, and other venture capital firms.

“China’s Internet infrastructure is ready for e-commerce,” said Lin Dongliang, a partner with IDG Capital.

More people in China have credit cards now and for those that don’t most logistics and delivery services take cash on delivery, he said. And the credit card market is growing as well. A September 2009 study from consulting firm McKinsey & Co. predicted that the total number of credit card holders in China would reach 300 million by 2013 – nearly the entire current population of the U.S.

Furthermore, a June 2010 report from the research arm of financial services firm Li & Fung Group said that there were 404 million “netizens” in China, and that retailers were adapting a clicks and mortar model to try and reach out to them.

It appears to be working, according to the report, as overall online transactions more than doubled in 2009 to  CNY263 billion ($38.8 billion) from about CNY181.5 billion in 2008. Most of those transactions – around 90% – were customer-to-customer transactions, according to the Li & Fung report, which cited as its source the State Council Information Office of the People’s Republic of China.

China’s top retailers are only just starting to get in on the action, with only 31 of the top 1000 retailers launching online businesses. Most of those companies only moved online in 2009 or 2010, the report said, which means the retailing market is wide open for online-only competitors, investors say.

Wages are now rising, too, and correspondingly interest in reaching out to those wage-earners is rising also. “Lower-tier cities are now on the radar of many retailers,” LI & Fung notes.

For Hurst Lin, a general partner with Menlo Park, Calif.-based venture firm DCM, which operates in both the U.S. and China, brick and mortar retailers in China still have a long way to go before they’re as deeply woven into the nationwide economic fabric as they are in Western countries.

“Unlike Western Europe or the U.S. there are not many malls,” Lin said. “Think about 1.3 billion people, most of those folks don’t have good retail outlets, but they all live in these big apartment flats and they have pretty good access to broadband. In my mind this is the 21st century Sears and Roebuck for the Chinese consumers who are not near enough good retail outlets.”

Lin believes in the model so much his firm has invested in two of the new breed of targeted online retailers. In June, DCM participated in a $15 million Series B investment for Jiaxing, China-based women’s handbag e-tailer Mbaobao Co. That month, the firm also invested in an $11 million round for Month Trading Co., a Shanghai-based operator of Web sites selling specialty wines and teas.

“Any single company will face fierce competition,” said IDG Capital’s Lin. “[But] in the long run almost everything will go online.”

Source: http://blogs.wsj.com/venturecapital/2010/08/03/e-commerce-sites-have-chinese-consumers-tossing-the-catalog/