Internet & Tech

Wedding march

A Chinese online business that focuses on brides

American girl, Chinese gown?

Is Alibaba Group about to announce the date of its initial public offering? That’s the speculation, with a new CEO and CFO both taking up their jobs at the e-commerce giant this week. The rumour is a valuation as high as $100 billion, although Alibaba has said nothing to encourage such gossip.

No doubt it wants to avoid the hype that prompted Facebook’s disastrous post-IPO performance, says Eric Jackson at Forbes magazine. Another theory is that it has the right to buy back half of the stake currently owned by Yahoo – but only at the IPO price. In that case, it may not be averse to a lower valuation, posits Jackson.

Meanwhile another Chinese e-commerce firm is planning a listing of its own in New York. And though it won’t be close to the scale of Alibaba’s rumoured debut, Light in the Box, founded in 2006, is still hoping to raise $86.3 million. According to a regulatory filing, the company will use the proceeds to finance technology investment, new product launches and brand marketing.

Light in the Box is a Chinese firm, but it is largely unknown at home. There are 17 languages available on the site, but Chinese isn’t one of them. And the e-commerce firm generates 98% of its sales outside China, selling a broad range of goods from wedding gowns to electronics. Light in the Box says approximately 2.5 million users visited its site last year.

Of course, the majority of merchandise sold on Light in the Box is Chinese-made. The Beijing-based company also claims that over 70% of its products are sourced directly from factories in China rather than via wholesalers and middlemen – a key strategy in holding down costs. This translated into a healthy gross margin of 41.8% in 2012, significantly higher than Amazon and Dangdang’s 24.8% and 13.9%, respectively.

Sales have grown from $6.3 million in 2008 to $200 million in 2012, as customers shop for rock-bottom prices. Take wedding dresses. The average wedding gown purchased in in the United States will cost $1,166, says specialist site Wedding Report. But the average price for a gown on Light in the Box is only $209. Brides-to-be can select a style and then send in their measurements for a made-to-order dress. That helps reduce inventory costs. But by offering customisation, Light in the Box says it hopes to appeal to more buyers of wedding dresses, even though they already account for around 50% of the company’s revenue (it sells half a million bridal gowns a year).

“Light in the Box is able to win over shoppers because it takes the products made by small and medium-sized enterprises in China and ships them to the rest of the world,” says Liu Zhiyong, founder of Shenzhen Sea Trade Organisation.

Despite the impressive growth in top line sales, like many e-commerce firms, the company has yet to turn a profit. Last year, it made a net loss of $4.2 million, although the deficit narrowed from $24.5 million in 2011. 21CN Business Herald reports that Light in the Box’s aggressive spend on marketing – buying ads on Facebook and Google, for instance – is a key reason for the red ink. “Even though its gross margin is around 40%, it only translates to an operating margin of 1%. This indicates that its cost structure is still too high for the whole operation, and that’s not good,” an industry observer told 21CN.

Perhaps. But enthusiastic investors are already comparing Light in the Box to Vipshop, a Chinese e-commerce site that turned out to be the best performing stock among the foreign companies to go public in the US in 2012 (see WiC182).

“Companies like Vipshop and YY [another internet firm that went public last year] were all little known at the time of the IPO,” says the Securities Times. “But it was companies like these that managed to list successfully and they have all done extremely well since then.”

Not that there wasn’t a word of warning too about less successful Chinese listings. “On the other hand, companies like Dangdang and Renren [which both soared to great heights immediately after floating] all peaked right after their IPO,” the newspaper told readers.


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