In its second-largest acquisition, Amazon buys the company for $970 million.
Yihaodian fulfills orders in half a day in China’s largest cities.
SHANGHAI—Delivery in half a day is the norm, not the exception, for Chinese shoppers ordering from Yihaodian, the 4-year-old web-only retailer that will soon have Wal-Mart Stores Inc. as its majority owner. The Chinese government recently approved Wal-Mart’s bid to raise its stake from 17.7% to 51% in Shanghai-based Yihaodian.
Yihaodian provides delivery within 12 hours for consumers within a radius of 250 kilometers, about 155 miles, from the five cities where Yihaodian has located its 15 warehouses: Beijing, Shanghai, Guangzhou, Wuhan and Chengdu.
In Shanghai, for example, orders are picked at a warehouse, then delivered to one of 68 stations around the sprawling metropolis. From there, couriers, mostly on motorbikes, complete deliveries.
Because of the dense population around these big cities, Yihaodian co-founder and chairman Yu Gang estimates the e-retailer can deliver within a half-day to 80% of China’s 200 million online shoppers. In many other cities, orders are fulfilled within a day. Few orders come back—the return rate is only about 0.5%, Yu says.
Speedy delivery is an important selling point because Yihaodian—the name means The Number One Store—built its business around fast-moving consumables, such as dry food, cosmetics and household supplies. The office workers that make up the rapidly growing middle class in China’s big cities appreciate the convenience of online shopping for these household necessities, Yu says.
“It’s not like in the U.S. where every family has a car and people buy groceries for a whole week,” he says in fluent English. “Chinese go shopping usually every couple of days with carrying bags. The supermarkets are crowded and city traffic congestion is getting worse. Especially white-collar people living busy lives, they don’t like to spend too much time shopping.”
Founded in 2008 by Yu, a former supply chain executive at computer maker Dell Corp. and e-retailer Amazon.com Inc., and Liu Junling, also a former Dell executive, Yihaodian generated sales in 2011 of US$43.4 million and more than 20 million shoppers have bought from the site as of now, the company says. During its fourth anniversary promotion in July, Yihaodian racked up sales equivalent to its total sales for 2008, 2009 and 2010 in three hours, two days and one month, respectively. The company has 6,400 employees.
While declining comment on the impending Wal-Mart acquisition—which still requires formal and final approval by the Chinese government, although the deal does not appear to be in doubt—Yu says Yihaodian is moving ahead with expansion plans.
The company introduced sales of fresh food and books this year, and plans to add new categories of products. “We now have 1 million SKUs and that could easily double or triple next year,” Yu says.
More services are also on the agenda, such as bricks-and-mortar facilities where consumers will be able to obtain free samples of new products in return for promising to write reviews that will help suppliers gauge interest. The company has also launched a group-buying site, similar to Groupon in the U.S., and a limited-time sale site along the lines of U.S. web retailer Gilt Groupe Inc.
Yihaodian introduced its first mobile app, for the iPhone, in February 2011 and now also has Android and Windows 7 versions of the app, which it calls Palm Yihaodian, because the e-commerce site is now in the palms of consumers’ hands. Some 6 million shoppers use the mobile apps, although they still represents a small portion of sales. Two-thirds of the app downloads are to Android phones, but iPhone users buy the most. “The amount of Android users is greater than iPhone users in China,” Yu says, “but the purchasing power of iPhone users is stronger.”
Other plans include automating aspects of the company’s warehouses to eliminate bottlenecks, for example, when consolidating orders for shipment to local delivery stations. The relatively low cost of Chinese labor, Yu says, makes it inefficient to invest in robots to fully automate order picking, as Amazon is expected to do in some of its U.S. warehouses, using technology it acquired last year when it bought robotics manufacturer Kiva Systems.
For all its rapid growth in four years, Yihaodian faces tough competition from Chinese competitors like 360Buy that get better prices from suppliers because they buy in larger volumes, says co-founder Liu. “It’s not a level playing field,” he says. Asked if joining forces with Wal-Mart might enable Yihaodian to obtain better prices, Liu replies, “We certainly expect that.”