The e-retailer reports a $126 million net loss, stemming from a $640 million year-over-year increase in spending in the quarter on technology and content ...
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While it may be easier than ever for Chinese e-retailers to reach online consumers in North America, their success is likely to be limited to certain categories, says Ken Calhoon, who worked in international operations in his seven years at eBay and consults on global e-commerce as managing partner of Calhoon Global Management Consulting LLC. For inexpensive, unbranded items consumers aren't going to wait for delivery or pay much for shipping, and at the high end there aren't many Chinese brands yet that U.S. consumers covet, he says.
But when it comes to higher-priced, custom-made goods, like prom and wedding dresses, the Chinese may be able to compete, he says. "It's in the segments where they can offer good value for the money, along with customization, that the Chinese can be most disruptive," Calhoon says. Even here, he says, Chinese companies will only make a dent if they can get U.S. sizing and styling right, and deliver quality goods, he says.
U.S. prom dress makers and retailers say many of the Chinese sites violate trademarks, and it's these sites that they have targeted with an aggressive legal action and consumer education campaign.
They say the rogue sites promise brand-name goods, then ship whatever they have on hand. The Gioconda Law Group PLLC, a law firm that represents Sherri Hill and such luxury brands as Burberry Group plc and Tiffany & Co., regularly makes test purchases to see what the Chinese sites actually ship. "They're usually out of stock for anything that isn't very basic, then they will try to talk you into something else or ship you something completely different from what you ordered," says Joseph Gioconda, a partner in the firm.
When Sherri Hill spots an unauthorized retailer advertising Sherri Hill dresses it seeks to take down the site, taking advantage of the Digital Millennium Copyright Act of 1998. The law enables the holder of a registered trademark like Sherri Hill to petition a web-hosting firm to close a site that's violating its trademark. If the hosting firm does not comply, it becomes liable for legal damages, Hill says.
Most web-hosting companies, even outside of the United States, act quickly to take down sites in response to such requests, Hill says. But then the trademark violators often launch another site. "One site down, one site up is what we're dealing with," Hill says.
Rogue sites will copy images, even if the retailer has put its own name on the photo, says Meytal Sutton, president of MissesDressy, a prom dress retailer that sells online and through a store in the New York area. To stop that abuse, the retailer blocks Internet users in China from viewing MissesDressy.com. Another U.S. prom dress retailer, DressGoddess.com posted a video on YouTube this spring showing the differences between a genuine and counterfeit gown from Tony Bowls, another major prom dress brand.
Sherri Hill has taken several other steps to let consumers know which retailers are authorized to sell its dresses. One of the eight navigation tabs on SherriHill.com is Authenticity; clicking on it opens a page where a consumer can enter a domain name to see if it's an authorized seller. The dress manufacturer added that feature to its site three years ago, Hill says. A year later, it created a seal that retailers can add to their own web sites. Clicking on the seal opens a window that says the retailer is an authorized Sherri Hill seller.
Hill, who went to law school in Beijing, traveled to China this spring seeking a way to enforce China's strict laws—at least on paper—against violating trademarks. He's engaged a Hong Kong law firm to draft a copyright violation letter in Chinese that cites Chinese statues that he can send to hosting companies in China, asking that they shut down violators' sites. "The Chinese are averse to legal threats and I expect good success as far as getting web sites down," Hill says. "That doesn't mean they won't put another one up."
Hill says PayPal has responded quickly to complaints about trademark violators using PayPal to accept payments, and that Google Inc. typically will remove violators from natural search results. He also won a $5 million judgment in a trademark violation lawsuit last year and appeared this spring on TV's "Today" show to warn young women shopping for a prom dress against web sites that falsely claim to offer brand-name goods.
While making progress against trademark violators, prom dress retailers still face the problem of how to compete with web sites offering gowns at low prices that aren't violating trademarks. The retailers have responded in various ways. Peaches Boutique, for example, will match the online prices of U.S. retailers in its store, but not the prices of Chinese sites. DressGoddess.com, which is based in Pennsylvania, posts at the top of its site that it is a "100% authorized prom dress retailer located in the United States."
Some retailers simply cede the low end of the market to Chinese competitors. Scott Weiner used to source inexpensive mobile phone cases from China to sell on Amazon and eBay until he grew tired of competing with Chinese sellers offering cases for as little as $2. Last year he began designing more upscale cases and selling them on his own site, dbaCases.com. "The Chinese have gotten smart about it," says Weiner, CEO of DBA Cases Inc. "They used to sell to people like me or mall kiosks. Now they realize they can sell directly to the consumer."
Indeed they can, with the Internet making it possible for them to market to consumers everywhere, and globalization making international shipping and payment easier every year. There is no reason to think there will be less direct competition from Chinese e-retailers in the years ahead.
SIDEBAR: WHICH WEB SITES CAN CONSUMERS TRUST?