February 21, 2014, 12:15 PM

Chinese e-retailer Vipshop buys a big cosmetics merchant

Vipshop, ranked No. 8 in Internet Retailer’s new China 500 guide, is paying $132.5 million for a 75% stake in Lefeng.com. Lefeng’s parent company, Ovation, produces a line of cosmetics and Lefeng.com has sold those products as well as those of other brands.

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Vipshop Holdings Ltd., the largest Chinese apparel discount e-retailer, has acquired a 75% stake in cosmetics e-retailer Lefeng.com for $132.5 million, which it will pay to Lefeng’s parent company, Ovation Entertainment Ltd.

Vipshop is No. 8 in Internet Retailer’s newly published 2014 China 500 and Lefeng is No.24.

After the acquisition, the two companies will continue to operate independently. Apart from Lefeng.com, Ovation’s other businesses, such as its private-label cosmetics brands, are unaffected by the deal, the two companies says.

Vipshop says Ovation will supply its own brands of cosmetics, apparel and other products developed to Vipshop for sales on Vip.com and Lefeng.com. Vipshop says it expects to sell at least 900 million yuan ($148.5 million) of Ovation products in 2014, and will receive commissions based on the sales volume.

Founded in 2008, Vipshop is one of the fastest-growing online merchants in China. The Guangzhou-based, web-only retailer increased its sales by 135.5% from $692.1 million in 2012 to $1.63 billion in 2013, according to the 2014 China 500.

The company has been listed on the New York Stock Exchange since 2012 and reported its first profit in the first quarter of 2013.

Lefeng.com is an online retail web site specializing in cosmetics products. Founder Li Jing is a well-known TV personality in China. Building on her fame, she has signed deals with more than 500 other celebrities to promote cosmetic products on her site. 

Lefeng has become the second-largest Chinese e-retailer of cosmetics products. Founded in 2008, the company’s web sales reached $330.4 million in 2013, up 42.9% from 2012, according to the China 500 Guide.

"The acquisition of Lefeng supports our goals of diversifying our product offerings, expanding our customer reach and further enhancing our customers' experience," says Eric Shen, chairman and chief executive officer of Vipshop.

Selling on Vipshop.com  “offers us immediate access to a very large and loyal customer base,” Jing Li says. “In this acquisition, both parties stand to benefit substantially from the economies of scale inherent in combining our cosmetic product lines and customer service expertise with Vipshop's customer reach and strong operational capabilities."

The deal helps Ovation address the inherent conflict between promoting its own cosmetics brands while allowing other companies to sell their cosmetics, says Yu Jinhua, a former marketing manager at Lefeng.

“By acquiring Lefeng,” Yu says, “Vipshop could strengthen its relationship with many celebrities that have sold products on Lefeng.com and build a strong fans base to promote its sales. This strategy mimics smartphone maker Xiaomi’s marketing tactics, which is to sell products to fans by building a unique online community.”

Xiaomi grew its web sales 134.5% to 28.85 billion yuan ($4.76 billion) in 2013 and ranks No. 3 in the Internet Retailer China 500.

More on how to order the China 500 is available here.

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