May 6, 2014, 3:19 PM

Neiman Marcus changes its e-commerce course in China

The luxury e-retailer sold its stake in Glamour Sales, a private-sale e-retailer selling in China and Japan.

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The road to China for U.S. e-retailers can be a bumpy one, recent actions by luxury retailer Neiman Marcus suggest. The U.S.-based retailer has confirmed it sold its stake in Glamour Sales, a private-sale e-retailer selling in China and Japan. Neiman Marcus, No. 41 in the Internet Retailer Top 500 Guide, had invested $38 million in the retailer in 2012 and owned a 44% stake in Glamour Sales. A Neiman Marcus spokeswoman confirmed the sale.  

“Our shares were a part of a recapitalization of Glamour Sales business,” the spokeswoman says. “Like most Chinese e-commerce businesses, they were actively looking for capital investment in order to grow their business.  We did not have any interest in becoming a majority shareholder.   We wish Glamour Sales well and are confident they will be very successful.” 

Meanwhile, Hong Kong-based Chow Tai Fook Enterprises and South Africa-based banking and asset management firm Investec Bank plc Invest last week announced they were investing $65 million in Glamour, No. 191 in the Internet Retailer China 500 Guide.

"This is a significant move for Glamour Sales and we are thrilled to partner with a prominent Asian family and an international financial investor,” says Olivier Chouvet, co-founder of Glamour Sales. “Chow Tai Fook Enterprises is synonymous with luxury and success for all Chinese, and we are looking forward to dramatically growing Glamour Sales together."

Chow Tai Fook Enterprises Ltd. (CFTE) is a private Hong Kong-based holding company controlled by Dato' Dr. Cheng Yu Tung and family. CTFE companies include investment, property development, hospitality, infrastructure, department stores other consumer and retail businesses.

"Glamour Sales is much more than a luxury private sales web site,” says Thibault Villet, co-founder and CEO of Glamour Sales China.  “It offers unique features and an extraordinary customer experience. Thanks to the ongoing support of our brand partners, we will continue to innovate and offer more personalized luxury, fashion and lifestyle assortments in Asia."

Glamour forecasts revenue of $155 million for 2014, up from $82 million in 2013. The retailer says it has 3.6 million consumer members to its private-sale sites. Glamour holds an average of 18 private sales each day. It operates 22 photo studios, occupies 12,000 square meters of warehouse space and partners with 3,200 brands to sell their wares. 42% of sales come from mobile devices and the retailer has 350 employees, Glamour says.

Glamour Sales was founded in 2009 by Chouvet and Alain Soulas, who were joined later by Villet. It operates what it says are two of the largest flash-sale web sites in Asia–Glamour-Sales.com.cn in China and Glamour-Sales.com in Japan.

As part of their 2012 partnership agreement, Glamour Sales agreed to sell Neiman Marcus’ goods on Glamour-sales.com.cn and to help Neiman Marcus build a site to sell directly to Chinese consumers in 2013.

Six months later, Neiman Marcus changed its mind, shut down the China site and began redirecting consumers to its primary e-commerce site, NeimanMacus.com. The retailer now fulfills orders from China from its U.S. inventory.

 “We were making changes to our U.S. web site that made it possible to run international sites from the U.S.,” says the spokeswoman for the Dallas-based retailer. “We do all the service support and marketing from Dallas, as we do with the other one hundred-plus countries we ship to.  Ultimately, we concluded we could serve the customer better from here and offer them a much larger assortment.”

Neiman Marcus declined to disclose further details about its deal with Glamour Sales. But chief financial officer James E. Skinner recently told financial analysts that the company would book a loss as a result of the investment.

“Neiman Marcus faces many difficulties after it enters China. First, Neiman Marcus lacks the strong operation experiences in international market and have to learn Chinese consumer’s behaviors in a short time. Second, Neiman Marcus have to re-sign the distributing agreements with all the brands, which could be a hard and time consuming procedure.” Forrester Research’s e-commerce analyst Kelland Willis says.   

Some analysts say Neiman Marcus’s new cross border e-commerce model is good tactic for testing the new market since it could reduce operation risks such as inventory costs but it also has side-effect on causing bad consumer’s experiences, such as slow delivery. While Neiman Marcus is ending its partnership with a Chinese luxury retailer, other high-end brands are setting up shop in the country. Luxury brand Burberry announced late last month its entry into Chinese e-commerce. Burberry Group PLC launched its online store on Alibaba Group Holding Ltd.’s Tmall online marketplace. Earlier this year Apple Inc., which has long had its own online store in China, also began selling on Tmall.com. Many Chinese shoppers purchase not on stand-alone e-commerce site but on marketplaces such as Tmall. Alibaba’s two big consumer-facing marketplaces in China—Tmall and the larger, more bazaar-like Taobao—accounted for over 80% of online consumer purchases in China in 2013, according to the Top 500 China.

Selling to Chinese consumers is alluring to North American retailers because online spending in China is growing at a much faster clip than in the United States. The number of Chinese online shoppers has grown by 125% from 108 million consumers who made at least one online purchase in 2011 to 242 million in 2012, says the China Internet Network Information Center. That helped fuel 42% growth in China's e-retail sales in 2013 to $305.74 billion, from $215.31 billion in the prior year, Beijing-based Internet research firm iResearch Consulting Group estimates.

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