Now that it’s a $2.1 billion player in the U.S. online retailing business, Newegg Inc. has ambitious expansion plans for another rapidly growing e-commerce market: the People’s Republic of China.
Newegg, which announced plans on Monday to raise $175 million through a public stock offering, expects its web sales in China to surpass $80 million in 2009, an increase of at least 135.3% from $34 million in 2008. So far in the first two quarters of fiscal 2009, Newegg, No. 9 in the Internet Retailer Top 500 Guide, has increased its online sales from Chinese consumers and businesses by 328.3% to $54.4 million from $12.7 million in the first two quarters in fiscal 2008.
In U.S. currency, web sales in China are expected to grow about 109.7% to an estimated $39.4 billion in 2009 from an estimated $18.8 billion in 2008, says iResearch Consulting Group, a Chinese Internet research company based in Shanghai. Online sales in China could surpass an estimated $100 billion by 2012, says iResearch.
“We believe the Chinese e-commerce market is positioned for tremendous growth, driven by wider availability of broadband access, rising discretionary incomes, increasing preference for consumption relative to savings, and improving payment processing, delivery and fulfillment infrastructures,” Newegg says in its registration filling. “China is becoming a more consumer-driven economy, and is expected to become the third largest consumer market by 2020.”
Newegg already has more than 1,000 employees in China where it operates eight regional distribution centers, which together process about 3,600 daily orders, the company says. Next year Newegg will earmark more than $25 million to expand in its base in mainland China, including spending about $10 million to finish construction on a 492,000-square-foot headquarters and central fulfillment hub in suburban Shanghai. “We intend to leverage our early entry into the market and our core competencies to become an e-commerce leader in China,” Newegg says in the filling. “We believe our e-commerce platform and process expertise coupled with strong local relationships in China and our understanding of the culture and needs of the Chinese consumer position us for success in the Chinese e-commerce market.”
Conducting e-commerce in China isn’t easy, says Newegg. The country is only now building up its national Internet and online payments-processing infrastructure. Manufacturers and wholesalers that supply online retailers with inventory in China also usually only accept cash and won’t issue credit.
But Newegg is counting on its deep roots in the Asian and Chinese retailing markets to generate more business development. Newegg has been selling online in China since 2001. Several Newegg executives, including CEO Tally Liu, company co-founder and chairman Fred Chang, Newegg.com.cn acting president Anthony Chow, and executive vice president of corporate planning and partner relationship Shih-Chi Lee, also have strong business ties to the Chinese retail and e-commerce markets. Chang served as president of Newegg’s China operation from August 2008 to March 2009.
“We plan to open additional operating and processing centers in China over the next year to meet continued strong demand and strategically and cost-effectively expand geographical coverage in response to high utilization rates,” Newegg says. “We anticipate that our sales in China will represent a key driver of our future growth.”
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