August 1, 2013, 2:54 PM

Direct from China

Chinese companies are selling online in the United States, undercutting prices in some categories and forcing domestic merchants to respond. The experience of prom dress retailers may be instructive for others.

Lead Photo

Online sales represent half the business for Peaches Boutique, up from about 2% a half-dozen years ago, says Jeff Surdej, the prom and party dress retailer's director of operations. But there's been a recent blip in that web growth.

In fact, online sales fell 20% last year for the retailer, which operates a single bricks-and-mortar store in Chicago along with The reason for the decline? Stiff price competition that's emerged in recent years from Chinese companies selling directly to U.S. consumers via such web sites as, and

"It's not just $10 off our price, it's half off," Surdej says. Many of the Chinese sites sell dresses for $100 to $250, while North American retailers like Peaches Boutique sell dresses from major brands typically for $400 to $600.

The online competition from China emerged in the last four years, says Dusty Hill, president of Sherri Hill, a well-known prom dress brand. Early on, many of the Chinese sites flagrantly violated registered trademarks, falsely claiming to be selling dresses from brands like Sherri Hill and Jovani, and stealing photographs of their dresses from the web sites of the manufacturers or authorized retailers. Sites like that keep popping up, and Hill and others are having some success fighting them—Hill says he took down 10,000 web pages last year by complaining to web-hosting firms, for example. Retailers in other categories can learn valuable lessons about fighting trademark infringement from those initiatives.

However, some Chinese web retailers have moved on, Hill says, and now simply sell cheap dresses without violating trademarks. "I see that as fair competition," Hill says. He cites LightInTheBox Holding Co. Ltd., a Beijing-based company that, Hill says, used to improperly claim to be selling Sherri Hill dresses, but no longer does. LightInTheBox and the other Chinese prom dress retailers did not respond to requests for comment.

The bigger question ahead may be how North American retailers and brands compete with e-commerce sites selling low-cost goods directly from China, whose prolific factories produce a United Nations-estimated $2 trillion worth of goods each year. The growing number of international shipping and payment options is making it easier for Chinese companies to directly market and deliver to North American and European consumers, and they're starting to do just that.

A prime example is LightInTheBox, which in June raised $79 million in a U.S. stock offering. The retailer, which sells wedding and prom dresses as well as home and electronics items, reported 2012 sales of $200 million from the e-commerce sites it operates in 17 languages. Of those sales, just over half were to European consumers and 24%, or $48.0 million, were to North American shoppers.

LightInTheBox said in its IPO filing that Chinese companies have strong prospects for selling online to consumers around the world. "They enjoy access to a large, low-cost export-oriented manufacturing base, global payment and logistics solutions and globally scalable online marketing," the filing says. It also quotes a projection by Chinese market research firm iResearch Consulting Group that online direct-to-consumer sales of Chinese goods to consumers in other countries will grow from $1.7 billion in 2012 to $9.0 billion in 2015, a compound annual growth rate of 75.8%.

Further evidence of the emergence of Chinese e-retail competition comes from eBay Inc., which since 2007 has been helping Chinese companies sell on eBay's marketplaces around the world and encouraging them to use its PayPal service to accept payments. In a November 2012 report eBay said more than 7,500 of these large eBay sellers and PayPal merchants in China, Hong Kong and Taiwan were selling more than $100,000 a year to online shoppers in other countries, with 598 selling more than $1 million a year.

Of those sales 77% were on eBay sites, which means 23% were off eBay, including on the Chinese companies' own e-commerce sites. One example of a large seller that's launched its own site is, which sells inexpensive jewelry. While the company would not reveal its sales in dollars, co-founder Wu Hongbo says the company ships 60,000 to 70,000 parcels per year, mostly to Europe and North America, and is growing annually by 30%.

Besides giving credit to PayPal for making it easy to accept international payments, Wu notes the expansion of shipping options for Chinese retailers. "International shipping has developed a lot in recent five years. Today we have many choices, and we can choose different logistics solutions for different markets," he says in an e-mail response that eBay staffers translated into English.

Among the services and other eBay sellers use is ePacket, the product of a 2011 agreement between the U.S. Postal Service and Hongkong Post to facilitate shipments from Hong Kong merchants to U.S. consumers. The service includes order tracking. Fees vary by parcel weight. A package of just over half a pound costs about $5 to ship to the United States, eBay says. Delivery to the United States takes seven to 10 days.

Startups are taking advantage of these shipping and payment services to get into the business of selling online to consumers in the United States and elsewhere. One recent entrant is Bundshop LLC, whose e-commerce site sells furniture and home goods from Chinese designers, with an average selling price of $130, says co-founder Stephany Zoo. Zoo and her business partner, Diana Tsai, are U.S.-born Chinese-Americans fluent in Chinese who recently graduated from U.S. universities and moved to Shanghai, where their families are from, to launch

It cost $64,000 to launch the business, Zoo says, including $14,000 to build the web site, which formally began selling in March following a few months of testing. Zoo says she uses nine delivery services, depending on destination and weight, and that the retailer's packages arrive in the United States in seven to 10 days and cost $8 to $10 to ship. "For us to ship to the U.S. is about the same cost as shipping from California to New York," she says.

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