Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
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For VIP Holdings Ltd., a publicly traded online apparel retailer based in Guangzhou and the No. 8 e-retailer in the China 500, the key to long-term survival and eventual prosperity in Chinese e-commerce is offering consumers name-brand clothing, focusing on profitability and building a bigger e-commerce base, says chief financial officer Donghao Yang. "While maintaining and expanding profitability gradually over time, our top priority is to grow our market share in the discount retail market," he says. Although VIP has yet to break out its final 2013 numbers, the company reported its first-ever profits in 2013. For the third quarter ended Sept. 30, 2013, VIP reported net income of $12 million on revenue of $383.7 million compared with a net loss of $1.45 million on sales of $155.94 million a year earlier.
Over time, VIP says it achieved profitability through more tightly managing marketing costs by using social media more effectively and by negotiating better deals with suppliers. "We have increased our profitability," Donghao says. "We are better at controlling costs and achieving operating efficiency."
To both grow web sales and become profitable while selling discount apparel and accessories online means VIP cannot always be the lowest-cost seller. But it must have products fashion-conscious younger female web shoppers can't find anywhere else, particularly those living outside the so-called tier-one cities of China, such as Beijing, Shanghai and Guangzhou.
While other online retailers may concentrate on selling to web shoppers in big Chinese cities, 55% of VIP's core shoppers of women ages 20 to 40 live in less populous cities and rural China. To better reach that niche audience, VIP over the next three years is spending $200 million to double its number of distribution centers to four facilities to expedite shipping. VIP also is in the process of doubling the number of buyers it employs from 200 to 400 and increasing the number of apparel and accessories brands on VIP.com from 410 in 2010 to more than 3,000 in 2013.
VIP also continues to build its order volume, Donghao says. The company now ships about 11.7 million orders each quarter compared with 927,000 orders per quarter in 2010. "We are a mass market discount retailer," he says. "While we have sales events on designer brands, the majority of the brands that we are working with are mass market-oriented."
A unifying theme for many China 500 merchants is their determination to more effectively sell to consumers shopping on smartphones and other mobile devices. Chinese mobile commerce mushroomed by 101.3% to $15.7 billion in 2013 from $7.8 billion in 2012 and nearly 3900% from $400 million in 2010, iResearch says. As soon as 2015, iResearch predicts China's mobile commerce market could reach $41.40 billion. In comparison to China, U.S. m-commerce sales in 2013 grew about 64% to $34.2 billion from $20.9 billion in 2012, according to Internet Retailer's 2014 Mobile 500.
Chinese m-commerce is growing for several reasons and in the years ahead it may even be the way the majority of Chinese consumers shop online, says Kelland Willis, a Forrester Research Inc. e-commerce and China analyst. China has the world's largest mobile base with about 1.1 billion subscribers, according to Forrester Research. "The uptake of mobile commerce will push China's e-commerce market to new heights," she says.
Seeing that growth, many China 500 merchants are gearing up for a further uptick in mobile traffic and sales. At Dangdang.com, which began selling books online in 1999 and now sells a wide variety of merchandise, nearly 40% of site traffic comes from mobile devices and m-commerce accounted for about 10%, or $154 million, of its total e-commerce sales of $1.54 billion in 2103, the company says. Dangdang is the tenth-largest e-retailer in the China 500.
To accommodate mobile shoppers, Dangdang is updating its mobile site with new features such as faster search and updated login screens that enable registered users to quickly access personal information such as their shopping history.
Another China 500 merchant focused on m-commerce is Wuxi Maimaibao Information Technology Co. Ltd., which was founded in 2006. The retailer's primary target is customers in rural China and migrant workers in various cities. More than 200 million Chinese have moved from the countryside to cities in the last three decades, taking factory, construction and service jobs. They often don't have a computer, but most have at least rudimentary mobile phones. Maimaibao, No. 26 in the China 500, says its sales now average about $27.3 million per month and that its annual sales grew 100.6% to $327 million in 2013.
Maimaibao's site isn't designed for personal computers; instead it mainly sells products through its mobile site, MMB.cn. More than 40 million Chinese consumers have registered with the site and unique visitors exceed 8 million per day, the company says. The average ticket price ranges from $30 to $40, reflecting its typical shoppers' low incomes.
Products are priced to be affordable. For example, most T-shirts are priced at around $4.90. Maimaibao aims its service at the more than 230 million migrant workers in China's cities and the 350 million consumers in the countryside and small towns. "Before we launched our service, they didn't have choices," says founder and CEO Xiaowei Zhang. "Maimaibao is providing a fair shopping opportunity to people who really need them."
That's not a business model that's common in other parts of the world, but reflects China's uniqueness, as well as the need for e-retailers to adapt to a society undergoing profound change. China's e-commerce landscape is changing quickly and the web merchants that want to survive and prosper must be adept at building a recognizable brand that will keep shoppers coming back, says Willis.
"China marches to the beat of its own drum," she says. "Developments go fast, and consumer behaviors and attitudes change just as quickly. In such a fast-changing environment companies have to realize that their strategy will be always out of date."
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