E-retailers say they're doing fine with prudent planning

Updated: 2011-09-28 10:39

By He Wei (China Daily)

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SHANGHAI - Entrepreneurs in China's booming e-commerce businesses are cautious about overexpanding on the capital market, for most of them have wrapped up a third-round funding in the past six months.

Seeking an initial public offering (IPO) is not an end to pursue but "a natural outcome", as the country's online retail businesses grow mature at a fast but steady pace, industry insiders said at the 2011 E-Commerce Industry Summit in Shanghai on Tuesday.

Wang Yong, vice-president of kela.cn, a domestic online diamond vendor, said his company raised third-round funding of more than 50 million yuan ($7.82 million) in June from Tencent Holdings Ltd, a leading Chinese Internet company.

"Attracting investment and aligning ourselves with the online industry leader in China will strengthen our position in the niche market," Wang told China Daily.

But the 4-year-old company will not pour those funds into advertising to increase its public exposure, but instead will upgrade its logistics system, which Wang deems the core competence of online retail.

According to Wang, kela.cn plans to limit its overall logistics process to three days. He also plans to set up about 100 stores across the country in the next three years. The company's sales figures are expected to see fourfold growth as Tencent's fund infusion grows to a total of 800 million to 1 billion yuan by the end of June.

Wang said the company is on a healthy track to trade in the domestic stock market in three to five years, but he is wary of "a new round of Internet bubbles" aroused by the mounting cash flow. "It's unwise to use the money in endless brand-building, and we need to expand on a solid footing."

Likewise, lvmama.com, a nascent online travel company, is using a new round of fresh capital to attract seasoned tourism personnel and optimize its internal management system, said Chief Operating Officer Zeng Jun.

The Shanghai-based company racked up notable investors in late August, such as South River Capital and Sequoia Capital, and raised more than 100 million yuan.

Zeng denied earlier reports in some Chinese media that there are plans to go public next year. "The company is on an upbeat channel that we are able to make profits even without financing. Capital is a double-edged sword, and we should use it to develop better tourism products, rather than expand unrealistically."

China's Internet companies have been in the spotlight since the so-called China-concept stocks slumped to historical lows in recent trading on Nasdaq. The prudence reflected by those nascent companies' decision-makers, however, contrasts sharply with the massive reshuffling at a number of e-commerce sites that are reportedly either operating at a deficit or having large-scale layoffs.

Walter John Brennan, vice-president of mbaobao.com, a merchant selling exclusively bags online, said the company benefited greatly from those who invested in the startup. It has sealed several rounds of investment in the past few years and is anchored by its partnership with well-known brands overseas. It plans to launch a factory in Beijing by the end of October.

"It is important to focus on what you are doing, and what we offer is indigenous design. We have access to high-end department stores in the United States," Brennan said.

China's thriving online retail market is estimated to reach 278 billion yuan by the end of 2012, up 58 percent year-on-year, according to UBM, a UK-based B2B data firm.

Recent research conducted by Horizon Research Group suggested that logistics and product quality are the primary concerns that affect users' experience in online buying.

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