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Vipshop eyes big data, mobile apps to connect with consumers

Updated: 2014-01-11 07:55
By Li Wenfang in Guangzhou ( China Daily)

Online discount retailer Vipshop, which is listed on the New York Stock Exchange, plans to boost investment on big data projects, mobile applications as well as additional warehouses.

"Through the development and application of big data projects, we will issue more customized recommendations (to our clients)," Yang Donghao, the company's chief financial officer, said in an interview.

One of the core advantages of Vipshop lies in its data analysis projects, which examine consumer behavior and help build a personalized system to communicate with customers, he said.

Orders placed on mobile apps, which contributed nearly 20 percent of the orders it received in the third quarter of 2013, will become a main source of growth for the company, Yang said.

China's three telecom operators recently obtained licenses for the fourth-generation, or 4G, mobile telecommunications services, which will provide faster data transfer speeds and lower prices for data traffic.

"4G will further improve the mobile platforms for order placement, information transmission, payment and financial support. We will continue to increase our investment into mobile terminal technology," Yang said.

The company's warehouse space will double to 300,000 square meters in 2014 and will further increase to 700,000 sq m by 2016, he added.

"We'll step up the construction of warehousing and logistics projects to maximize our customers' shopping experience," he said.

Vipshop's revenue surged 146.1 percent to $383.7 million in the third quarter of 2013, driven by a 131.7 percent increase in the number of active customers to 4 million and a 115.6 percent increase in the number of orders to 11.7 million.

Its gross margin expanded to 24.2 percent from 22.3 percent a year earlier and gross profit increased 167.4 percent to $93 million.

The price per order on average stood at $33, a marked increase over the same period the previous year.

Yang attributed the better performance to the continued optimization of the brand, more product choices, additional warehouse space and faster delivery times.

He said that he expects China's e-commerce market to maintain fast growth in the coming years.

He added that the forecast is based on the fact that traditional retail companies will enter the industry on a large scale, the potential in less-developed western provinces and third- and fourth-tier cities in central and eastern provinces will be further developed, and mobile Internet technology will make online shopping more convenient.

The industry will shift its focus to profitability from scale and move toward mobile terminals and online-to-offline strategies, Yang said.

Competition will center on the customers' comprehensive experience, instead of scale and low prices, with bankruptcies and M&A deals likely to happen during the transition period, Yang said.

China's discount retail market was worth $23.6 billion in 2012 and is expected to expand to about $561 billion in 2015, Yang said.

Online discount retailers are growing rapidly in China thanks to the increasing product variety, said Du Yanhong, a researcher at market research firm CI Consulting.

Customers are people with medium purchasing power, who favor branded products and are sensitive to prices. The ever-enlarging mid-income population in China means larger potential for the business, he said.

Also, the serious saturation situation in the apparel industry is supplying a large amount of products to discount retailers.

For instance, flash sales saw rapid growth in 2013 as a result of de-stocking moves by apparel brands and the increasing number of online shoppers.

However, continued high growth will depend on more first- and second-tier brands being available and richer product varieties.

Flash sales, authentic branded products and cooperation with a broad range of first- and second-tier brands give Vipshop its competitive edge, Du said.

Founded in 2008, Vipshop started by helping brands clear their stocks. Later, it also sold products especially designed by brands for online shoppers.

The website now focuses on discounted products, new product releases, authorized discounted sales, customized sales and private discounted sales, focusing on apparel, leather items, cosmetics and maternal and baby products.

It's a platform not only for promotions but also for trial sales of new products, helping brands test the market response, Yang said.

Vipshop will stick to its strategy of discounted branded products, flash sales and genuine products, focusing on second- and third-tier international brands and middle- to high-end domestic brands, he said.

Its main markets are second- and third-tier Chinese cities, which have huge potential and are seeing increasing purchasing power, although first-tier cities such as Beijing, Shanghai and Guangzhou are contributing a large group of customers.

Vipshop is far ahead of its competitors on the flash sales market in China, Yang said. However, competition will come in the future from business-to-consumer websites such as Taobao, Jingdong, Amazon, Dangdang and Suning, he added.