Wednesday, July 20, 2011

Future of Chinese E-Commerce

By Eric Jackson 07/20/11 - 06:00 AM EDT

NEW YORK (TheStreet) -- Last month, I met about a dozen Chinese tech companies to get a better sense of the businesses and industry trends in China that affect e-commerce companies.

All but one of the companies I met with are public. The only private company was called Letao, and it sells shoes in China. Because of that, it's often called by Americans "the Zappos of China." However, there are important differences.

Letao does all its sales entirely on consignment. Also, because it makes more money on private label sales than reselling premium brands, Letao has been putting a big emphasis on its own white label shoes recently. It started as an ecommerce toy company but switched to shoes last year when it believed the market opportunity there was bigger.

Letao also has some big American backers behind it, including Tiger Global. Although there are no plans for an immediate IPO, that is certainly in the cards for Letao at some point.

Here's an edited version of my conversation with Eric Chai, the assistant to the CEO at Letao.

Eric: Tell us about your CEO.

Chai: Letao's CEO, Mr. Bi, used to be the assistant to Robin Li in Baidu(BIDU_).

Eric: And how many employees do you have?

Chai: We had 100 last year, but this year we have 500. The growth occurred after we made the transition from selling toys to shoes.

Eric: What do you think about all the group buying sites that are prevalent in China today?

Chai: I believe only two or three group buying sites can survive; we only collaborate with them so we can reach more people. Since the third quarter of 2009, we started cooperation with Groupon, Lashou and Nuomi. But since we have the customers now, we don't need to spend as much money to use those group buying sites anymore.

Eric: So how do you market yourself?

Chai: We have a very unique business model. We have some private brand names such as Angry Birds from Rovio, and these cheap products can attract many customers. We collaborated with Focus Media(FMCN_) before, but the commercial fees are high, so this is one of the reasons why we created the coupon strategy.

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