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.

[Read the full post here at TheStreet.com]

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No Panic Here in China

By Eric Jackson
RealMoney Contributor
6/9/2011 10:00 AM EDT
Click here for more stories by Eric Jackson

I have been in China for the past week, and have had a chance to visit a number of Chinese Internet firms -- including Tencent, Perfect World(PWRD - commentary - Trade Now), NetQin (NQ- commentary - Trade Now), NetEase (NTES -commentary - Trade Now), Baidu (BIDU -commentary - Trade Now) and AirMedia (AMCN -commentary - Trade Now).

It's been a down market for the last six trading days, and Chinese stocks have been hit hard, including the former leaders such as Sina (SINA -commentary - Trade Now), Sohu (SOHU -commentary - Trade Now) and Youku (YOKU -commentary - Trade Now).

The mood amongst most of these companies, however, remains upbeat. Most now point to the recent worries about Chinese frauds as the reason for the bigger pullback in the entire sector. Most say they have received no uptick in questions from their own investors about their auditors or their own corporate governance.

One thing I couldn't help but notice, as I drove around Beijing, was the large number of advertisements being bought in the offline world (as in buses, billboards or kiosks) for new private consumer-oriented e-commerce sites such asLashou.com (the No. 1 group-buying site in China), VANCL (a clothing retailer) and Tmall.com, which is part of Taobao (of whichYahoo! (YHOO - commentary - Trade Now) is a 40% owner).

Most of these companies expect to hold initial public offerings in the next six to 18 months. They have obviously been trying to drive traffic to their sites in the last few months in order to dress themselves up for investors -- and they don't mind spending money to do it.

Earlier this week I met with a company called Letao.com, which is also private but experiencing extraordinary growth selling shoes online. Some refer to it as the Zappos of China even though there are subtle differences that, in some ways, make the company a more attractive business. Letao is probably further away from an IPO than some of those other companies I've mentioned. Even though they have money to spend on advertising, it is trying to do this wisely, through search marketing and group buying primarily. Nevertheless, Letao is aware of the feeding frenzy for buying ads of all kinds in China now, and it sees how this is leading to higher ad prices each time they renew.

...

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