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ONLINE RETAIL


domestic e-commerce market has tremendous potential, and will continue to be a key focus in the coming years. Investors are set


to benefit most from the e-commerce boom, according to Cofidis head of financial controlling and


former European Union Chamber of Commerce China, Consumer Finance Working Group Vice- Chairman, Pascal Nouvellon. A strong example, he says, is investors who won big by betting on online travel agency Ctrip, which up until 2010 outperformed Nasdaq by


over 60 per cent. Nouvellon also notes that a large number


of leading e-commerce websites have received venture capital over the last two years. In fact, in 2009, amid concerns of the economic downturn, Chinese venture capitalists invested at least $57.3 million in eight reported deals, according to industry tracker Zero2IPO. In the first half of 2010, six venture-backed e-commerce companies in China raised at least $180 million. The largest of these deals was the investment in Beijing- based VANCL Co., an online clothing retailer. “As those companies search


for new funding and their early venture capital investors look for exit plans, we should see more and more Chinese e-commerce companies IPO-ing on the Nasdaq in the coming 12 to 18 months. I would very much recommend watching out for those investment


opportunities,” says Nouvellon. Others see opportunity in the


development of smaller C2C retailers transforming into more formal business-to-


consumer (B2C) companies. China Market Research Group predicts that the B2C market, which currently accounts for around 10 per cent of online sales, will grow to make up around 40 per cent. “Good distribution networks are difficult to build in China and take a lot of time and money, and online sales are a good way for companies to reach consumers in lower-tier cities who want their products but do not have a store that they can visit locally to buy them. L’Oreal’s Lancome brand, for example, reaches hundreds more cities in China through its online store


“Investors are set to benefit most from the e-commerce boom … investors won big by betting on online travel agency Ctrip, which up until 2010 outperformed Nasdaq by over 60 per cent”


than it can through its kiosks in malls,” says CMR Senior Analyst, James Roy. Roy suggests, therefore, that the biggest investment


potential lies in established B2C brands looking to expand. “The most attractive investment targets in this sector


are not the online platforms themselves – these can be expensive to run, and margins are fairly low. Even companies that have been around for a long time like Dangdang, the online book retailer, have struggled to make profits – Dangdang has made just $2.4 million in profits in 11 years of operation. The better play is to look for brands that are established – especially those appealing to 24 to 32 year old women – and looking to add an e-commerce model as a complement to their physical retail expansion in China,” he says. China’s internet users now total over 500 million,


with around 300 million of those accessing the Internet through their phones. Roy says that while mobile internet shopping still makes up a very small portion of the overall market, it is growing very fast at around 90 per cent a year and will continue to swell as online vendors offer apps and other online shopping solutions that are optimized for phones. The Chinese online retail industry sees the


development of mobile shopping as only one of its challenges. Retailers are also faced with the challenge of selecting the right e-commerce platform, including the right back-end software as well as the appropriate logistics and supply chain. Research company Analysys International reports


a huge gap between the e-commerce industry and logistics development. The lag presents opportunities for venture capital investors or e-commerce giants such as Alibaba to capitalize on the growing demand. While opportunities abound in this growth industry


for investors and retailers alike, it is clear that ultimately Chinese consumers will also benefit. Nouvellon says that it is the younger, urban customers who have the most to gain. “Their life is very stressful and workload for


salespersons or entry level managers are similar to that of a junior investment banker on Wall Street. There is a clear demand for some operations to be done online.”


Manisha Lee FAMILY OFFICE: ASIA TOMORROW 107


90%


THE RATE OF GROWTH PER YEAR OF CHINA’S INTERNET USERS.


ALTERNATIVE INVESTMENTS


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