Gilt's Chinese Vipstore.com Business Sense: Online Discount Seller of Luxury Goods

BEIJING, August 4, 2011 /PRNewswire/ --

Allen Yang Peifeng, the founder of luxury goods online shopping portal vipstore.com, came to appreciate the potential of the luxury market in China in an unusual way.

While working for an American financial magazine, Yang was located just a stone's throw from the Arc de Triomphe on the Avenue des Champs-Elysees in Paris. "Often, while I was having lunch in a pavement restaurant near the office, mainland tourists would come by and ask me to lend them my passport so that they could buy more handbags at the nearby Louis Vuitton flagship shop," Yang said.

The French brand, fearing a shortage of supply, set a limit on the number of bags that could be bought by each passport holder, which was why many mainland tourists with a long shopping list turned to strangers for help.

Yang, who did not want to be disturbed, finally went elsewhere for lunch. But the experience made an enduring impression on him and the buying power and passion for luxury goods of mainlanders inspired him to set up his own business - a website selling luxury goods with big discounts. The result was vipstore.com, established in December 2009 and which has since become one of a dozen or so similar websites that have appeared in recent years to capture Chinese consumers' fast-growing appetite for high-end, high-priced products.

The luxury goods market on the mainland, which has been growing by more than 20 percent annually in recent years, is expected to exceed revenues generated by the sector in Japan, to become the world's second-biggest luxury goods consuming country within five years, according to a report by management consulting firm Bain & Co.

Consumer spending by mainlanders on luxury bags, footwear, cosmetics and apparel will reach a record 84 billion yuan (HK$100.88 billion) this year, according to estimates in the report. That does not include their consumption abroad, which will probably be much higher than inside the country.

"Luxury goods are not something for rich people. A receptionist can own an 'LV' handbag, and it will be easier for her to have one if she shops on our site," said Yang.  

The 32-year-old entrepreneur said price was the most important reason for people to buy luxury products on his site. His company has a team buying goods directly from luxury brand companies in Europe and the United States. Since the products will be one or two seasons out of date, they can be offered at lower prices.

For example, a beige Prada leather satchel is priced at 6,190 yuan on Yang's website - half the retail price in mainland shops. A Hermes watch with a stainless steel case and leather strap is offered at 28,600 yuan although it costs 48,000 yuan in shops. Sunglasses made by Fendi, Zegna and Emilio Pucci are on sale for 1,000 to 1,300 yuan each - 70 per cent cheaper than in-store prices.

Convenience is another reason for the fast growth of his website, said Yang. While most big-brand shops are located in major or second-tier cities, the internet has attracted many affluent customers living in remote areas.

So far, vipstore.com has accumulated 1.5 million registered users, mostly white collar workers between 20 and 40 years old. Last month the site did 25 million yuan worth of business, up from 20 million yuan in April and 10 million yuan in March. Yang estimates revenue could hit 300 million to 400 million yuan this year.

High growth rates have also been seen on other luxury goods websites, such as glamour-sales.com.cn, vipshop.com, fclub.cn and shangpin.com, several of which have attracted the attention of investors.

Yang's shopping portal gained its third round of investment capital, of no less than US$10 million, from GSR Ventures, Taishan Invest and Green Pine Capital Partners in January. Xiu.com, another leading website in the industry, received US$20 million from KPCB China this year. In April, fclub.cn announced that IDG Capital Partners had injected more than US$10 million into the company.

But despite the increasingly intense competition, Yang is confident he can maintain a leading position for his company.

"The threshold to get into this industry is quite high," said Yang, who modelled his business on the lines of European website buyvip.com. "First of all, you must have a strong team of buyers" who could judge how well a brand would sell at a certain price before placing an order."

Customers must trust that they were buying genuine goods online, he said. His website promises to compensate 10 times the value of the product if consumers can prove it is a fake.

Shopping for luxury goods online is a temptation hard to resist for Amanda Zhao, a marketing manager with a foreign education company in Beijing. A lover of Prada, Miu Miu and Chanel brands, Zhao says she spends more than half of her 25,000 yuan salary every month on luxury goods websites including vipstore.com, and xiu.com. "Things are cheaper on the website. For the same amount of money I can buy one or two more pieces," she said.

She has recently gone online to buy a pair of Chanel camellia slippers, a quilted black leather handbag and a Cartier watch, which cost her a total of 80,000 yuan.

The number of online buyers is increasing, but some analysts believed the internet is still far from a real threat to traditional retail channels. A survey by KPMG auditors earlier this year found that nearly 70 percent of mainland consumers eyeing luxury products used the internet to find information about their favourite brands every month, but only 5 percent showed a serious interest in buying over the internet. Discounts and the convenience of being able to compare products are the major benefits of the virtual world. However, concerns about authenticity, after-sale service and payment security remain big deterrents for many.