Online Luxury

Vipstore.com finds success in targeting China’s growing ranks of luxury consumers

Marketers in China generally believe that the majority of the country’s netizens belong to the young and low-income demographic， and thus are most likely to shop for bargain clothes and shoes on Taobao.com (淘寶). One Chinese e-tailer， Vipstore.com (佳品網(wǎng))， is betting on a contrarian business model. “If you consider Taobao.com as China’s online Wal-Mart， Vipstore.com aims to become the online Shinkong Place，” says Chen Liang， vice president and co-founder of Taishan Angel Fund (泰山天使創(chuàng)業(yè)基金)， which invested the first RMB 6 million (USD 924 000) in Vipstore.com. Yang Peifeng， Vipstore.com CEO， launched the company in September 2009 with several friends including Dong Ce， one of the founders of Zouxiu.com (走秀網(wǎng))， and Robert Yang， a schoolmate who now lives in North America. This is Yang’s third foray into e-commerce. His first was an online service that allowed users to create their own t-shirts that turned out to be unprofitable. The second， Lemonquest， was a service that provided games and other entertainment to mobile phone users. This venture was more successful， growing quickly to more than 100 employees.

While talking with a former classmate， Yang learned about Buyvip， Europe’s leading online shopping community whose business model involved selling top fashion and lifestyle brands at discounted prices of up to 70%. Yang was immediately inspired. “The business model was successful in Europe and other countries， so it certainly can be a success in China too. I want to copy the business model here，” says Yang.

Yang went to Madrid， Spain， to meet the founder of Buyvip， and after three days of discussions he was even more certain that the online luxury retail model could work in China. Meanwhile， Chen Liang， the founder of Taishan Angel Fund， was also keen to find a team that was capable of launching a Chinese version of Buyvip. The founder of Buyvip is also a limited partner in Taishan Angel Fund.

“I was anxious to find a team that could make China’s Buyvip. I met other people who wanted to do this business before， but they weren’t suitable to me，” recalls Chen. “Then I met Yang， who was also my schoolmate， and I thought that I found the right fit. Yang had experience in the e-commerce sector and had set up two companies. Dong knew technology well and he has a PhD from the University of Melbourne. Robert Yang’s wife’s family owned a large factory in China that manufactures clothing for foreign luxury brands. He was familiar with the clothing sector. So I decided to give them support.”

Members Only

Vipstore.com decided to adopt the model of the US-based Gilt Group， which provides invitation-only access to luxury brands at insider prices. Members can purchase luxury goods from the site at a discount rate of at least 30%. Although it’s not hard to register as a user of Vipstore.com， Yang believes the invitation and registration process adds to its appeal by setting it apart from other luxury shopping websites and ensuring suppliers’ privacy.

“On one hand， we are cooperating with top brands that want to preserve their images and don’t want to see their discount information everywhere， which requires us to provide privacy，” Dong explains. “On the other hand， we can better serve our users in the future. Since we have their registration information， we can better communicate with them and provide timely and targeted information.”

In the beginning， Vipstore.com adopted a strategy of combining e-commerce with online networking. Since its launch the site has cooperated with SNS (Social Networking Services) websites in China such as Kaixin001.com (開心網(wǎng)) and Renren.com (人人網(wǎng)). The users of Vipstore.com can easily share the information wittheir friends through the SNS websites. Currently， users can get an RMB 100 bonus if they invite one friend to join Vipstore.com. “Members introduced by their friends are often the most valuable users of Vipstore.com. They have more trust in the shopping platform and are more likely to buy here，” says Dong. According Dong， Vipstore.com will continue to expand collaborations with SNS websites. Furthermore， it will introduce its own fashion SNS community. “Our members can talk about and discuss the products directly on our website，” he says.

The key to fast growth is to gain the trust of Internet users. The quality and authenticity of products sold online is often in question， especially with luxury products. “People are quick to question whether the commodities are truly produced by the luxury brands， so we are working with China United Insurance (中華聯(lián)合保險公司). All our goods are covered by the company. Furthermore， we offer buyers the right to return the products they buy for any reason within seven days， which can give them more confidence in us，” says Yang.

Enhancing Supply Chain

The total consumption of luxury goods in China reached USD 9.4 billion by the end of 2009， making China the world’s second largest market for luxury goods. It’s expected that in the next five years consumption of luxury goods in China will reach USD 14.6 billion， and that China will soon become the world’s top market for luxury goods. Thus many e-commerce companies are trying to figure out how to get their share of this lucrative market.

“To deal with many competitors， maintaining a superior international supply chain is the key factor for us，” says Dong. “Many people questioned whether we could do this at the beginning because they believed it’s very difficult to develop cooperation with those famous brands and trading companies， but what we do is to build the website first， then we continually to talk with every brand. Now we have established a good relationship with many international brands， which is our advantage compared to others.”

Collaborating with Buyvip helped Vipstore.com get authorization from 500 international brands. Vipstore.com currently has offices in the US， Europe and Hong Kong and has hired some professional buyers. “Knowing how to pick the right products is very important， it relies on the buyers’ sensibility towards the market and their own judgments. It takes talent，” explains Dong.

The founder of Buyvip also became an investor in Vipstore.com. In January， the Chinese e-commerce company received its the third round of financing， which was led by GSR Ventures (金沙江創(chuàng)投)， and co-invested by Taishan Invest， Green Pine Capital Partners (深圳松禾資本管理有限公司) and a Hong Kong-based consortium. According to Yang Peifeng， the funds raised in this round will be earmarked for business expansion， including enhancing supply chain management and optimizing users’ shopping experiences.

“We already have more than one million registered users， who require more product categories on our website. More categories will be added in the future， like interior design and childcare products，” says Yang. The company also aims to provide more consulting services to customers in the future. The buyers would also like to interact with the customers to better know the interests of Chinese consumers.

Vipstore.com is also actively exploring opportunities in China’s second and third tier cities. According to Dong， COO of Vipstore.com， the company recently organized a special offer for members in Hefei， the capital of Anhui Province， and made RMB 300，000 within three hours. Vipstore.com is planning to expand its business in 50 to 60 second and third tier cities in China this year. “It’s critical to grasp the opportunity right now and build the company big and strong as fast as possible，” says Chen Liang. “When the company reaches a certain scale， it will be secure.”