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China’s Shangpin Launches Full-Price Luxury Site

The e-commerce site provides Chinese consumers with access to current-season designer and contemporary fashion from nearly 80 Western brands.

Shangpin launches its full-price designer luxury site today, targeting high-end shoppers in China who already are familiar with its flash-sale operation.

The launch provides Chinese consumers with access to current-season designer and contemporary fashion from nearly 80 Western brands. The aim of Shangpin is to provide a means of distribution to smaller high-end designer brands that would otherwise have a difficult time penetrating the luxury consumer market.

Some of the brands represented include Balenciaga, Celine, Chloé, Fendi, Gucci, Milly, Mulberry, Prada, Tod’s and Tracy Reese.

Shangpin was founded in 2010 as a flash-sale site by David Zhao, who is also chief executive officer. Although the flash-sale site is still in operation, access is now through aolai.com, which in Mandarin sounds similar to the English word outlet. The revamped Shangpin site includes a tab on the site that consumers can click to be redirected to the flash-sale page.

While Zhao’s background is in e-commerce and Internet technology, it was his connection to the banking industry that provided an interesting twist in the original business model.

Zhao formed a strategic alliance with three leading Chinese banks: China Construction Bank, Huaxia Bank and Minsheng Bank. The flash-sale site was marketed as a rewards benefit for premium credit card holders, giving it leverage on the credibility front. Given the VIP database, that quickly ramped up the flash-sale site’s customer pool to over 2.4 million users. Moreover, due to the high net worth of the individuals, Shangpin can also boast that it has the highest average transaction cart: Zhao said the typical online site averages $31 per transaction, whereas the Shangpin site averages $470.

To keep the same customer pool as its flash-sale site, the company launched the full-price one under the Shangpin site, using the new tab for the flash-sale operation. Unlike other sites such as Xiu.com, Vipshop.com, Taobao.com and Tmall.com, both Shangpin operations sell only Western brands.

According to Zhao, everything arrives in two days courtesy of Federal Express at no extra charge to the consumer, and returns are free but need to be done within seven days.

“Thirty percent of our customers are cash-on-delivery,” he said.

By that he means that the firm decided to offer COD as an option to gain consumers’ trust, figuring that there’s not a whole lot of risk since the shoppers were already vetted by the banks.

M. Claire Chung, vice president for global business development, said, “There’s also a messenger option [where they] wait as part of the COD service.”

For consumers living in the larger cities, some choose COD and the messenger service so they can try on their purchase before paying for their order.

Given that there’s still much to be done on the infrastructure front in the second- and third- tier cities before the buildup of shopping malls and retail shops, Chung said there’s room for expanded growth before these cities mature. In contrast, the telecom firms have a deeper penetration in these markets and most consumers do have access to the Internet, many through their smartphones.

“With more than 150 cities [each] with 1 million in population in China, how could a brand from overseas know how to access the people? That’s a pretty hard obstacle, but with the Internet, it’s not a problem,” Zhao said.

“For smaller designer and contemporary brands, expanding into China poses a number of obstacles that are difficult to surmount without the help of an experienced Mainland marketing and merchandising expert like Shangpin,” said Michelle Smith of Milly by Michelle Smith.

According to Zhao, the company has secured $60 million in two rounds of fund-raising. Institutional investors are Chengwei Capital, Disney’s Steamboat Ventures and Morningside Ventures.

Jennifer Yan, a partner at Steamboat, said her firm invested in Shangpin because of the distribution premise. “It is costly for leading brands to set up in the tier-one cities, and even harder in the tier-two and -three cities,” she said.

Shangpin isn’t the only home-grown firm looking to capture market share in the growing market for Western brands.

Xiu.com, which has a distribution agreement with Karmaloop for a shop-in-shop on its site, is also on the prowl for more brands. The firm hired Andreas Kurz of Akari Enterprises to help it add new brands to the site.

According to Xiu, the China online market had over 500 million users in 2011, with about 170 million classified as online shoppers.