Prada to the people
Beyond Beijing, Shanghai, Shenzhen and Guangzhou, the mainland is a luxury-label wasteland. You cannot find high-end malls or boutiques that sell the branded goods sought by mainland shoppers, which is why so many come to Hong Kong.
Enter Shangpin.com. The luxury goods web retailer brings the brands to the hinterland. Consumers order online and wait for delivery.
The site is a hit. After two years of operating, Shangpin.com generated 200 million yuan (HK$245 million) in sales last year. The firm employs more than 400 people, mostly in its Beijing complex. Founder David Zhao Shicheng says the firm does a number of things right.
First, it works to establish trust with clients. People are wary of shopping online. It is an act of faith to send credit card details to a start-up web vendor. Shangpin.com offers dependable, timely delivery via courier. Clients can return goods without charge, and are even invited to take items on a trial basis.
'We are in the business of selling and achieving trust with brands and buyers. That's a challenge in China, where there is little social trust,' says Zhao.
At launch, Shangpin.com was the mainland's first online retailer to sell authorised merchandise at full price. This endeared it to branded goods firms, and also differentiated the site from the hundreds of other mainland internet vendors selling discontinued, used or fake goods.
Mainland clients, who are often unsure whether they are getting counterfeits, have gravitated to the concept of using an authorised vendor that sells genuine articles, even if it means paying a lot more.
Shangpin.com's sweet spot is second-tier cities, which all suffer from a luxury-goods shortfall. Zhao says they lack upscale malls, so luxury labels have no retail space to sell their goods. Shangpin.com addresses that gap. Its virtual mall gives residents of second-tier cities access to branded goods.
'There are more than 50 cities with [a combined population of] over 50 million people to sustain luxury brand sales. Only an internet-based distribution system can create access for retailer and buyer,' says Zhao.
Shangpin.com strives to be more than just an eBay for labels. The site posts commentary on fashion and trends. It tries to create an engrossing user experience 'where young buyers can find fashions that express their identity', says Zhao.
After graduating from the Beijing Institute of Technology with a computer science degree, Zhao worked for IBM and Hewlett-Packard as a software engineer. In 2000, he immigrated to Vancouver and joined a start-up real estate listing firm called move.com.
'Working for IBM and Hewlett-Packard taught me about the value of team culture. Joining move.com was a way to channel my creative and entrepreneurial values,' says Zhao.
While he was working at move.com's Seattle offices, a friend invited him to a seminar hosted by Amazon chief executive Jeff Bezos. 'Bezos inspired me and many others with his vision, his commitment to business-to-consumer business and how he explained the way he would grow Amazon. He was so devoted to not letting Amazon be bought and [then] vanish like so many internet companies from that era.'
Zhao returned to Beijing in 2005. He sold his shares in move.com and used the money to start vansky.cn, an internet store that lets credit-card holders redeem loyalty points for goods. Vansky capitalised on a boom in credit-card use in the mainland, and on banks' willingness to outsource this bonus-point-redemption function. 'Banks want e-commerce earnings, but don't want to run the business.' Through friends, Zhao met venture capital firm Morningside Ventures, which also invested in Vansky and later, Shangpin.com.
Zhao sold his stake in Vansky, which continues as a business, and used the capital to start Shangpin in 2009. He launched the site in 2010. Competition is always lurking but large foreign sites such as eBay, net-a-porter and Amazon have not been able to repeat their European and US successes on the mainland.
'China is a big country with diverse consumer groups. A company needs to hire the right merchandisers who can decide the right product mix and marketers who understand the quickly evolving tastes. Decision-making must reside on the mainland. The decision-making process in foreign companies is simply too long,' says Zhao.
Shangpin has raised US$70 million from Morningside Ventures (an investment arm of Hong Kong's Hang Lung Properties), Steamboat Ventures (an investment arm of The Walt Disney Company) and Chengwei Capital (a Chinese private equity fund).