China’s online market still ripe at home

18-Feb-2014 - Last updated on 17-Feb-2014 at 15:13 GMT

VIPshop, a prominent Chinese flash sales site, has acquired a majority stake of cosmetics e-store Lefeng for $132.5 million, in an expansion which confirms that China’s e-commerce beauty market continues to strengthen.

The move by the country's well-known online discount retailer follows recent expansion into the US by several Chinese companies seeking investment, and suggests the country’s increasingly robust online market is allowing for growth both at home and away.

Online boom

China’s moves of increasing e-commerce dominance fits market forecasts. According to Forrester Research, online retail sales are set to grow from $294 billion in 2013 to $672 billion in 2018, a growth rate of 18%, as China surpasses the U.S. as the world’s largest e-retail market.

According to their report, online retail sales in five of the largest markets in the Asia-Pacific region – China, Japan, South Korea, India and Australia – will soon surpass all e-retail sales in North America and Europe combined.

This growth story is thanks in large part to increasing consumer adoption of portable devices like smartphones and tablets, with consumers in less urban areas in particular driving sales.

Mobile sales taking off

According to a report by online retailer Taobao, consumers from the townships spent an average of 5,628 yuan ($910.7) last year on cosmetics, almost 1,000 more than urban consumers.

“Locale consumers placed an average of 54 orders each on Taobao in 2012, far more than the 39 orders placed by e-shoppers living in China's first- and second-tier cities,” the company said.

Vipshop’s acquisition follows its recent stock value surge of 11% on speculation that increasing mobile-device usage is boosting cosmetics sales.

While nearly 30 Chinese brands have recently announced their intention to seek US investment, VIPshop’s acquisition confirms the industry is retaining its focus on developing the e-commerce market at home too.

Jing Li, chairwoman and founder of Lefeng’s parent company Ovation, commented:

“In this acquisition, both parties stand to benefit substantially from the economies of scale inherent in combining our cosmetic product lines and customer service expertise with Vipshop's customer reach and strong operational capabilities.”