Vancl Beneficiary Of China’s Massive E-Commerce Growth

With more than 485 million internet users, China’s internet population exceeds the entire population of the United States. According to a BCG report, The World’s Next E-Commerce Superpower, China will be a leading player in e-commerce adoption. In 2006, less than 10% of the country’s Internet users purchased goods and services online. In 2010, that number had increased to 23% and is expected to nearly double to 44% by 2015. China is expected to add 30 million e-consumers each year through 2015, and e-commerce in the country will account for 7.4% of its retail sales by 2015. Not only is the retail giant, Alibaba, stepping up efforts to capture this growing market, but other Internet players in the country are also planning their IPOs to fund the required growth for their operations. Below is an infographic showing China’s internet growth, courtesy of BCG.

Vancl’s Financials
Beijing-based Vancl.com is one player cashing in on China’s Internet growth. The company was founded in 2007 by Chinese entrepreneur Chen Nian. Today, the company sells fashion apparel, shoes, and accessories at low to mid-range prices. Vancl uses two B2C sites in China – Vancl.com and Vjia.com. Vancl.com is their proprietary brand fashion label and Vjia.com is their open platform to sell other well-known brands of clothing, makeup, and home accessories.

iResearch estimates that Vancl was the fifth-largest online retailer in China with nearly 1.2 billion RMB (~$190.7 million) in revenues in 2010. That is significant growth over 2008 revenues of 120 million RMB (~$19.1 million and 2009 revenues of 300 million yuan (~US$47.7 million) in 2009. The company expected much stronger growth last year and was looking for revenues of 10 billion RMB (~$1.58 billion) in 2011. Vancl management recently revealed that they were doing 50,000 orders per day grossing revenues of 10 million RMB (~$1.58 million). Although revenues may be strong, Vancl has lost 250 million RMB (~US$39.7 million) over the past three years and reported a loss of 15% in 2010. In 2011, their losses are expected to increase by 600 million RMB (~$95.3 million).

Vancl has received investments from several firms, including IDG, SAIF Partners, Ceyuan Ventures, and Qiming Venture Partners. Last year, they were expected to launch an IPO on the U.S. stock exchanges to raise $0.75 billion-$1 billion, pegging their valuation at $3 billion. However, the IPO was delayed because of the weak market and what analysts believe was their trying to improve the financial position of the company before the IPO.

Vancl’s Expansion Plans
Although Vancl continues to deny their excessive losses, they are revisiting their cost structure. In September 2010, they had a large-scale lay-off to downsize by nearly 5% of their staff to manage costs better. In addition, Vancl launched an open platform for developers and released the first batch of open application program interfaces that includes commodity, user, and marketing systems. Vancl hopes that the opening of these platforms will help developers absorb Vancl’s products in multiple marketing networks and that the company will be able to earn commissions from sales through the developed apps.

Vancl is also considering international expansion and recently launched an English-language site as a first step to such a move. They are also expanding within China by growing in the country’s second- and third-tier cities.