Jumei sits pretty with flash sales

May 12, 2014 09:27
China's cosmetics market is tipped to grow 14 percent annually over the next few years. Photo: Bloomberg

Jumei {聚美優品}, which claims to be the largest e-tailer of beauty and cosmetics products in China, had last month filed for an IPO in the United States. The offer, which could be completed next week, has clashed with the mega share sale of e-commerce behemoth Alibaba in terms of timing. Thus, Jumei has decided to scale down its fundraising to around US$235 million, 41 percent less than the original plan.

It is a wise move, as most of the money in the market will be funneled away by Alibaba -- which could raise anywhere between US$10 billion and US$20 billion in its IPO. With online mall operator JD.com also gearing up for its float in the coming weeks, caution is definitely warranted, especially as the so-called new economy sector is in a correction phase right now.

Supporting its share price by limiting the stock supply could leave a good impression among investors. "Jumei can always use other ways to fund itself, like issuing stock once the market sentiment recovers," financial news site Yicai.com quoted independent analyst Li Chengdong as saying.

This is workable given the sound financial status and business model of the company. Jumei is the only e-tailer in China that has posted profits for seven consecutive quarters before going public.

The company has introduced a new e-tailing model called 'flash sales' and achieved great success with that. The concept basically involves recommending a group of popular cosmetics every day, and selling limited quantities of those products at discounted prices, putting hunger marketing and group buying into play. 

The flash sales function is only offered through the mobile app of Jumei, which indicates the importance of the mobile e-commerce business. According to the latest data, 49 percent of Jumei's transaction is made through mobile platforms.

The cosmetics that are provided in flash sales are in real bargain. For example, a box of Christian Dior Pore Refining Compact which normally retails for 540 yuan (US$86), is offered at 369 yuan through Jumei website, translating into a 32 percent discount. But if the powder box is on promotion for flash sales, the price would be further lowered by half, costing the buyer as little as 184.5 yuan.

No wonder young girls are going crazy about the flash sales. Jumei's Customer retention rate is 89 percent, which is way higher than the industry average of 50 percent, according to ecommerce research institute iResearch.

However, not everyone can enjoy the crazy sale. First of all, you need to become a Jumei member and gain a flash sales qualification from friends who have been successfully buying products from the firm's batch sales.

When one accesses Jumei's website through the personal computer, the front page clearly shows what hot items are being offered on the day, the discount, the time left for order taking and the volume of the already concluded sales.

Through the mobile app, Jumei goes one step further and releases a new discounted product with very limited stock every 30 seconds. One has to be real fast to be able compete with other buyers. If you are that lucky in bidding for one of the special price cosmetics, a page will come up on the screen saying "Congratulations! You are beating [xxx] buyers for this purchase", which makes the experience more exciting. The 'xxx' would be the number of buyers that had already bought that product. 

Want to sit pretty in this bidding competition? No problem, just pay and upgrade your membership to platinum or diamond.

Combining mobile ecommerce and flash sales has proved to be a feasible strategy for Jumei, and there is plenty more room for growth. According to Frost & Sullivan, China's cosmetics industry has seen its sales reach US$37 billion last year. The consulting firm believes the industry can grow 14 percent annually for the next few years; so sales may reach US$71 billion in 2018.

Jumei's shareholders are optimistic about the company's future. Sequoia Capital and K2 Partners, which hold 18.7 percent and 10.3 percent stakes respectively, have said they will not sell any shares in the IPO. Singapore private-equity fund General Atlantic decided to join the league this week, investing US$150 million to become a cornerstone investor in Jumei.

-- Contact the writer at [email protected]



EJ Insight writer