Online beauty products retailer claims 22 pct market share

Jumei International Holding Ltd, China's largest online retailer of beauty products by volume, filed over the weekend with the US securities regulator to raise up to $400 million in an IPO.

Operating through its website jumei.com, the Beijing-based retailer sells beauty products and perfumes.

Jumei boasts of having a market share of 22.1 percent in China's online beauty products retail segment, as well as 10.5 million active customers and 1,700 suppliers in 2013, according to its prospectus filed with the US Securities and Exchange Commission (SEC) early Saturday Beijing time.

The retailer plans to raise up to $400 million through its IPO for general corporate purpose, without specifying how many shares it is going to issue.

"It is now a good time for Jumei to get listed in the US, especially ahead of Chinese Internet giant Alibaba, to woo the American investors," Huang Yuanpu, founder of iyiou.com, an e-commerce market intelligence provider, told the Global Times on Sunday.

The appetite of American investors for Chinese technology stocks has resumed since 2013 after a raft of accounting scandals drained Chinese technology firms' US listings in 2011.

Alibaba said in mid-March that it will go public in the US with an IPO expected to exceed Fackbook Inc's $16 billion offering in 2012. Alibaba has not filed the application with the SEC yet.

Jumei outperforms jd.com, China's second largest online retailer by sales volume in terms of profit. Jd.com, which reported a net loss of 50 million yuan ($8.13 million) in 2013, already submitted an IPO filing with the SEC on January 30 and plans to get financing of up to $1.5 billion.

Jumei made a $4 million loss in 2011, but managed to turn a profit in 2012 with $8.1 million, and more than tripled the net profit to $25 million in 2013, according to its prospectus.

Jumei's high net profit growth is mainly attributed to its well controlled marketing expenditure, Huang said.

The marketing expense of the beauty products retailer is about 12.2 percent of its sales revenues in 2013, much lower than the e-commerce average of 20 percent of marketing expenses, he noted.

Jumei's smaller rival lefeng.com had a gross profit margin of about 30 percent, higher than Jumei, yet it reportedly made a loss of 150 million yuan in 2013, as a result of loosely controlled marketing and management expenses, according to iResearch Consulting Group.

The strong performance of Jumei is driven by the robust growing demand for cosmetics products in China as well as the higher profit margin of the makeup products, Lu Zhenwang, CEO of Shanghai Wanqing Commerce Consulting, told the Global Times on Sunday.

The online cosmetics retail market in China is expected to reach $6 billion in 2018 from $4 billion in 2013, with an annual growth of 33 percent, according to consulting firm Frost & Sullivan.

Most of Jumei's customers are price-sensitive women, and the competition on the online beauty products retail market will intensify, Lu said.

New York Stock Exchange-listed fashion retailer Vipshop bought a 75 percent stake in Jumei's smaller rival lefeng.com, in February for $132.5 million.

The acquisition of Lefeng will enable Vipshop to compete against Jumei in the online beauty retail market, he said.

Though Jumei has shown a good financial result, fake product scandal also plagues the online retailer. The e-commerce company could face lawsuit brought by the American investors if it does sell knock-offs, Ding Daoshi, deputy managing editor of IT website sootoo.com, told the Global Times on Sunday.

Lefeng is very smart because it sold itself to already listed Vipshop therefore avoided the potential legal risk, he noted.

Another potential pitfall is Jumei's financing target of $400 million, Ding said. Ding believes that Chinese Internet firms, including Qunar, Youku and Qihoo, are better performing than Jumei, yet they raised an average of less than $200 million each for their IPOs in the US. Jumei's overestimated financing target may lead to a fall in its IPO debut.