2011-07-11 10:19

BEIJING - Yihaodian.com was neither the oldest nor the biggest online shopping website in China, nevertheless it won Wal-Mart Stores Inc's favor this summer and made the US retail giant a shareholder.

According to Yu Gang, the company's chairman and co-founder, yihaodian.com plans to make the idea of an online supermarket a nationwide phenomenon - at a startling speed.

Wal-Mart Stores Inc has reached an agreement to acquire a minority stake in Yihaodian.com. The agreement endorsed Yihaodian to sell Wal-Mart's self-owned branded products, including Great Value, one of Wal-Mart's most famous food brands in China. [Photo/China Daily]

Currently, the company's stock-keeping unit (SKU), a figure used to indicate the amount of product for sale in a store, is 100,000, five times larger than a normal large-scale supermarket. The company's annual sales turnover in 2011 is estimated to reach 3 billion yuan ($464 million), a sum about 10 times larger than a large supermarket.

However, Yihaodian's annual sales turnover should reach as high as 7 to 10 billion yuan to ensure a profit, said Yu, a 1981 graduate from Wuhan University's department of space physics.

"The speed of expansion is way too slow if we only rely on ourselves," he said.

The average prices for the products on sale at yihaodian.com are 3 to 5 percent lower than in a real supermarket. That's down to the fact the suppliers don't have to rent booths and can use the efficient storage and delivery system Yihaodian developed, Yu said. The company has a research and development (R&D) team of 120 based in Shanghai, and will build a 400-people R&D center in Wuhan by mid-2012.

"Customer experience is the most important index for an online shopping company," Yu said. "We want to make the customers feel as comfortable as if they were sitting at home whenever they make a purchase on yihaodian.com."

According to research into customer loyalty conducted by iResearch in March, 51.2 percent of customers would like to visit yihaodian.com for a second time after their first purchase. This figure was ranked No 3 among all Chinese B2C websites, higher than 360buy.com's 40.5 percent, amazon.cn's 38.2 percent and dangdang.com's 30.7 percent.

In May, Wal-Mart announced that it had reached an agreement to acquire "a minority stake" in Yihaodian. The agreement endorsed Yihaodian to sell Wal-Mart's self-owned branded products, including Great Value, one of Wal-Mart's most famous food brands in China. Moreover, Yihaodian can enlarge its SKU by leveraging Wal-Mart's supplier and logistics resources, Yu said.

"Online sales in China are growing rapidly and are projected to match US online sales in the next few years," said Eduardo Castro-Wright, vice-chairman of Wal-Mart Stores and chief executive officer of Walmart Global eCommerce and Global Sourcing. He said that by investing in Yihaodian, Mal-Mart could continue to establish a presence in China's e-commerce market, and could be a "leading" global multichannel retailer.

The company was established in July 2008, when, Yu and Liu Junling, both former senior executives at Dell Inc, decided to open an online shopping site that provided a full range of products.

That was at a time when 360buy.com, currently one of the most prestigious online business-to-customer (B2C) shopping portals in China, was largely a vending site for electronic devices.

As of July 3, Yihaodian's page views surged by 41.5 percent over the figures for three months ago, and were higher than 360buy.com's 25.4 percent and taobao.com's 17.48 percent rises, said the US Web information company Alexa Internet Inc.

Yihaodian.com has about 1,400 employees, according to a company report released in February. Now the number is more than 2000. It plans to increase the number of employees to between 3,000 and 4,000 this year.

The company also summoned "several hundred" direct-selling shops to enhance its offerings in a faster and more efficient way. Yihaodian has no intention of introducing a customer-to-customer type of sales model on its website over fears of poor product quality and monitoring difficulties.

TouchFashion Jewelry Co Ltd, based in Guangzhou, started to sell its wares embedded with Swarovski lead crystals through Yihaodian in May. About 10 percent of the company's sales come from the platform now, according to Gu Ge, TouchFashion's founder. He expected that by the end of this year, sales volume through Yihaodian could hit 30 percent.

"The price of our jewelry could be 30 to 50 percent lower than competitors because the online shop could save in the cost of renting booths, as well as sales clerks' wages," Gu said, adding that the cost edge generated by online shopping gave his company a bigger say in pricing.

On July 4, Yihaodian's newly built warehouse and distribution center in Wuhan, the most populous city in Central China, was put into operation. Another equivalent warehouse will be ready in Chengdu, in Southwest Sichuan province, by mid-July. The other two warehouse and distribution centers in Northwest Xi'an and Northeast Shenyang are expected to open by the end of this year.

The new distribution centers will help Yihaodian to explore the inland market, Yu said, adding that his goal was to have more than 1 million different commodities on sale on the website in the next two to three years.