Jumei’s Big Beauty Profits Attract U.S. Venture Capital

    The success of cosmetics e-tailer Jumei's beauty flash sales model has prompted it to join several Chinese sites filing U.S. IPOs.
    Cosmetic e-tailer Jumei joins the ranks of Alibaba Group and Sina Weibo by filing for a U.S. IPO recently. (Jumei)
    Shuan SimAuthor
      Published   in Retail

    Cosmetics e-tailer Jumei joins the ranks of Alibaba Group and Sina Weibo by filing for a U.S. IPO. (Jumei)

    Chinese cosmetics e-tailer Jumei joined the bandwagon of Chinese online merchants with U.S. IPOs by announcing its filing on April 11. Jumei’s successful “batch sales” model in China has attracted investments from American venture capital company Sequoia, and it announced it will raise up to $400 million but did not disclose which exchange it will be listed on.

    This puts Jumei in the ranks of other Chinese online company giants with plans to be listed on American exchanges. E-commerce giant Alibaba Group, competitor, and Chinese micro-blogging service Sina Weibo have all turned in their filings. Just as Chinese companies are eager to expand into American exchanges, U.S. venture capital firms are recognizing their potential, and are more than happy to invest in them.

    Claiming to be China’s largest online beauty retailer, Jumei states that it has a 22.1 percent market share and saw 10.5 million customers in 2013, with reported sales of $483 million. One of Jumei’s biggest investors in its U.S. IPO is Sequoia Capital, which invested more than $10 million in Jumei’s venture for a 19 percent stake in the company.

    Founded by Chen Ou and Dai Yusen in March 2010, Jumei claims to have pioneered the “batch sales” concept in China—every day the site recommends a group of popular cosmetics, which are sold in limited quantities and at a discounted price. These offers are also time-limited, so consumers have to move fast, while stocks last. Since imported cosmetics are one of the most heavily taxed retail items in China, these discounted options—which come with an authenticity guarantee—are well-received by Chinese consumers. In addition to big international cosmetics brands like Clinique and Estée Lauder, Jumei also frequently features less well-known brands in its deals.

    Jumei is a B2C venture (Business to Customer), as Alibaba’s Tmall is, meaning it acts as a middleman that ties brands directly to consumers. Alibaba’s Taobao, another popular e-commerce site, is C2C (Customer to Customer), where the vendors are regular people or small companies. However, unlike Tmall and Taobao, which sell a broad range of products, Jumei’s services are predominantly targeted at women; offering cosmetics, apparel, leatherwear, and small appliances.

    To differentiate itself from other online marketplaces, Jumei tries to foster communication between users with not only showcases but also a “Word of Mouth” exchange, where users can recommend their brands and show off what they use. This allows Jumei to evaluate which brands are popular, and to be aware of the brands key opinion leaders (KOLs) are using.

    Re/code and Tech Crunch have reported that similar American-based flash sales companies, such as Gilt Groupe and Groupon, have reported modest performances recently, but Jumei seems to have no problem attracting capital from American investors. Gilt Groupe, which declined to reveal exact revenue, has delayed its initial plans for a 2013 IPO and listed company Groupon doesn’t expect its profitability to grow much this year. While Jumei is not going to be operating in the United States and is merely raising capital, its mobile-intensive model and strong consumer-focused strategy seem to be gaining investors’ confidence.

    Mobile technology is key for flash sales in China—it accounted for 49 percent of Jumei’s transactions. Chinese flash sales competitors are quickly making the move to mobile too, such as Glamour Sales adapting its content to be mobile-friendly. With China’s immense and rising mobile internet penetration, many investors believe that Jumei’s focus on delivering deals via a mobile phone is the right move in the future.

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