UPSTARTS

China International Business | May 2010 27 26 China International Business | May 2010 China International Business | May 2010 27 26 China International Business | May 2010

by TOM SPENDER

It may not be happening fast enough for some in the US, but Chinese consumers are beginning to save less and spend more

on higher-end goods – and few companies are riding this wave better than Internet retailer Wooha.com.

Founded in 2006, Wooha has a simple premise: it sells high fashion, including lines not available on the Chinese mainland, to increasingly wealthy consumers across the country.

Yet while the idea is simple, making it work is anything but in a vast country with an underdeveloped and expensive logistics infra-structure. But, Wooha’s founder Corey Lien has managed to steer the company to where it is now; growing 35% month-over-month.

“I like to integrate things,” Lien says. “I

Internet retailer Wooha is targeting China’s new rich who want to stand out from the crowd

Selling the Dream

always look for things that might look very odd together, but when you do put them together you get new value and innovation from it.”

Dressed in a crisp striped shirt, Lien

sits behind a large desk in an office with bare brick walls. The constant “sploshing” sound of a rock falling into water signals the arrival of new emails. A serial entrepreneur born in

China International Business | May 2010 27 26 China International Business | May 2010 China International Business | May 2010 27 26 China International Business | May 2010

Taiwan and educated in Canada, the 35-year-old launched his first company at age 17, and at 24 founded HealthTrade, a website matching suppliers of pharmaceuticals with buyers, including hospitals in Taiwan. He led the company to IPO when he was 26, and three years later sold it for USD 50 million.

From there Lien moved into the aspirational lifestyle sector. “Wooha began with lifestyle being the ultimate goal, to allow people to explore and learn about different lifestyles. And fashion is the easiest way to let people understand what London looks like, what people in Japan look like. It’s a first step,” he says.

INDIVIDUALISMOutside Lien’s office, casually-dressed

staffers wander around an open-plan space located in a former industrial park in south-east Beijing. The office was collectively designed by the entire Wooha staff in 2008 — which perhaps explains the pop music playing in the background and the upstairs loft space replete with beanbags, weights and table tennis — and has helped the company live by the same self-determination and individuality that it aims to offer its customers online.

Starting Wooha, Lien bet that greater spending power among Chinese would be accompanied by a desire to stand out more as individuals. Previously, access to sophisti-cated foreign fashions had been restricted to the elite that could afford to travel abroad. In 2006, when Wooha was launched, just 20 million Chinese citizens held passports, about 1.5% of the total population, according to a China Daily article in that year.

To market their idea of culture to Internet shoppers, the Wooha team played around with images, video content and writing in a bid to convey not just the product but also its brand essence. “In the beginning, it was difficult for us to understand what we were talking about,” Lien says. “[In fact,] we are still talking about enjoying life and bringing lifestyle to people. We are still trying to position it on our website. It was tough to make sure the 16 of us [at the company then] were in sync, let alone convince others.”

Wooha got through its first two years of operation without convincing a significant number of buyers, but last year saw what Lien describes as a paradigm shift, and now Woo-ha needs a staff of over 120 to keep up with demand. Customers began to pay well over what Lien and his team thought to be their price ceiling: the company’s biggest order to date was RMB 98,000 for a single bag and a

jacket. “I was like, what?” says Lien. “I wouldn’t buy it myself, to be honest. We put it on the Internet just for show; we didn’t think we would move that item.”

BOOMING MARKETWooha’s popularity is coinciding with a

boom in foreign travel among Chinese, who this year will make 57 million trips to foreign countries — an increase of 15% on 2009 — according to the China Tourism Academy, a think tank for the country’s tourism author-ity. By 2020, about 100 million Chinese are expected to travel overseas, according to the UN World Tourism Organization (UNWTO).

Meanwhile, China’s luxury goods sector passed the US last August to become the second largest in the world according to ana-lysts, behind only Japan, a “key indicator that people are looking for something other than functionality,” Lien suggests.

Wooha estimates it currently has a target market of around 20 million Chinese and growing. Typically, they are professionals between 25 and 40 years-old, have a good income with an annual salary increase of between 10% and 30% – and higher if they switch jobs. “They have a very positive outlook and are doing more spending than saving at this point,” says Lien.

Almost half of Wooha’s customers live in major cities such as Beijing, Shanghai and Guangzhou, but citizens from all over China are buying. About 3% of Wooha’s customers are from Inner Mongolia, and 2.5% are from Yunnan Province in the far southwest of the country. In fact, the further away from the ma-jor cities they are, the more customers spend. “They also ask us for advice: what to buy, what’s going on in the fashion world, do we have any recommendations. People further away want to be engaged,” he says.

DELIVERY COSTSAccording to Lien, Wooha is currently

growing at 30-40% each month. Though he would not give detailed numbers on revenue and profit he says the average Wooha order is worth RMB 3,000. He also says that the ma-jority of the company’s competitors are still trying to squeeze tiny profit margins from selling low-priced goods in an environment where the cost of delivery is actually higher than in places like the US. This is due to a less established logistical infrastructure and a lack of local firms like UPS and FedEx.

“Last year we had lots of competi-tion,” says Lien, “but we are losing some. We like them to stick around because creativity

comes from competition.” But would-be players in the field face a stiff challenge in finding investment to grow their businesses, with the Chinese venture capital industry still in its infancy and investors wary of putting money into companies that have yet to post revenue. While Lien approached investors who had already put cash into his previous ventures, others find it difficult to get money from Chinese banks, which make around 90% of their loans to state-owned enterpris-es, according to Bao Fan, founder of China Renaissance, a Beijing-based investment bank dedicated to helping Chinese entrepre-neurs.

“I’m a total believer in the private sector, I think that those people represent the future of China, but they are not properly served from an investment banking point of view. So underground lending shockingly has been a very important source of capital to companies,” Bao says, adding that entrepre-neurs often have to tap unregulated “grey” lending markets for growth capital. “It’s a lose-lose situation. The company has to pay a very high rate and it’s usually short-term capi-tal. The lenders are taking a lot of risk and are not really protected,” he adds.

BUILDING A NETWORK If Wooha’s achievement so far has been

in bringing the world to China, Lien hopes that as local brands improve their profile abroad he will be able to use his current logis-tics network — he has agreements in place with international delivery firms such as ship-ping giant FedEx — to flip his business on its head and start taking China to the world. That being said, even in China only 20% of the products currently sold are Chinese, according to Lien, with the rest made up of leading foreign brands like Gucci, Dior and Coach.

For the moment, he is biding his time. Chinese brands will only find the consistency they need to be marketable abroad when they are forced to think about the essence of their brands during fluctuations in an economy that is currently registering sustained growth.

“Providing it in reverse is very interesting, very good for China, and some-thing we want to do. I’m waiting for the brands in China to be more sophisticated and consistent,” Lien says. “Right now the brands fluctuate, they do a good product and then change it too fast. They are not yet feeling the pain. China in general is not cheap any more and quality is coming in. But in the fashion world it takes more than just that.” ■

Jeff

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