Venture capitalists are banking on China’s cravings for luxury goods and have been funding online luxury goods purveyors to capitalize on this highly desirable market.
Investors are betting that China’s new shoppers will spend time at virtual malls as much – if not more – than actual ones given new purchasing power arising from higher wages in coastal cities and more industrialization in the interior regions.
The list of venture capitalists making investment continues to grow:
- Kleiner Perkins Caufield & Byers China recently announced a $20 million investment in the Shenzhen-based luxury online store, Xiu.com.
- Sequoia Capital invested $10 million in the group-buying cosmetics seller, Jumei.com.
- GSR Ventures and DT Capital were part of a new round of funding of at least $25 million for online clothing retailer, Moonbasa. GSR Ventures led a $20 million round of financing for the company last June.
Even though e-commerce has been growing at an astounding rate of 60% a year for the past several years in China, its penetration rate is still only one-third, according to Yuval Atsmon, partner at McKinsey & Co. Shanghai.
“People are getting more confident shopping online and people are attracted to the convenience and selection that they don’t have in second- and third-tier cities,” said Atsmon.
One demographic group embracing both the Internet and shopping that’s particularly attractive for online retailers is China’s new upper middle class, who make between 100,000 yuan (about $15,000) to 200,000 yuan a year.
“That population was negligible, now it’s about 10 million households,” said Atsmon. “By 2015 it will be 76 million households.”
Atsmon thinks there is sustainable momentum driving the e-commerce growth in China. So it’s no surprise that the smart money has arrived in force.
photo credit: xiu.com