Vipshop an alternative to Alibaba

Vipshop (VIPS) is China's leading online discount retailer providing deep discounts on branded products. VIPS does not compete directly with the Chinese internet giant Alibaba but sits inbetween two of their websites. Alibaba's Taobao specialises in cheap but generic to lower end brands while TMall offers products direct from retail brands. VIPS takes the middle road offering high quality brands at discounted prices to its 9.3 million active customers.

Chinese ecommerce market the largest in the world

Chinese ecommerce is one of the fastest growing markets in the world. It has grown so fast that China is now the largest ecommerce market in the world (see chart above). This is amazing given that China only has 45% internet penetration versus the US at 80%. China's online market is growing rapidly with discount and flash sales growing faster. At 10am every day VIPS launches events across its four regional websites each event lasts for 3-5 days with several hundred products.

Buy now or cry later
Their business model of discounted limited time sales is addictive to mobile users who can check products on the go. Customers have to buy then or cry later they won't get a second chance purchase. In July mobile accounted for 52% of total sales. According to JP Morgan VIPS accounted for 8% of the Chinese discount market. In comparison TJ Maxx and Ross Stores have over 38% discount market share. China's retail market is still underdeveloped it does not have the offline discount retail stores like TJ Maxx or DFO here in Australia. VIPS benefits from this growing but competitive market by providing an online inventory clearance channel for brands.

VIPS is a growth stock constrained by warehouse capacity. They currently have total warehouse capacity of 540,000 square meters and are on track to meet their goal of reaching 700,000 square meters by the end of 2016. VIPS has recently made an acquisition in the cosmetics space with ambitions to move into other categories not just apparel. With all the excitement around the upcoming Alibaba IPO investors would do well to consider its discount rival VIPS.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not have a position in Vipshop (VIPS) stock

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.