eBay (NASDAQ:EBAY) is expanding its presence in China by launching eBay Style in partnership with luxury retailer Xiu.com. The arrangement will make available fixed-price listings from top rated sellers in the United States to Chinese shoppers through the website ebay.xiu.com. The listings will be limited to fashion and accessories.
The company will have plenty of competition with the two market leaders Alibaba’s taobao.com and 360Buy.com together commanding 57% market share. The Chinese e-commerce market was worth more than US$120 billion in 2011, a 53.7% increase from 2010. The company’s PayPal business is already present in China and e-Bay, over a period of time, can gain a prominent position on combined strength of Marketplaces and PayPal.
China has become a key market for e-commerce with Internet firms due to the growing popularity of online shopping. The number of Internet users in China is estimated at 500 million and eBay Style targets only a small segment of that – an estimated 15-20 million young, affluent locals that are part of the growing Chinese middle class. The inventory primarily comprises western brands such as Michael Kors Holdings Ltd. (KORS) and Coach Inc. (NYSE:COH). The move follows the company’s impressive sales growth in China. According to eBay Vice President Melanie Tan, the company has seen a 40% year-on-year increase in goods bought by Chinese consumers navigating eBay.com in English.”
As per the arrangement, eBay merchants will send purchased goods to a warehouse in Dallas from where they will be shipped to China. A team of 800 at Xiu.com with expertise in importing into the country will help translate the site into Chinese and also handle sales, shipping and customer service.
eBay will however find it tough to grow in the country as the other competitors have a physical presence which means their customers receive goods within 2-3 days. For eBay Style customers, the wait will be longer as the products will be shipped from the U.S. Also the domain ebay.xiu.com may find it tough to gain traction and can be perceived as a service secondary to Xiu.com. Further, if the company decides to expand into other product categories through a similar route, it might have to forge tie-ups with other companies.
This attempt by eBay is in part to sustain growth by expanding into new markets where it has limited or no presence. A presence in China will give eBay access to the country’s 500 million Internet users and its growing e-commerce market which is expected to reach $350 billion in the next four years as the Internet reaches rural areas. Currently at a nascent stage, China could turn into a big business for the company over the next decade as it makes cautious moves to not repeat its previous misadventure.
We currently have a $50 Trefis price estimate for eBay, which is at par with the market price.