We estimate that we will receive net proceeds from this offering of
approximately US$61.9 million, or approximately US$71.9 million if the
underwriters exercise their option to purchase additional shares in full, after
deducting underwriting discounts and commissions and US$4.6 million in
estimated offering expenses payable by us.
The primary purposes of this offering are to create a public market for our
shares for the benefit of all shareholders, retain talented employees by
providing them with equity incentives, and obtain additional capital. We plan
to use net proceeds of this offering as follows:
• approximately US$50.0 million to fund capital expenditures for expanding
our fulfillment capabilities;
• approximately US$3.0 million to fund capital expenditures for further
enhancing our IT systems; and
• the balance for general corporate purposes, including funding working
capital and potential investments in and acquisitions of complementary
businesses, although we are not currently negotiating any such
transactions.
The foregoing represents our current intentions based upon our present plans
and business conditions to use and allocate the net proceeds of this offering.
Our management, however, will have significant flexibility and discretion to
apply the net proceeds of this offering. If an unforeseen event occurs or
business conditions change, we may use the proceeds of this offering
differently than as described in this prospectus. To the extent that a certain
portion or all of the net proceeds we receive from this offering are not
immediately applied for the above purposes, we plan to invest the net proceeds
in short-term interest-bearing debt instruments or bank deposits.
In using the proceeds of this offering, as an offshore holding company, we are
permitted under the PRC laws and regulations to provide funding to our PRC
subsidiaries only through loans or capital contributions and to our PRC
consolidated affiliated entity only through loans, subject to satisfaction of
applicable government registration and approval requirements. Capital
contributions to our PRC subsidiaries must be approved by the PRC Ministry of
Commerce or its local counterpart and then registered with the State
Administration for Industry and Commerce, or SAIC, or its local counterpart.
The PRC Ministry of Commerce or its local counterpart is generally required to
process the relevant approvals or deny our applications within 90 working days
and SAIC or its local counterpart is required to process the relevant
registrations or deny our applications within 15 working days. Loans extended
by us to Vipshop China cannot exceed statutory limits and must be registered
with SAFE or its local branch. The SAFE or its local branch is required to
process the relevant registrations or deny our applications within 20 working
days. The actual time taken, however, may be longer due to administrative
delays. We cannot assure you that we will be able to obtain these government
registrations or approvals on a timely basis, if at all. If we fail to satisfy
these requirements on a timely basis, our ability to remit the funds received
from this offering to capitalize our PRC operations may be negatively affected,
which could adversely affect our liquidity and our ability to fund and expand
our business.
The online flash sales market, as one of the fast-growing categories of the
e-commerce market in China, is rapidly competitive and rapidly evolving. Our
primary competitors include: B2C e-commerce companies that sell similar
products and services online, such as Taobao Mall, 360Buy and Dangdang, and
other online flash sales companies.
We believe we compete primarily on the basis of:
• ability to identify products in demand among consumers and source these
products on favorable terms from brands;
• pricing;
• breadth and quality of product offerings;
• website features;
• customer service and fulfillment capabilities; and
• reputation among consumers and brands.
We believe that our early mover advantage and leading market position help us
to compete efficiently against our competitors. However, some of our current
and potential competitors may have longer operating histories, larger customer
bases, better brand recognition, stronger platform management and fulfillment
capabilities and greater financial, technical and marketing resources than we
do.
Company Description
We are China’s leading online discount retailer for brands as measured by total
revenues in 2010, the number of registered members as of June 30, 2011 and the
number of monthly unique visitors in December 2011, according to the Frost &
Sullivan Report. We offer high-quality branded products to
consumers in China
through flash sales on our vipshop.com website. Flash sales represent a new
online retail format combining the advantages of e-commerce and discount sales
through selling a finite quantity of discounted products or services online for
a limited period of time. Since our inception in August 2008, we have attracted
a large and growing number of consumers and popular brands. We had 12.1 million
registered members and over 1.7 million cumulative customers and promoted and
sold products for over 1,900 popular domestic and international brands as of
December 31, 2011.
Our business model provides a unique online shopping experience for our
customers. We offer new sales events daily with a curated selection of popular
branded products at deeply discounted prices in limited quantities during
limited time periods, creating the element of “thrill and excitement”
associated with our unique customer shopping experience. Our strong
merchandizing expertise enables us to select the brand composition and product
mix of our daily sales events that appeal to our customers, which mostly
consist of urban and educated individuals in China who are seeking lifestyle
enhancements. We have built a highly engaged and loyal customer base that
contributes to our sales growth, while also enabling us to attract new
customers primarily through word-of-mouth referrals. A majority of our
customers have purchased products from us more than once. Our total number of
repeat customers was 14 thousand, 0.2 million and 0.9 million in 2009, 2010 and
2011, respectively, representing 36.8%, 56.2% and 60.6%, respectively of the
total number of our active customers during the same periods. Orders placed by
our repeat customers accounted for 66.2%, 86.7% and 91.9% of our total orders
during the same periods.
We are a preferred online flash sales channel in China for popular domestic and
international brands. We believe that well-known and popular brands are
attracted to our website and services because of our ability to monetize large
volume of their inventory in short periods of time, increase consumer awareness
of their brands and products, reach potential customers throughout China, and
fulfill their demand for customer data analysis and inventory management. Among
the 1,900 brands who have promoted and sold products on our website,
substantially all of them have returned to pursue additional sales
opportunities with us. To date, we have the exclusive rights to sell selective
products from over 360 brands.
We strive to optimize every aspect of our operations as we continue to grow our
business. We generally have the right to return unsold items for most of our
products to our brand partners. Our logistics operations and inventory
management systems are specifically designed to support the frequent sales
events on our website and handle a large volume of inventory turnover. We use
both leading delivery companies with nationwide coverage and quality regional
couriers to ensure reliable and timely delivery. We have developed our IT
infrastructure to support the surge of visitor traffic to our website during
the peak hours of our daily flash sales. We believe that our efficient
operational and management systems combined with our robust IT infrastructure
set a solid foundation for our continuing growth.
We began our operations in August 2008 and have grown significantly since then.
In 2009, 2010 and 2011, we fulfilled over 70 thousand, over 0.9 million and
over 7.2 million customer orders, respectively, and we generated total net
revenues of US$2.8 million, US$32.6 million and US$227.1 million, respectively.
In 2009, 2010 and 2011, we incurred net losses of US$1.4 million, US$8.4
million and US$107.3 million, respectively. Our net loss in 2011 reflected non-
cash share-based compensation expenses in an aggregate amount of US$73.9
million.
PRC laws and regulations currently limit foreign ownership of companies that
provide internet-based services, such as our online retail business. To comply
with these restrictions, we conduct our online operations principally through
our variable interest entity, Guangzhou Vipshop Information Technology Co.,
Ltd., or Vipshop Information. We face risks associated with our corporate
structure, as our control over Vipshop Information is based upon contractual
arrangements rather than equity ownership.
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Our principal executive offices are located at No. 20 Huahai Street, Liwan
District, Guangzhou 510370, the People’s Republic of China. Our telephone
number at this address is +86 (20) 2233-0000. Our registered office in the
Cayman Islands is located at the office of International Corporation Services
Ltd., P.O. Box 472, 2 nd Floor, Harbour Place, 103 South Church Street, George
Town, Grand Cayman, KY1-1106, Cayman Islands. Our website is www.vipshop.com.
Our agent for service of process in the United States is Law Debenture
Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New York,
New York 10017.