乐友商城网站

Larry Kung’s career path has had two distinct branches: he used to sell routers and switchboards in China, but now he sells baby products to millions of Chinese households. Kung was one of the original founders of Cisco China. But the former senior IT professional can now list all baby diaper brands without hesitation. He can even tell you which brands are bestsellers, what types of nursing bottles and nipples are on the market, and how to choose the correct products depending on the age of a baby. In addition to electronic engineering, Larry Kung has become an expert in mother and baby products.

As the COO of Beijing Leyou Dakang Technology Inc., Kung now runs a chain store that sells more than 10,000 different products, including maternity dresses, diapers, milk powder, nursing bottles, toys and clothes. Leyou has about 40 stores spread out across Beijing, Tianjin, Shenyang and Xi’an. But Kung expects to have 100 stores in ten cities by the end of the year.

Two years ago, this plan would have seemed impossible even to Kung himself. However, two years is long enough to change a company. In 2006, the mother and infant product market suddenly exploded thanks to the baby boom in the year of “golden pig”, and big new sources of cash. In July of 2007, seven years after its first investment, Leyou received another cash injection of US$11 million from AsiaVest Partners. Thanks to the booming market and the investment, Leyou’s revenues soared by over 300% in 2007. As a result, the company was able to add more stores in cities other than Beijing. This, however, is only the beginning of the company’s plans for the Chinese market.

The new baby boom has hastened China’s mother and baby product market to grow rapidly.

China’s zodiac is represented by twelve animals, which represent the twelve earthly branches and are used to symbolize the year in which a person is born. The year of pig represents good luck, and the most recent year of pig was 2007. However, that particular year was dubbed the “golden pig” year, a rare event that also means a large fortune. According to AC Nielsen, the first quarter of 2006 saw the largest number of newly-weds in China in 20 years. Accordingly, this has led to an increased birth rate for the following year. Consequently, Leyou’s revenues crossed the RMB100 million (US$14.6 million) mark.

This past July, Leyou received a third round of investment totaling US$37 million from AsiaVest Partners and Deutsche Bank, making it the largest investment recipient in China’s baby product industry.

For Leyou, the decision to shift its marketing focus from online to offline sales has turned out to be both lucky and fortuitous.

Larry Kung and his wife, Hu Chao, founded Beijing Leyou Dakang Technology Inc. in 1999. They were hoping to find a way to take advantage of the booming Internet industry. A year later, leyou.com was launched. Kung had hoped that his company could profit from the seemingly large baby product market on the strength of e-commerce. Unfortunately, that same year turned out to be a disaster for the Internet economy. After pulling in its first round of investment, US$3.4 million, leyou.com suddenly found itself on the verge of bankruptcy.

Unlike many Internet sites, Leyou’s e-commerce profit model was specifically positioned: it provided low-priced, convenient products and services. But Kung soon discovered his expectations might have been a little premature. In 2000, the first Internet users in China were mostly in colleges. “Most of the Internet users were not old enough to get married, and those who were old enough for marriage seldom went online. This meant that we had an extremely small customer base,” recalls Kung. Back then, Leyou often had days when it only received a few dozens orders.

While sales remained low, costs remained too high, and customer loyalty was almost nonexistent. If the advertising was stopped, visits to the website would drop significantly. What troubled Kung even more was that customers normally prefer to purchase only well-known brands of diapers, milk powder and other products. However, the more famous the brand is, the less reliant the supplier is on the channel, which left less profit room for Leyou. E-commerce tends to rely on low prices, which results in lower profit margins.

More importantly, unlike items like books, some baby products are not suitable for online sales. “For instance, customers want to see and touch baby products before they buy them. A picture simply can’t satisfy that need,” says Kung. So, after a year in business, Kung began to realize that Leyou would not survive if it remained only in online sales. Kung and his wife decided to resort to using both the Internet and stores. In March of 2001, Leyou took the first step offline by opening its first store at Jiaodaokou in Beijing.

However, the store failed to produce the expected results, and the competitive environment became more complex than anticipated. Before there were any specialty baby product chain stores like Leyou, most such items were sold only in supermarkets and department stores in China. At the time, suppliers considered the new Leyou store only an alternative channel.

But the specialty chain stores have since become more competitive in terms of price. Because of centralized purchasing and the presence of an online platform, prices at Leyou stores are 10%-15% lower than in other channels on average. Moreover, specialty stores offer better service. “For instance, if a mother comes to buy milk powder, our shop assistants will recommend an appropriate product according to the age of the baby,” explains Kung. To access more remote areas, Leyou launched a catalogue service in 2004. Kung has been able to integrate the network, catalogue and stores.

Kung says the model is more advantageous in China’s current market environment. The three channels can complement each other to cover as many target customers as possible. There are other advantages as well. The website and catalogue can attract more customers and the stores can become a platform to promote new brands and new products for higher profitability. Leyou’s current gross margin stands at around 20% partly because many new brands are delivering higher profits through Leyou’s channels.

“Such brands need to be promoted via our channels,” says Kung. At present, Leyou’s stores contribute about 70% of sales, with the remaining 30% coming from the website and catalogue. The model has worked well enough that the market has accepted Leyou. It’s been upgraded from an alternative channel to a class-A channel that is specially staffed by suppliers.

Going Nationwide

In July, Leyou announced that it had acquired four Shaanxi Pengli stores, as well as its wholesale business in Shaanxi. After entering Tianjin and Shenyang, Leyou managed to move into Xi’an through acquisition. Backed by ample funding, Leyou has begun to expand quickly. But unlike its rivals, Leyou chose smaller cities first instead of quickly expanding in Shanghai or Beijing.

Leyou’s first Tianjin store was opened in October of 2007. Sales grew much faster than anticipated. Generally, it takes about a year for a newly opened store to break-even. But Leyou’s first store in Tianjin achieved the one-year sales target within less than six months. Moreover, Leyou sees much less competition in Tianjin. “Our store has become the largest children’s clothing store in Tianjin,” notes Kung. The success in Tianjin has inspired Kung to pursue an expansion roadmap that will include a store in all provincial capitals north of the Yangtze River.

In March of 2008, Leyou opened a 3,000 square kilometers flagship store at Wangjing in Beijing. The outlet features a baby swimming house, a children’s photo studio, and the Nestle mother classroom. The venue represents a new strategy that aims to build an eco-system for mother and baby products. “Since we have the same customer base, we can attract more customers. Much like in the IT circle, the infrastructure is in place, but we will also need to have ISP, system integrators, hardware suppliers, software developers, etc. All these players will form an eco-system to deliver better service to the customers,” explains Kung, who hopes to copy this mode to markets outside Beijing.