Prospectus Summary
PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our ADSs discussed under “Risk Factors,” before deciding whether to buy our ADSs. This prospectus contains information from an industry report commissioned by us and prepared by Frost & Sullivan, a third-party research firm, to provide information regarding our market position in China. We refer to this report as the Frost & Sullivan report. The gross merchandise volume as stated in the Frost & Sullivan report is denominated in Renminbi.Our Business
We are China’s No. 1 online retailer of beauty products as measured by gross merchandise volume, or GMV, with a market share of 22.1% in 2013, according to the Frost & Sullivan report. We have grown rapidly and substantially since we launched our jumei.com website in March 2010 and achieved our current scale and profitability with only approximately US$13 million in total funding from our private equity investors. We achieved US$483.0 million in net revenues and US$25.0 million in net income in 2013, with approximately 10.5 million active customers during the same period.
We believe that our internet platform is a trusted destination for consumers to discover and purchase branded beauty products and fashionable apparel and other lifestyle products. Leveraging our deep understanding of customer needs and preferences, as well as our strong merchandizing capabilities, we have adopted multiple effective sales formats to encourage product purchases on our platform. Our current sales formats consist of curated sales, online shopping mall and flash sales.
Our curated sales represents a new online sales format, whereby we recommend a carefully selected collection of branded beauty products for a limited period of time at attractive prices. Our curated sales format captures online shoppers’ attention through product recommendations and insightful product descriptions, which has helped us build a strong customer base. We also sell a wider selection of branded beauty products through our online shopping mall on a long-term basis to enhance customer stickiness. To further enhance and complement our customer experience with more choices, we provide a limited-time offering of fashionable apparel and other lifestyle products at deep discounts through flash sales.
We have built a large base of highly engaged and loyal customers, as well as a wide variety of well-selected products, which have been essential for our rapid growth. Our active customers totaled approximately 1.3 million, 4.8 million and 10.5 million in 2011, 2012 and 2013, respectively. Orders placed by our repeat customers accounted for approximately 88.9% of our total orders in 2013. Our suppliers and third-party merchants include brand owners, brand distributors, resellers and certain exclusive product suppliers. We worked with approximately 1,700 suppliers and third-party merchants in 2013.
We believe consumers will increasingly shop online through mobile internet. Therefore, we have invested substantial resources to build a mobile platform dedicated to providing a superior mobile shopping experience. As a result, sales through our mobile platform have grown significantly since its launch in May 2012. In the first quarter of 2014, approximately 49% of our GMV was generated through our mobile platform.
Our visionary management team has the foresight to identify and meet evolving customer needs and market opportunities in the beauty products market. Under our management’s leadership, we have attracted a large and loyal user base through our creative and cost-efficient marketing campaigns as well as word-of-mouth referrals resulting from our well-selected products and superior customer experience. We further enhance the attractiveness of our product offerings by entering into arrangements with beauty product suppliers for exclusive sales and distribution of selected products in China. We implement effective measures to control costs and operating expenses, which have enabled us to achieve and increase operating profitability.
Our net revenues were US$21.8 million in 2011, US$233.2 million in 2012 and US$483.0 million in 2013. We achieved net income of US$8.1 million in 2012 and US$25.0 million in 2013, compared to a net loss of US$4.0 million in 2011. Our net cash provided by operating activities were US$27.4 million in 2012 and US$84.8 million in 2013. Our net cash used in operating activities was US$2.0 million in 2011.
Our Industry
Growth of the Beauty Products Industry in China. According to the Frost & Sullivan report, China’s beauty products industry grew steadily over the past few years as total retail sales increased from RMB136.2 billion (US$22.5 billion) in 2010 to RMB220.9 billion (US$36.5 billion) in 2013, representing a compounded annual growth rate, or CAGR, of 17.5%, and is expected to further increase to RMB431.8 billion (US$71.3 billion) in 2018, representing a CAGR of 14.3% from 2013. According to the Frost & Sullivan report, Watsons, Jumei and Sephora are the three largest beauty products retailers in China in terms of GMV in 2013.
Online Retail Market in China. China has the largest internet community in the world, with approximately 617.6 million internet users as of December 31, 2013. This translates into approximately 2.5 times the size of the internet population in the U.S., according to the Frost & Sullivan report. Online retail sales as a percentage of total retail sales in China expanded from 3.3% in 2010 to 8.1% in 2013, and is expected to further increase to 13.0% in 2018, according to the Frost & Sullivan report. The increase in online versus offline retail sales reflects the fragmentation of the retail market in China, the increasing user acceptance of online retail and the improved fulfillment networks and payment options provided by online retailers.
Online retail sales of beauty products have grown rapidly in recent years. Online business to consumer, or B2C, beauty products sales reached RMB22.6 billion (US$3.7 billion) in 2013, up from RMB1.7 billion (US$0.3 billion) in 2010, representing a CAGR of 136.5%, and is expected to further increase to RMB94.6 billion (US$15.6 billion) in 2018, representing a CAGR of 33.2% from 2013, according to the Frost & Sullivan report. Online B2C beauty products sales as a percentage of total beauty products retail sales in China expanded from 1.3% in 2010 to 10.2% in 2013, and is expected to further increase to 21.9% in 2018, according to the Frost & Sullivan report.
The Emergence of M-Commerce in China. According to the Frost & Sullivan report, the smartphone user population in China reached 475.1 million in 2013. Active m-commerce user population reached 144.4 million in China in 2013, a growth of 160.5% from 2012, and is expected to further increase to 762.6 million in 2018, representing a CAGR of 39.5% from 2013, according to the Frost & Sullivan report. The total retail sales through m-commerce amounted to RMB303.7 billion (US$50.2 billion) in 2013, representing a growth of 271.6% from 2012, and is expected to further increase to RMB2,226.8 billion (US$367.8 billion) in 2018, representing a CAGR of 49.0% from 2013, according to the Frost & Sullivan report.
The Emergence of Curated Sales. According to the Frost & Sullivan report, curated sales is a disruptive sales format compared to the traditional offline channels for beauty products. Curated sales is an innovative new sales format which features a limited number of products that are first selected, then recommended and offered for sale. Each curated product is usually on sale for a limited period of time on a curated sales platform, which helps focus user traffic on the featured brand and product.
The recommendation feature of curated sales is conducive to generating frequent visits from customers as they seek information and guidance on the latest trends in the markets. As such, curated sales format helps build a loyal and engaged customer base and encourages repeat purchases. Furthermore, the curated sales format is especially effective in educating consumers in China about new beauty products and enhancing the profile of brands through online channels.
Unlike flash sales, the curated sales format is a more effective and efficient channel to introduce new products by guiding consumers’ purchase decisions. An operator of a curated sales platform can present and sell a carefully selected array of high quality products with purchase recommendations featuring detailed descriptions and extensive customer reviews, without imposing limit on the units available for sale for each product or offering steep price discounts.
Our Strengths
We believe the following key competitive strengths have contributed to our growth and success to date:
Our Strategies
Our goal is to become the online destination for female consumers and trendsetter for fashion and beauty. We intend to achieve our goal by pursuing the following growth strategies:
Our Challenges
Our ability to achieve our goal and execute our strategies are subject to risks and uncertainties, including those relating to our ability to:
In addition, we face risks and uncertainties related to our corporate structure and doing business in China, including:
Please see “Risk Factors” and other information included in this prospectus for a discussion of these and other risks and uncertainties that we face.
Corporate History and Structure
Our founder, chairman and chief executive officer Mr. Leo Ou Chen and two co-founders formed Reemake Media Co., Ltd., or Reemake Media, in
Beijing China in August 2009 and commenced our online beauty products retail business under our Jumei (
) brand through Reemake Media in March 2010. In January 2011, Reemake Media acquired 100% of the equity interests in Beijing Shengjinteng Network Science and Technology Co., Ltd., or Beijing Shengjinteng.
In August 2010, we incorporated Jumei International Holding Limited under the laws of the Cayman Islands as our offshore holding company in order to facilitate international financing. In September 2010, we established a wholly-owned Hong Kong subsidiary, Jumei Hongkong Limited to be our intermediate holding company. In March 2011, Jumei Hongkong Limited established a wholly-owned PRC subsidiary, Jumei Youpin (Beijing) Science and Technology Services Co., Ltd., which was subsequently renamed as Beijing Silvia Technology Service Co., Ltd., or Beijing Jumei.
Due to PRC legal restrictions on foreign ownership and investment in the value-added telecommunication service businesses, we conduct such activities through contractual arrangements with Reemake Media, our consolidated variable interest entity in China. Through Beijing Jumei, we obtained control over Reemake Media in April 2011 by entering into a series of contractual arrangements with Reemake Media and the shareholders of Reemake Media. The contractual arrangements, except for the exclusive consulting and services agreement, were subsequently amended and restated in January 2014. Reemake Media holds our internet content provider license, or ICP License, as an internet information provider and operates our website. As a result of these contractual arrangements, Reemake Media is a variable interest entity of which we are the primary beneficiary. We have consolidated the financial results of Reemake Media and its subsidiary in our consolidated financial statements in accordance with U.S. GAAP.
Jumei Hongkong Limited established Shanghai Paddy Commerce and Trade Co., Ltd. in June 2012, Chengdu Jumei Youpin Science and Technology Co., Ltd. in July 2012, and Tianjin Cycil Information Technology Co., Ltd. and Tianjin Darren Trading Co., Ltd. in March 2013. Tianjin Darren Trading Co., Ltd. was subsequently renamed as Tianjin Qianmei International Trading Co., Ltd., in March 2014. In December 2013, Jumei Hongkong Limited established Tianjin Venus Technology Co., Ltd., a wholly owned subsidiary.
The following diagram illustrates our corporate structure, including our subsidiaries and consolidated variable interest entity and its subsidiary, as of the date of this prospectus:
We are a “controlled company” as defined under [NYSE Listed Company Manual/NASDAQ Stock Market Rules] because Mr. Leo Ou Chen will beneficially own a majority of the aggregate voting power of our company immediately after this offering.
Corporate Information
Our principal executive offices are located at 20th Floor, Tower B, Zhonghui Plaza, 11 Dongzhimen South Road, Dongcheng District, Beijing 100007, The People’s Republic of China. Our telephone number at this address is +86 10-5676-6999. Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited at PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.
Investors should submit any inquiries to the address and telephone number of our principal executive offices. Our main website is jumei.com. The information contained on our website is not a part of this prospectus. 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.
Conventions that Apply to this Prospectus
Unless otherwise indicated or the context otherwise requires, references in this prospectus to:
Unless the context indicates otherwise, all information in this prospectus assumes no exercise by the underwriters of their over-allotment option.
Certain operating data, economic and market data and regulatory information shown in Renminbi amounts in this prospectus are accompanied by translations into U.S. dollars solely for the convenience of the reader. Unless otherwise noted, all such translations from Renminbi to U.S. dollars in this prospectus were made at RMB6.0537 to US$1.0000, the noon buying rate for December 31, 2013 set forth in the H.10 statistical release of the Federal Reserve Board. Our net GMV amounts for the historical periods are denominated in RMB and were translated into US$ amounts using the applicable average exchange rate for each relevant period. We make no representation that the Renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. The PRC government restricts the conversion of Renminbi into foreign currency and foreign currency into Renminbi for certain types of transactions. On April 4, 2014, the noon buying rate set forth in the H.10 statistical release of the Federal Reserve Board was RMB6.2118 to US$1.0000.
The Offering
The depositary will hold Class A ordinary shares underlying your ADSs. You will have rights as provided in the deposit agreement among us, the depositary and holders and beneficial owners of ADSs from time to time. We do not expect to pay dividends in the foreseeable future. If, however, we declare dividends on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares after deducting its fees and expenses in accordance with the terms set forth in the deposit agreement. You may turn in your ADSs to the depositary in exchange for Class A ordinary shares. The depositary will charge you fees for any exchange. We may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs after an amendment to the deposit agreement, you agree to be bound by the deposit agreement as amended. To better understand the terms of the ADSs, you should carefully read the “Description of American Depositary Shares” section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus. We intend to use the net proceeds from this offering to invest in our marketing and branding efforts, including growing our exclusive products portfolio and setting up additional physical stores, expand our logistics network and enhance our fulfillment capabilities, strengthen our IT infrastructure and systems, and for general corporate purposes, including working capital needs and potential acquisitions, investments and alliances, although we are not currently negotiating any such transactions. See “Use of Proceeds” for more information. We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.Summary Consolidated Financial and Operating Data
The following summary consolidated statements of comprehensive income/(loss) data for the years ended December 31, 2011, 2012 and 2013 summary consolidated balance sheet data as of December 31, 2011, 2012 and 2013 and summary consolidated cash flow data for the years ended December 31, 2011, 2012 and 2013 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated balance sheet data as of December 31, 2011 have been derived from our audited consolidated balance sheet as of December 31, 2011, which is not included in this prospectus. Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods. You should read this “Summary Consolidated Financial and Operating Data” section together with our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
The following table presents summary operating data for the periods indicated: