Source: iResearch, MRG as of 2012

In China, more shoppers are buying from established retailers instead of individual consumers selling goods.

(Updates comment from Alibaba in the 5th paragraph.)

Right now, China’s e-commerce industry looks like a bazaar where shoppers roam around for independent sellers who have the items they’re looking for. However, trends in the nation’s online buying habits show that the Chinese are moving away from small merchants and gravitating toward their own sorts of superstores such as 360buy Jingdong Mall.

The shift signals that the market is maturing, and it threatens to shake up the industry led by Alibaba Group Holding, China’s biggest e-commerce company. According to a report by Multimedia Research Group that was commissioned by Bloomberg, Chinese consumers made an estimated 35 percent of their online purchases at retailers last year. That’s up from 24 percent in 2011 and 14 percent in 2010, the report said.

As the chart shows, businesses are expected to continue to capture more market share this year and account for the majority of e-commerce transactions by the end of 2014. This type of e-commerce, dominant in mature Internet markets, “is the future of China’s online shopping,” Julia Zhu, an analyst at MRG, wrote in her report. “Chinese consumers shop online for a better price and accessibility to more products,” both of which are better served by big retailers than individuals.

Seemingly, that would be bad news for Alibaba, which owns the dominant consumer-to-consumer retail site Taobao Marketplace. 360buy, which describes itself as an “online shopping mall,” had been attracting millions of shoppers with perks such as free shipping and quality assurance.

John Spelich, a spokesman for Alibaba, said the company had foreseen this shift and has taken steps to address it, including spinning out its own superstore called Taobao Mall in 2011. Alibaba’s two largest e-commerce sites have collectively accumulated more than 1 trillion yuan ($161 billion) in sales, and Tmall continues to experience triple-digit growth, Spelich said.

Since launching Tmall in 2008, Alibaba has capitalized on the growing preference for an all-in-one shopping experience. Tmall is now the leader in that market, according to research firm Analysys International. Within the next decade, Alibaba plans to set up a logistics network that can support 10 trillion yuan ($1.6 trillion) in transactions, the China Daily newspaper reported last week.

In preparation for a brave new world of e-commerce in China, Alibaba has been arranging for several drastic changes to its business just in the past few weeks. The company said on Jan. 10 that it will divide itself into 25 units from seven in an effort to become more flexible. Then Jack Ma said he will step down as chief executive officer in May. Ma said last June the company could sell shares in an IPO within five years.

As the massive Chinese Internet market continues to evolve rapidly, all eyes are on Alibaba to see whether it can stay ahead of the trends without Ma, its billionaire founder, at the helm.

Original post is What the Big Shift in China’s Online Buying Habits Means for Alibaba by Tech Blog.

The closely-held company, founded in 1999, has been fairly quiet about its expansion to date compared with the buzz many technology and e-commerce sites generate. With the company growing, it’s starting to open up and gave Bloomberg.com’s Tech Blog an exclusive look at its 150,000-square-foot facility in San Jose on the busiest online shopping day of the year.

First, here’s how Zazzle works: When a customer views an item online, it exists as an image only. The site provides a wide array of designs or lets users create their own from templates. After a design is selected and the product is ordered, Zazzle’s machinery gets going, printing the image on-demand. That design is then sewn, pressed or otherwise attached to the product and then shipped to the customer. Blank items are the only inventory held in house, and Zazzle offers more than 95 million unique product designs.

“We’re working around the clock, processing thousands of one-of-a-kind orders,” said Charles Ohiaeri, vice president of operations technology. Business is 12 to 16 times greater than during the rest of the year, he said. It’s so busy, in fact, that the Redwood City, California-based company is in the midst of hiring more than 600 workers for the holidays.

In the customized goods market, Zazzle competes with CafePress, which went public earlier this year, as well as smaller startups like Cap That. They’re all vying for business amid what ComScore predicts will be a record holiday season with online retailers bringing in $43.4 billion. On Cyber Monday, spending jumped 17 percent compared with last year to $1.46 billion, making it the heaviest day in history, according to the research firm.

Our tour started virtually the day before Thanksgiving, when I ordered a mini messenger bag from Zazzle’s mobile Website on my Android phone (the company has an app for the iPhone, but not yet for Android devices).

On Monday, we visited the facility to observe the creation of my bag.

Amid the hustle, we were directed to a station operated by Daniel Olais, the production lead for light apparel. Olais rendered the design from the ordering system to the in-house computer. The full-size design was printed using Zazzle’s customized machine. It was then pressed onto fabric, cut and packaged, a process that took about an hour. But the bag wasn’t finished by Zazzle.

The company has teamed up with about a dozen smaller retailers that can take advantage of Zazzle’s design technology. This allows Zazzle to expand its product offerings while providing its partners a bigger pool of customers. Rickshaw Bagworks, a San Francisco-based boutique that sells its own messenger bags, iPad sleeves and tote bags, was the maker of my item.

So we drove the fabric 45 miles to watch the bag’s construction at Rickshaw’s facility, which doubles as a retail outlet. Rickshaw founder Mark Dwight said up to 20 percent of their daily orders now come through Zazzle. About 150 bags are constructed daily at the facility.

“This to me represents the new micro manufacturing,” Dwight said. “Our Zazzle business is definitely accelerating as it becomes more widely known.”

Zazzle’s material was combined with Rickshaw’s own fabric and sewn together on an assembly line, a process that took about 20 minutes. And at day’s end, I walked out with a bag, made to order.

Original post is Behind the Scenes: What Happens After You Place an Order at Zazzle by Tech Blog.

Online electronics retailer Newegg is gearing up for the holidays by promoting tablets and laptops running on Microsoft’s new operating system. It doesn’t have much of a choice. Like Amazon, Newegg isn’t an authorized reseller of Apple products, meaning it can’t offer much of a deal on MacBooks and iPads.

Microsoft introduced Windows 8 last month, the biggest overhaul to its flagship software in two decades, as it tries to make up lost ground to Apple and Google.

Newegg is looking to decade-old relationships with companies such as Intel, AMD and Microsoft to undercut competitors. Its users are usually geekier types — those who like to experiment with building their own computers and electronics, said Soren Mills, the company’s chief marketing officer. Holiday promotions provide a boost because non-geeks stumble upon the site as they’re hunting laptops for loved ones, he said.

“We have an even broader customer base than we have during the rest of the year,” Mills said. “Throughout the holidays we’re running basically a constant stream of Black Friday-type programs.”

As Newegg prepares to provide twice as many deals as last year, it’s pushing ultrabooks, TVs and home audio equipment, and especially devices made by Samsung and software made by Microsoft, who are both partners. Traffic during the season can be three to four times the normal amount, and conversion rates jump because consumers are looking to buy gifts, Mills said.

Mobile shopping is also increasingly popular — with 10 percent to 15 percent of traffic coming from smartphones and tablets, Mills said. While the company, based outside of Los Angeles, has begun discounting some of its three million items this month, it launches its official holiday sale on Nov. 21.

Newegg can use the spark. The company filed to raise $175 million in an initial public offering in September 2009, only to withdraw its prospectus in May of last year. While it didn’t provide a reason, meager growth could be the problem. Revenue rose 7.4 percent in 2010 to $2.46 billion, followed by 9.8 percent last year to $2.7 billion. Sales at Amazon.com, the largest online retailer, jumped 41 percent last year to $48 billion, while revenue at online marketplace EBay climbed 27 percent to $11.6 billion.

Both of those companies held initial offerings in the late 1990s, at least two years before Newegg was founded. To attract public market investors, emerging companies typically need to be growing faster than their older rivals. Newegg is also less profitable, recording a gross margin of 9.4 percent in 2010, the last time it reported, compared with 22 percent for Amazon last year.

Mills declined to comment on whether the company is reconsidering going public or its current margins.

Relationships with suppliers will help it provide better deals on a wider array of electronics than its competitors, said Merle McIntosh, senior vice president of product management. Newegg works with Samsung, Intel and other companies to relieve them of excess inventory and promote certain items, he said, helping the online retailer keep costs low and pass on savings to customers.

“We have become — for a myriad of suppliers — the primary online source for helping solve problems or get products to market,” McIntosh said. “Whenever there’s an inventory situation that needs to be dealt with, we’re the first our suppliers call.”

Newegg expects three-day shipping that’s often free to help it stay on pace with Amazon during the holidays. It’s also subsidizing expedited delivery, so that products bought at the last minute will arrive on doorsteps before Christmas. The company will run flash sales and curate content, along with offering longer-term deals — more or less rolling the models of the deal sites like Groupon and Gilt Groupe into one.

“This is an opportunity for us to really shine,” McIntosh said. “It’s the time of year where we get a whole lot of people coming to our website.”

By Danielle Kucera and Ari Levy

Original post is What Newegg Hopes Its Shoppers Will Buy This Holiday Season by Tech Blog.

Photographer: Aleshkovsky Mitya/Itar-Tass/Landov

Groupon said its fourth-quarter financials, as disclosed last month, were weaker than previously reported.

Even when Groupon tries to explain itself, the company can be confusing.

The daily-deals provider said today that its fourth-quarter financials, as disclosed last month, were weaker than previously reported.

The first question that a reader is likely to ask is: Why?

Here’s what the press release said:

“The revisions are primarily related to an increase to the Company’s refund reserve accrual to reflect a shift in the Company’s fourth quarter deal mix and higher price point offers, which have higher refund rates. The revisions have an impact on both revenue and cost of revenue.”

What?

While this is clearly not intended for the average Groupon customer, can we get just a little more clarity?

Let’s try to unpack it.

Groupon needs a refund reserve because a certain percentage of its daily deals will not be used and instead get refunded, meaning Groupon has to return the associated funds.

The shift in “deal mix” and higher priced offers suggests that more revenue is coming from more expensive deals, which makes sense because last year the company introduced Groupon Reserve, a service for upscale offers. These have included a five-course meal for $99 at Whist in Santa Monica and a three-course meal for $70 at the Italian restaurant Bice in New York.

Groupon is also telling us that, whether it’s because of buyer’s remorse or some other reason, high-end deals get refunded more than the average coupon.

That brings us to the “impact on revenue and cost of revenue.” Here, Groupon is saying that not only is the company losing the money it thought it had, but marketing costs are higher than expected because the company had to spend the same amount of money to attract fewer customers (since some of them aren’t customers after all).

We haven’t even gotten to the “material weakness” in its internal controls that Groupon also disclosed today. Is this related to the financial restatement? And if not, what else are we not aware of? For a company that’s had more than its share of stumbles since filing to go public last year, this isn’t helping.

And one more thing. Groupon said the revisions reduced net income in the fourth quarter by $22.6 million. There’s one problem with that: Groupon didn’t have net income in the quarter. It had a $42.7 million loss. So, the company actually lost an additional $22.6 million.

Original post is So … What’s Groupon Talking About? by Tech Blog.