'Tuhao' is the Mandarin slang for it – China's nouveau riche – and below them are the tens of millions of people who make up the country's expanding middle classes; together they encapsulate the burgeoning spending power catalysing the rise of high-end online retailers in China.
Among them is Secoo Holding, which this week announced a $175 million investment from consumer-focused private equity firm L Catterton Asia and China’s largest retailer JD.com.
The joint investment leaves both with a non-disclosed but substantial stake in the Beijing-based upscale e-commercial platform, which they see going from strength to strength as Chinese incomes grow and Chinese consumer spending goes upmarket.
“We believe that Secoo is poised to reach the next level, as evidenced by its strong momentum this year already, and our assistance will help accelerate its path,” Ravi Thakran, chairman and managing partner of L Catterton Asia, told FinanceAsia via email.
According to Bain & Company (Greater China) 2017 China luxury market research, the total luxury revenue contributed by Chinese consumers last year topped Rmb142 billion ($21.3 billion), up by 21.4% year on year, while online shopping’s contribution increased by one percentage point to 9%.
As well as investing money, L Catterton has formed a strategic partnership with Secoo to help drive the retailer’s expansion by leveraging the former’s network of luxury brands, including Artsy, Giuseppe Zanotti, Baccarat, John Hardy, Hanna Andersson, RM Williams and 2XU.
“Several of our brands have already begun discussions with Secoo, especially in the high-end lifestyle offering,” Thakran said. “Secoo provides a great platform to launch these high-end brands in China.”
CONVERTIBLE NOTE
The new investment in Secoo is structured in the form of an 8% three-year note convertible into Class A ordinary shares, which both L Catterton and JD.com will subscribe to, the online luxury retailer’s statement read.
L Catterton is separately entitled via the warrant to purchase a further 500,000 American depositary shares, two of which represent one Class A ordinary share.
Once the transaction is completed the two investors together will have the right to appoint a director and an observer to the board of directors until the convertible note matures.
Thakran said “authenticity” was a key selling point for Secoo, citing the counterfeit worries that typically trouble luxury goods consumers.
“It is the only company with a certified authentication centre specifically used to authenticate products, which is an extremely valuable consideration for high-end consumers,” Thakran said.
He positioned the company as “the leading player in Asia” in the online luxury platform space with one of the largest customer bases – over 20 million registered users – and the highest average spend.
Like L Catterton, JD.com said it envisaged several areas where it could collaborate with Secoo for mutual benefit.
“Chinese consumers are increasingly discerning about their luxury purchases, demanding more variety and choice than ever,” Shengli Hu, president of JD Fashion & Lifestyle, said in the statement.
This article has been corrected to show that L Catterton, together with JD.com, is taking a substantial stake in Secco in the introduction and the third paragraph
