Leading online clothing retailer Vancl has held a high-profile press conference where its Chairman and CEO Chen Nian talked at length about his company’s latest developments, including its phenomenal growth since its founding as well as its missteps over the last year. But what’s perhaps most revealing is what he didn’t talk about, namely the company’s long-delayed IPO, reflecting the intense competition that has developed in online retailing over the last year that has perhaps caused Vancl to quietly slip into the red — if it was ever profitable to begin with. Chinese media reports cite Chen giving out a multitude of figures for his company in 2011, including 150 percent sales growth. (English article; Chinese article) The reports also cite Chen saying his company made some missteps last year, mostly due to management’s loss of strategic direction. That confession, combined with previous reports of layoffs amid a cash crunch (previous post) and no mention of profits at the press conference, all tell me that Vancl is losing money, possibly a lot of money, and may be coming under intense pressure to raise more funds or cut costs or both. Vancl reportedly completed all the necessary steps for a New York IPO last year and was waiting for the right time to make its offering, but ultimately had to scrap its plans when market sentiment toward Chinese companies — especially money-losing ones — tanked in the second half of the year. Online video site Xunlei sounded a cautiously positive note for the market last week when reports emerged that it was reactivating its own New York IPO, which it also had to scrap last year due to the weak market sentiment. (previous post) But unlike Vancl, Xunlei was already in the black as early as 2009, when it posted a profit of $5.5 million. When the US IPO market for Chinese companies finally does improve, profitable companies like Xunlei are much more likely to lead the next wave of new offerings than money-losers like Vancl and 360Buy, another money-losing candidate for a US IPO, which investors won’t embrace so easily. If that’s the case, look for more cost-cutting by Vancl in 2012, with an IPO unlikely before the second half of the year at earliest — if the company survives that long.
Bottom line: 2012 will be a tough year for cash-strapped money-losing Vancl, which won’t be able to make a long-delayed US IPO until the second half of the year at earliest.
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