(This story is part of a series of profiles on innovative e-commerce entrepreneurs who are candidates for Alibaba Group’s Global Top 10 Netrepreneurs contest. The results will be announced at this year’s AliFest e-commerce summit scheduled to be held Sept. 9-10 in Hangzhou, China.)
After 30 years exporting baby bottles, teethers and baby toys to the U.S. and Europe, Herman Lo is turning his attention to the domestic Chinese market. Lo, who is chairman of Kidsme, a Dongguan-based baby goods maker, chalks it up to a “Eureka!” moment he experienced in 2004.
“We were making bottles to sell [to companies such as Wal-Mart] for 5 yuan (78 cents) each. Then Wal-Mart sells them for 49 yuan each in China,” Lo says. “I asked myself, ‘Why am I making just 50 cents profit, when Wal-Mart sells them for five times the price?’ ”
That realization, and a slowing export business due to rising costs and the appreciating Chinese currency, made it pretty clear what the path forward had to be: sell to the domestic Chinese consumer under the Kidsme brand. Today, the company’s domestic sales make up more than half of the company’s total revenue. Kidsme is expected to post $15 million in domestic sales and $5 million in overseas sales in 2012 while the company’s exports business, Fu Hong, expects to see $10 million, for a total of $30 million. That’s up from total sales of $15 million in the last two years.
Although Lo has been doing business in China for decades, creating a brand and securing distribution in China posed new challenges. The Hong Kong native knew how to work with overseas customers, but had to adapt when it came to forging relationships with mainland clients. For one thing, he had to participate in China’s infamous business banquets, known not only for their length but also for copious smoking and drinking. “I hate smoking, but what can you do?” says Lo. As for alcohol, he says he learned to dilute his drinks with water so he could remain sober enough for late-night conference calls with U.S. customers.
Even more important was mastering marketing to China’s growing consumer class. “Manufacturing products and selling them are two totally different skillsets,” says Lo, who studied engineering in school and then took business classes at night school after he started working at factories. While Kidsme has the right to independently manufacture many of the products it has been making on an OEM basis for overseas customers, it needed to develop products specifically for Chinese consumers and create a brand and marketing strategy for China.
To gain the manpower needed, Lo opted for raw talent. Kidsme went on a recruitment drive in 2005, hiring young college graduates, then providing training for them in areas such as sales and marketing as well as familiarizing them with the manufacturing business. After 1,500 applications and 400 interviews, the company hired 120 grads and put them through an intensive 100 day training program. Of the original 120 recruits, 20 remain in the company today in senior management roles in areas such as marketing and logistics.
On the product design side, Lo says he took inspiration from his young son and designed the “genius feeder” – a device resembling an oversize pacifier that allows children as young as 6 months to feed themselves. Today, that product is Kidsme’s best-selling product. The company is even selling overseas in other markets in Asia and Europe under the Kidsme brand name.
The name Kidsme, or ‘qing qing wo’ in Mandarin came after a long and arduous search.”We had to try the name in Cantonese, Mandarin and English” and make sure it sounded good in all three, says Lo. The company held a contest and got more than 1,000 submissions from employees. Today, Kidsme is the name of the company’s domestic business while the export business operates under the name Fu Hong.
Domestic sales started in 2005 and online sales five years later when they realized that online was an increasingly important sales channel. Kidsme tapped into Taobao, China’s largest online marketplace, when it discovered that other online retailers were already selling Kidsme products at different price points, both high and low. The first order of business was to take back control of Kidsme’s pricing and brand name online.
Because of lower operating costs, profit margins for online sales are better than selling through retail outlets but the company had to plow some of that money back into product design and marketing. The online marketing team has grown from one to 12 people in a year. Product packaging was also adapted for online sales. Boxes for are all the same width, making it easier for couriers to tie them together for deliver.
Online sales should total about $1 million this year. Lo says he can see online sales eclipsing sales from bricks and mortar locations in the near future. Kidsme now offers about 50 different products on Taobao, but the number is expected to increase quickly. Lo says he wants to branch out into new product lines such as children’s clothing, baby shoes and high value products such as baby bottle sterilizers.
Lo doesn’t regret the changes he’s made over the last several years. The exports market today is even tougher today than it was when he decided that the future was in selling domestically, Lo says, with higher material and labor costs coupled with lower demand. While Lo is busy dreaming up new products with Kidsme’s research and development team, others he knows in the business have had to shut down. “The domestic business is what saved us,” says Lo.
