NYSE-listed online beauty products retailer refutes ‘rumors’

NYSE-listed Jumei International Holdings Ltd refuted in detail what it called "a rumor" on Tuesday, but analysts say the allegation has further clouded the growth prospects for the company.

Jumei's CEO Chen Ou fought back on Sina Weibo on Tuesday against allegations made in a statement, which was sent in a "surprising fashion" to hundreds of media professionals nationwide on Monday in several "slightly different versions."

The statement claimed that in September, customs authorities in Zhuhai in South China's Guangdong Province had found smuggled cosmetic goods worth 20 million yuan ($3.22 million) that had been channeled to Jumei's logistic networks.

This resulted in Jumei's warehouse in Beijing being closed down and a senior executive named Ye Fei fleeing the country to Southeast Asia temporarily. The statement also alleged that these events were covered up and were not reported in the media.

The statement was written by an anonymous person who claimed to be a former employee in Jumei's overseas purchasing division.

Jumei said the "rumormongers" are trying to strike at its new agent service, launched in September 2014 to purchase cosmetics from overseas markets.

Chen said Ye Fei was in the Jumei office on Tuesday and had never fled China, but had gone on overseas trips for work purposes to South Korea and Japan in the last two months.

Chen pointed out that Jumei's warehouse site in Beijing was relocated to Tianjin in April 2014, which makes a September closure by the authorities impossible.

The Weibo post also featured photos of Jumei employees and warehouses in six major mainland cities, so as to show that all its warehouses are still functioning.

Ala Musi, director of the policy and law committee of Beijing-based China E-commerce Association, said the agent service for overseas goods is a new thing that occupies a grey area in the law.

"Further establishment of laws and clarification of responsibilities is needed to govern the business practice of Internet companies operating platforms and better ensure the authenticity of the goods," Ala Musi told the Global Times Tuesday.

Tang Jia, an industry analyst with Beijing-based market research firm Analysys International, said the rumormongers are not likely to be from its competitors.

"The market segment that Jumei operates in has stiff competition from a number of companies, including Alibaba and Amazon, and the market is very big," Tang told the Global Times Tuesday.

As e-commerce is in full bloom in China, companies are trying to locate new growth points, and providing agent services for overseas purchase has become a new battlefield for many companies, Tang noted.

Jumei axed its lucrative business with all third-party suppliers in September 2014 and shifted to the business-to-consumer model, following media reports over fake goods in July 2014 that tarnished its brand.

Such a shift has caused a slowdown in the company's earnings growth rate and the value of Jumei's stock to drop, Chen said on Sina Weibo on December 16.

"In an already crowded market, Jumei lacks eye-catching new growth points and has also been impacted by the rise of individual agents or sellers specializing in the trade of overseas goods, particularly cosmetics," Tang said.

Capital market firms keen on seeing the company's stock price drop may be behind the rumor, considering the ongoing struggle between Jumei and some law firms in the US and the counterfeit goods scandal, according to Tang.

Three US laws firms and a Chinese firm have filed class action lawsuits against Jumei separately over the issue of misleading financial information to recover losses for investors from around the world.

"Internet e-commerce firms could provide certifications obtained through random inspections conducted by an independent third-party entity as an endorsement of the quality of the goods offered. This could be an effective way to stem rumors," Ala Musi said, noting that bad publicity will not help Jumei's business.

Shares of Jumei, the first Chinese online beauty products retailer to get listed in the US when it launched its IPO in mid-May, closed at $14.50 on Monday, dropping from a high of $37.99 on August 15.