Chunshuitang.comChunshuitang, a Chinese online retailer for adult sexual products, announced yesterday the completion of an RMB80 million (about US$13m) funding round, one of the biggest in this market so far in China. Following the funding, the site has launched a daily deal business with which it plans to disrupt the high-margin adult sexual product market.

Some 90% of adult toys sold around the world are made in China, according to Chunshuitang founder Lin Degang, and the global sexual product market is estimated to be about US$129 billion with China generating about RMB60 billion (about US$97m) in annual sales (source in Chinese). Founded in late 2012, Chunshuitang observed the local market growth building steam from 2008 (source in Chinese).

Sex toys are sold at several times their production costs online, according to Chunshuitang. Prices are even higher at brick-and-mortar stores. Wholesalers have been making strong profits, too.

Despite its profits, Chuishuitang has however decided to cut prices in half and launched a daily deal business. It has partnered with more than 100 brands who directly supply Chuishuitang. The company generated RMB300 million (about US$48m) in sales last year and hopes to increase that by more than three times to reach RMB1 billion (about US$161m) this year with daily discount offers.

Given the success and of VIPShop, the online discount apparel retailer, and its outstanding stock performance, many believe more VIPShops would emerge in other sectors in China. Online cosmetics retailer Jumei.com, which labels itself the VIPShop for cosmetics and makeup, went to IPO on the NYSE in a little over four years since its launch.

Venture capital has only recently began investing in online sex product sellers in China. Founded a decade ago, Chunshuitang did not raise a first round of funding until a Series A round of RMB20 million (about US$3m) in mid-2014. The company is now planning for a 2017 IPO on the Growth Enterprise Market of the Shenzhen Stock Exchange.

Chunshuitang has also begun designing and developing products in-house that had launched two in 2014. The company found that many Korean or Japanese brands are regarded as better designed or higher quality by Chinese consumers, even though most of their products are made in China. The company argues, because of their high profitability, Chinese sex toy brands have no incentive to improve the design or quality of their products. That’s where Chunshuitang sees its opportunity.

 

Editing by Mike Cormack (@bucketoftongues)