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market. However, the successful execution of our strategies and business plans involves challenges, risks and uncertainties as described in "—Our Challenges," "Risk Factors" and other parts of this prospectus.

Our Industry

China's retail market has experienced substantial growth in recent years. According to Euromonitor International, total retail sales in China grew from RMB4.2 trillion (US$619.3 billion) in 2005 to RMB6.3 trillion (US$929.0 billion) in 2009, representing a CAGR of 10.7%. As China seeks to further increase domestic consumption, retail sales are projected to grow to RMB8.5 trillion (US$1.3 trillion) in 2013, according to Euromonitor International.

According to OpenBook Co., Ltd., a provider of information services for China's book market, China's book market (excluding newspapers, magazines and textbooks) grew from RMB23.4 billion (US$3.5 billion) in 2005 to RMB31.3 billion (US$4.6 billion) in 2009. The book retail market in China is fragmented. The majority of book retailers in China are individual book stores or local book store chains within a province or city. We believe the small scale of traditional book retailers limits consumer selection because it is difficult for these retailers to carry large inventories.

China currently has the largest number of internet users in the world, according to International Data Corporation, or IDC, an independent market research firm. IDC estimates that the number of internet users in China will grow from 384.8 million in 2009 to 574.5 million in 2013. The increasing functionality, accessibility and overall usage of the internet have made it an increasingly popular medium for conducting commerce. According to iResearch, the number of B2C and consumer-to-consumer, or C2C, e-commerce users in China grew from

55 million in 2007 to 109 million in 2009, and the number is projected to grow to 245 million from 2009 to 2013, representing a CAGR of 22.4%. Driven by the increases in the number of users and purchase volume per online shopper, total B2C and C2C e-commerce transaction value in China is expected to increase at an even faster rate from RMB263 billion (US$38.8 billion) in 2009 to RMB1,269 billion

(US$187.1 billion) in 2013, representing a CAGR of 48.2%. Approximately 46.0% of China's internet population bought books and other media products online, which is the second-highest among all product categories in 2008.

China's B2C e-commerce market is expected to grow at a faster rate than the overall e-commerce market in the coming years. iResearch estimates that total transaction value in the B2C e-commerce market (excluding B2C third-party merchant marketplace) will grow from RMB14.5 billion (US$2.1 billion) in 2009 to RMB201.2 billion (US$29.7 billion) in 2013, representing a CAGR of 93.0%. According to Euromonitor International, B2C e-commerce sales as a percentage of total retail sales in China was 0.2% in 2009. We believe that B2C e-commerce in China will increase as a percentage of total retail sales as it becomes more accepted and gradually overcomes key challenges in areas such as consumer preference, fulfillment, logistics and payment.

Our Strengths

We believe that our first-mover advantage and local expertise have enabled us to address the unique challenges and capitalize on the

opportunities in China's B2C e-commerce market. We believe the following strengths have contributed to our success and differentiate us from our competitors:

leading B2C e-commerce company in China; large and loyal customer base; strong and trusted brand; supply chain management expertise; capital-efficient business model;

proven fulfillment and delivery capabilities; and experienced management team.

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