• Meilishuo, Mogujie said to discuss several ways to cooperate
  • Hillhouse Capital an investor in both e-commerce websites

China’s Meilishuo.com, a fashion retailer backed by Tencent Holdings Ltd., and rival Mogujie.com are discussing ways to cooperate that could include a merger, according to people familiar with the matter.

Discussions about potential cooperation are in an initial stages, with the e-commerce operators yet to agree on issues including roles for the founders, the people said, asking not to be identified because the talks are private. Both startups are backed by Hillhouse Capital Management.

China’s e-commerce business, which is projected to expand to 3.6 trillion yuan ($557 billion) next year, is going through a shakeout as smaller operators combine to gain scale and end costly battles for market share. Deals this year include mergers between ride-hailing companies Didi Taxi and Kuaidi Taxi, group buying sites Meituan.com and Dianping.com, and travel operators Ctrip.com International Ltd. and Qunar.com Inc.

Mogujie declined to comment in an e-mailed statement. Meilishuo didn’t respond to an e-mail seeking comment. Wu Xiaoning, a director of investor relations at Hillhouse, declined to comment in an e-mail.

Meilishuo has been seeking to raise about $300 million since April and has yet to close the funding round, according to one of the people. The company, whose name translates as “Beauty Talk,” was considering a U.S. initial public offering at a $2.5 billion valuation, people familiar with the matter said earlier this year.

Founded in 2009 by Xu Yirong, Meilishuo runs an online marketplace selling clothes, shoes and handbags, targeting young women. It has about 15,000 merchants selling on its website and runs a mobile application that has been downloaded 100 million times, according to a company brochure distributed in April.

Mogujie, founded in 2011 and backed by IDG and Qiming Venture Partners, has 130 million registered users and raised a D round of more than $200 million in November, according to statements from the company.

E-commerce will grow 20 percent next year from an estimated 3 trillion yuan this year, according to Shanghai-based Internet consultant IResearch. The leading player is Alibaba Group Holding Ltd., which went public last year in the largest initial public offering ever and is estimated to hit revenue of 98 billion yuan this year. Baidu Inc., the country’s leading Internet search engine, operates its own e-commerce business.

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