ECOMMERCE: Wanda’s E-commerce Foray Running on Empty?

Bottom line: Wanda will continue to operate its ffan e-commerce site for another year, following the departure of its CEO, but could quietly end the initiative afterwards due to lack of synergies with its brick-and-mortar shopping malls.

Success evades Wanda in e-commerce

The headlines have been buzzing this week about the departure of the chief executive of the e-commerce unit Wanda Group, the real estate-turned-entertainment giant with a voracious appetite for global acquisitions. The big theme from the chatter is that the departure of Li Jinling, the unit’s third CEO in 3 years, marks a setback and possibly even presages a death knell for the Wanda initiative into the online shopping realm.

Wanda is speaking out on the subject, saying it never intended to launch a website that would compete directly with the likes of sector leaders Alibaba (NYSE: BABA) and (Nasdaq: JD). Perhaps that’s true, though that didn’t stop Wanda and its ultra-confident chief Wang Jianlin from boasting of lofty ambitions when it signed up Internet titans Baidu (Nasdaq: BIDU) and Tencent (HKEx: 700) as partners to its ffan e-commerce site in 2014.

But that partnership didn’t last very long, and the first signs that ffan was perhaps not developing as hoped emerged last August when Baidu and Tencent quietly left the partnership. (previous post) This latest departure of the unit’s CEO almost certainly reflects an element of frustration at ffan’s slow development, and possibly hints that the site’s days could be numbered.

Let’s review the headlines first, and then look at how we got to this place and try to determine what’s ahead for Wanda’s sputtering e-commerce initiative. News of Li’s departure is at the center of the chatter, with reports recapping all the hype that came out when ffan was first announced two years ago, including proclamations of a 5 billion yuan ($724 million) investment. (Chinese article)

In all fairness, ffan didn’t even formally launch until 2015, meaning it has less than 2 years of history. But the numbers certainly don’t look impressive for a project launched with so much fanfare. Another media report says that according to ffan’s latest half-yearly report, the service had 120 million members, including 45 million active ones, and that its app had more than 13.5 million downloads. (Chinese article)

But third-party data doesn’t look quite so rosy, showing the ffan app only had 920,000 users, compared with 39 million for mid-sized player Suning (Shenzhen: 002024) and 140 million for Wanda wasn’t too forthcoming in confirming Li’s departure, but has gone on a defensive campaign of its own saying it never intended to enter e-commerce to start with. (Chinese article)

Where’s the Business Model?

I’ll quickly add my own observation that this last comment seems a bit insincere, since Wanda quite happily talked up the initiative and made heavy use of the e-commerce term when it launched ffan in 2015. But that said, it also did suggest a new kind of e-commerce that would combine online shopping with its vast network of real-world shopping malls that are part of its original real estate empire.

So, what happened? In fact, Wanda wasn’t the only one expressing big hopes for synergies between online and offline shopping, which was a hot topic just a couple of years ago. Alibaba bought into the picture through its investment in department store operator Intime (HKEx: 1833), and also through its mega-investment in Suning, whose roots lie in its original chain of electronics and home appliance stores.

Fast forward to the present,  when Intime announced just month that it’s planning to privatize from the Hong Kong stock exchange with Alibaba’s help, presumably because investors were no longer interested in the online-offline retailing story. (previous post) The fact of the matter is that such tie-ups do look like they were a flavor of the day a few years ago, but never really realized their potential. That mentality is especially common in China, where such fads are quite common and often see massive investments made without much real thought about how things will actually work.

It’s just slightly unusual that Wanda got caught up in the hype, since founder Wang is quite a shrewd businessman and seems to give very careful thought to all of his investments. But no one is perfect, and in this case media seem fixated on showing that Wang is human like everyone else. At the end of the day, I do suspect that Wanda will try to make ffan work for perhaps another year, before quietly shuttering the site unless it can find that elusive formula for pairing online and brick-and-mortar shopping.

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