China’s e-commerce space seems to get noisier by the day, with about a half dozen companies vying to become the nation’s next Amazon (Nasdaq: AMZN) by launching a steady stream of new initiatives in recent months taking them into a dizzying array of new product areas, many far removed from their roots. But at the end of the day there may only be room for 2 or possibly 3 mega online retailers in the market, and we should expect to see many of these aggressively expanding players ultimately either merge with rivals, or more likely quietly shutter their online shops in the next 1 to 2 years as they feel the heat of excessive competition now gripping the market. The latest in the steady flow of new initiatives has Suning (Shenzhen: 002024), better known for its bricks-and-mortar shops selling home appliances and electronics, opening a wine shop this week on its fast-expanding e-commerce site. (English article) News of this new online direction actually first emerged last month, along with reports that Suning would also get into the even more unrelated business of online travel services. Suning is hardly the only one to be branching into all kinds of strange new directions these days in the online space. Its forays into wine and travel come as the country’s second largest e-commerce site, 360Buy, which also goes by the name of Jingdong Mall, has also embarked on its own series of strange initiatives far beyond its original focus as an online electronics seller. Earlier this year the company launched a new book-selling business, and more recently reports have emerged that it will also get into the somewhat unrelated real estate and travel services businesses. (previous post) Then there’s Dangdang (NYSE: DANG), China’s only publicly listed e-commerce company, which began life as an online book seller similar to Amazon. But also similar to Amazon, the company has recently expanded into a number of new directions, including a major tie-up with GOME (HKEx: 493), one of China’s top bricks-and-mortar electronics retailers, in a bid to enter the online market for electronics and home appliances. If all of this is starting to sound like everyone is stepping on everyone else’s turf, it’s because that indeed seems to be what’s happening, with apparently little or no regard for profits or focusing on strategic new areas to complement existing core businesses. Not to be outdone in all this, the nation’s leading e-commerce site TMall, owned by Alibaba, is reportedly gearing up to significantly beef up its presence in the electronics space by signing major names like Philips (Amsterdam: PHG), Lenovo (HKEx: 992) and LG Electronics (Seoul: 066570) to an expanded area in its online mall dedicated to the highly competitive space. Outside all this expansion by domestic names, US retailing giants Wal-Mart (NYSE: WMT) and Amazon itself are also aggressively building up their China presences, the former through its investments in another major site called Yihaodian and the latter through its Joyo platform purchased several years ago, which recently changed its name to Amazon China. The Chinese e-commerce market is certainly big and can support more than one major player, though I seriously doubt it can support all these big names now scrambling to get into just about any new area they can find. The broader e-commerce market itself was worth around 500 billion in 2010, meaning perhaps its now worth about $100 billion — certainly not a small sum but also not enough for all the companies now chasing that limited pot of dollars. At the end of the day, look for 2 or perhaps 3 of these big players to survive in the longer term, with profitable companies like TMall and ones with cash-rich backers like Amazon China and Yihaodian, standing the best chances for success. But even those companies may have to make major adjustments before the current situation stabilizes, bringing widespread pain to nearly everyone as players open and close new business areas before they find the right mix.
Bottom line: The recent rapid expansion of major e-commerce firms into new product areas is unsustainable, and will end with many failures before 2-3 players emerge after a coming cleanup.
Related postings 相关文章:
◙ Alibaba’s Tianmao Takes on Electronics 天猫发力家电市场
◙ Dangdang, GOME In New Alliance, More to Come 国美携手当当网 或开启类似合作序幕
◙ 360Buy Losing Focus With Travel Plan 京东商城涉足在线旅行服务业 偏离核心业务
Let’s start off this Friday before the long Labor Day weekend with a couple of retail items, one from British grocery giant Tesco (London: TSCO) in the online space and another from mainstream clothing maker Perry Ellis (Nasdaq: PERY), which is entering China with a new joint venture. The Tesco plan attests to the incredible popularity of buying things over the Internet in China. As an American living in China, I’ll be the first to say the growing Chinese fondness for buying things online is quite unlike anything I’ve ever seen in the west. Nearly anything can be ordered over the Internet these days, from a McDonalds (NYSE: MCD) hamburger to books, clothing and just about any other merchandise you can think of. Now Tesco will be adding grocery store items to that list, according to a media report citing a company spokeswoman. WalMart (NYSE: WMT) is also playing in the online grocery game through its investment in Yihaodian, while Carrefour (Paris: CA) is developing the space through a tie-up with a Thai partner. This kind of online service differs from many more traditional ones because deliveries take place very soon after an order is placed, and same-day delivery is essential. But the economics for this kind of initiative seem to work in China, thanks to its high population density and the fondness for shopping online to avoid the throngs of people and long lines at grocery stores. I would expect this kind of initiative to be quite successful if Tesco and other big names can execute their plans well, perhaps meaning trouble for smaller operators like Lianhua (HKEx: 980). The other retail news will see Perry Ellis form a joint venture with local partner China Outfitters (HKEx: 1146) to open new stores selling the US company’s Manhattan brand. (
Dangdang (NYSE: DANG), China’s only major listed e-commerce site, has just released its latest quarterly results that show its losses ballooning, reflecting the overheated competition in the space that is already starting to hit many smaller companies and could soon even claim a bigger player. Dangdang’s latest report shows its loss jumped to 130 million yuan, or nearly $21 million, in the final quarter of last year, reversing a $2 million profit the previous year. (
The confidence crisis for US-listed China stocks has taken an interesting twist with the start of a bidding war for AsiaInfo-Linkage (Nasdaq: ASIA), one of the oldest US-listed China firms. The development underscores the fact that despite questionable accounting practices at many smaller US-listed Chinese firms, there are still many good companies in the market that may look like good values for buyers wanting to take advantage of depressed share prices that have resulted in cheap valuations. On the IPO front, meanwhile, a steady stream of noise from e-commerce giant 360Buy, which also goes by the name Jingdong Mall, indicates the company may be getting close to making its first public filing for a public offering that it first announced plans for last fall. Let’s look at AsiaInfo first, as the new bidding war could be the first in a new string of buyout offers for healthy US-listed Chinese firms whose shares have tumbled by 50 percent or more in the last year after a series of accounting scandals. Media are reporting that big-name US private equity firms including KKR and TPG are eying bids for AsiaInfo-Linkage that could value the company at $1 billion or more. (
There are a couple of interesting tidbits from the e-commerce space today, with 360Buy reportedly making a dubious move into instant messaging, as Wal-Mart (NYSE: WMT) prepares to boost its online presence by taking control of its Chinese online partner, Yihaodian. Let’s look first at 360Buy, also known as Jingdong Mall, which has reportedly developed an instant messaging product that it will launch later this year, according to Chinese media reports. (
Online video leader Youku (NYSE: YOKU), online retailer Dangdang (NYSE: DANG) and education services firm Xueda (NYSE: XUE) have all reported net losses in their latest results, underscoring the fact that Western investors don’t seem to care all that much about profits when it comes to Chinese firms, especially Internet companies. Each of these firms has a different story to tell, although frankly speaking all 3 look disappointing to me and show movement in the wrong direction. Let’s start with Youku, which reported a third-quarter loss of 47 million yuan, narrowing 11 percent from a year ago but ballooning from the second quarter’s 28 million yuan loss. (
Turbulence continues to pelt China’s e-commerce sector, with new reports showing how rampant competition is pushing up costs as an industry regulator gets looks into anti-monopoly claims against top online mall operator Taobao Mall. A new foreign media report cites the top executive at luxury e-commerce site Xiu.com saying that rents for the massive warehouses required by most online merchants have soared in the last year, as players like 360Buy and Wal-Mart-invested (NYSE: WMT) Yihaodian all vie for facilities near major cities where they can store and then ship their goods. (
It’s only 3 months since Alibaba split its consumer-oriented Taobao Website into two units, and already it’s starting to hype the more promising of the two, the B2C-focused Taobao Mall, in what’s no doubt the run-up to an IPO that could come as soon as next year. At the same time, Alibaba.com (HKEx: 1688) is continuing with its battle to win back credibility following a scandal earlier this year, in a clear divergence of strategy for these two sister companies that are both part of Chinese e-commerce leader Alibaba Group. Let’s look at Taobao Mall first. The 3-month-old company has held what was probably its first stand-alone press conference, in which it boasted it expects its sales volume to double to 200 billion yuan next year, or about $31 billion, and where it announced a new strategy where it will open its site to other online retailers like Wal-Mart-invested (NYSE: WMT) Yihaodian in addition to traditional retail names like Dell. (Nasdaq: DELL) (
Yihaodian, the online merchant that made headlines earlier this year when it got an investment from global retail giant Wal-Mart (NYSE: WMT) (
