55tuan: More Distress in Group Buying 窝窝团：中国团购行业再现危机
We’re seeing the latest signs of distress from the beleaguered group buying space, with word that 55tuan, one of the industry’s biggest players, is failing to pay some of its merchants. This kind of news isn’t really new anymore, as similar talk that many of the country’s money-losing group buying sites are rapidly running out of cash has been circulating for months now. This latest distress sign just shows that the end is fast approaching for many of these companies, though I’ll admit I’m a bit surprised that we haven’t seen any bigger failures yet.
Let’s take a look at the latest news on 55tuan, which has burned through much of the $200 million it received in new funding about a year and a half ago when Chinese group buying sites were the darling of venture capitalists. (previous post) I’ll admit that the latest media report isn’t very deep in its sourcing, quoting just a single company called Hangzhou Jiuxun Trading Corp as saying that 55tuan has been late in its payments since May, and now has overdue payments totaling nearly 100,000 yuan, or more than $15,000. (Chinese article)
The Hangzhou company said it has stopped delivering merchandise to 55tuan until it receives the overdue payments. Meantime, the same report quotes a 55tuan representative acknowledging the company has fallen behind in payments to some of its merchants, but insisted the problem was unrelated to a cash crunch and that the company had adequate funds to continue its business.
It’s a bit unclear if this individual case is representative of the bigger situation at 55tuan, which in April was rumored to be taking over the group buying operations of another smaller player Ganji as the overheated industry showed early signs of consolidation. (previous post) But failure to pay any of your merchants is always a bad sign, and such a development will hardly be encouraging to 55tuan’s remaining merchants.
The Chinese group buying space is currently undergoing a painful consolidation, following an industry explosion that saw thousands of new sites open over the last couple of years. In one of the biggest moves to date, Gaopeng and FTuan, 2 major sites both invested by Internet giant Tencent (HKEx: 700), formally merged their operations in June. (previous post)
I’ve been waiting patiently to see what will happen to the industry’s biggest player, LaShou, which was showing signs of meltdown earlier this summer that led me to predict the company would either close down or sell itself to another company by around October. (previous post) LaShou has been surprisingly quiet since then, but I still expect that the end will come for this company by the end of this year.
In the meantime, 55tuan could also soon be facing its own crisis if it doesn’t pay its merchants, forcing the company also to close or merge with another rival. I previously predicted that well-funded companies like the new FTuan or Dianping could emerge as consolidators, and I still expect to see 1 or 2 major deals announced in the next couple of months. In the meantime, the current quiet period still looks like the calm before the big storm, which should clean up the group buying field and leave behind 3 or 4 major players that can perhaps someday earn a profit.
Bottom line: New reports of 55tuan’s failure to pay one of its merchants are the latest sign of distress in group buying, which is likely to see a major clean-up by the end of the year.
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