Dangdang, Vancl in Overhauls 当当网转型 凡客诚品瘦身
Media are reporting that online retailers Dangdang (NYSE: DANG) is launching a major overhaul and Vancl is facing issues from its own big retrenchment, as each searches for elusive profits that have become increasingly hard to find in the current cutthroat e-commerce space. In Dangdang’s case, the company is attempting to focus on several key product groups, giving up its previous aim of becoming a general merchandise giant like Amazon (Nasdaq: AMZN). Meantime, online clothing retailer Vancl’s own ongoing slimming exercise has left it so lean that it is reportedly running into logistical problems that are resulting in delayed shipments to some of its customers. All of this reflects just how difficult China’s e-commerce environment has become, with most companies resorting to desperate measures in their bids to conserve cash and become profitable in the ultra-competitive space.
Let’s start off with a look at Dangdang, which is reportedly planning to downplay its electronics business and lower end product areas and focus on higher-end products and its core book-selling unit, which was its original main business. (English article) CEO Li Guoqing reportedly announced the retrenchment plan at a recent meeting of high-level company executives, saying his ultimate aim was to return Dangdang to profitability later this year.
Dangdang has been reporting big losses for more than a year now, as it tried to compete head-to-head with a field of better-funded general merchandise e-commerce firms like Alibaba, Jingdong Mall and Amazon China. I like the fact that Li is finally realizing that he can’t compete with such big players and that his better chances for longer term success lie in carving out a spot as a niche player. That strategy has worked well for online discount retailer Vipshop (NYSE: VIPS), which last year passed Dangdang to become China’s most valuable e-commerce firm.
But while I agree with Dangdang’s direction, I still think its focus looks too broad to succeed. What’s more, there’s no indication that its core book-selling business will return to profitability anytime soon, following recent moves into that space by Amazon China and Jingdong Mall. For all those reasons, I’m not optimistic that Dangdang’s turnaround plan will work, and would only give it a 30 percent chance for success or less. A much more likely outcome is that the company will ultimately be acquired by a bigger rival, not because Li wants to sell but because he may soon have no choice.
From Dangdang, let’s look quickly at Vancl, which has wanted to make a New York IPO for more than a year now but couldn’t due to dismal sentiment towards Chinese companies. In a bid to conserve cash and move towards its goal of profitability, the company began a slimming exercise last year that has included layoffs and cutbacks in its courier arm. It has also made major cutbacks in its actual product catalog in a bid to save money.
Now media are reporting the company’s slimming has become so extreme that it has started to affect some logistical operations, with the result that Vancl is having difficulty fulfilling some of its orders and has had to apologize to customers for delays. (Chinese article) All of this sounds a bit worrisome for the company’s longer-term prospects, but perhaps investors won’t mind if it means that Vancl has finally become profitable.
A move into the profit column would mark a major milestone for Vancl as it moves towards its goal of making an IPO this year. These latest reports seem to indicate that Vancl still aims to make the offering in the first half of the year, taking advantage of a recent positive turn in investor sentiment towards Chinese companies. But it will need to address these kinds of logistical problems quickly if its IPO is to really succeed, as investors will be wary of buying into a company with operational problems, even if it is profitable.
Bottom line: Dangdang’s new plan to become a more niche-oriented online retailer is likely to fail, while logistical problems at Vancl could dampen investor enthusiasm for its upcoming IPO.
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