Desperate Dangdang Joins TMall 当当网携手天猫 绝望中求生存
A day after announcing the arrival of a new chief financial officer (previous post), we’re getting word that fast-fading e-commerce superstar Dangdang (NYSE: DANG) is preparing to join hands with a major competitor by opening a new storefront on Alibaba’s TMall. The CFO change and now this latest tie-up with a rival all reflect the growing reality that Dangdang is rapidly fading from China’s fiercely competitive e-commerce crowd, and could even become one of its first major victims. One could even say this latest series of moves reflects a certain desperation, as Dangdang tries to reverse a worrisome trend that has seen its losses balloon over the last year.
Let’s take a look at the latest news, which has Dangdang announcing a new TMall storefront that will sell both books and general merchandise. (English article; Chinese article) The move marks an interesting reversal for Dangdang, which last year officially blocked pages on its own website from indexing by eTao, Alibaba’s e-commerce search engine. Dangdang has now officially lifted that blockage, and is clearly more interested in boosting its business than fighting with Alibaba or any of its other rivals. Dangdang also announced a tie-up earlier this year with electronics retailing giant Gome (HKEx: 493), in another move aimed at giving it an edge in the fiercely competitive e-commerce space.
Dangdang desperately needs for one or more of these initiatives to quickly yield some results, as it looks for ways to stop a worrisome acceleration in its losses over the last few quarters. In its most recent results for the second quarter, the company saw its loss quadruple to about $19 million, as its costs soared and its margins crumbled. (previous post)
The company’s share price has also crumbled, losing nearly two-thirds of its value since reaching a peak back in April this year. The company said it still had cash and cash equivalents of more than $200 million at the end of June, meaning it probably isn’t in a financial crisis just yet. But clearly it can’t afford to keep losing money at the current rate, which is a strong possibility since none of China’s big e-commerce players are showing any signs of easing up their never-ending price wars.
In an interesting development, Dangdang got passed earlier this month by online discount retailer Vipshop (NYSE: VIPS) for the crown as China’s biggest publicly traded e-commerce firm. (previous post) Vipshop has been China’s only major company to make a New York IPO this year, as US investors shunned Chinese stocks after a series of accounting scandals. Vipshop’s shares initially plunged, but have soared in the last few months and now trade around 50 percent above their IPO price. By comparison, Dangdang’s shares have moved steadily downward and the company is now worth just $320 million.
Perhaps Dangdang could learn a lesson from Vipshop and focus on a niche e-commerce business rather than trying to compete in the broader general merchandise space. But that seems unlikely for this fiercely proud company, meaning it’s likely to face more losses and a weak share price for the forseeable future, even as it tries to reverse its sinking fortunes with new tie-ups and executive reshuffles.
Bottom line: Dangdang’s attempts to reverse its fortunes through new tie-ups and executive moves are misguided, and the company needs to instead refocus on becoming a niche e-commerce site.
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