Group Buying Turmoil Grows With 55tuan Layoffs 窝窝团撤站裁员团购业整合在即

By newsdoug on October 14, 2011

Group buying turmoil reaches fever pitch with 55tuan layoffs After a week or two of relative quiet, trouble in the group buying space has come bursting back into the headlines with the latest report of mass layoffs at one of the industry’s biggest players, 55tuan. (Chinese article) According to a report in the Chinese media, the company, which was having trouble finding an investment bank in July in its bid to raise new cash with an IPO (previous post), has been forced to close some of its regional offices and lay off 1,500 employees in a number of cities, including Shenzhen, Tianjin and Chongqing. The report also cited one consumer in the Guangdong city of Shaoguan saying he couldn’t use one of his group buying coupons issued by the company, and worrying that all of 55tuan’s coupons might become worthless. A company spokesman confirmed that some smaller outposts had been closed, but insisted that it was business as usual for 55tuan’s group buying website and that unsatisfied buyers could return their coupons for refunds. (Chinese article) Word of the layoffs actually first emerged last month, though the company denied any mass job reductions at that time. (previous post) The woes at 55tuan follow similar mass layoffs earlier this year at Gaopeng, the group buying joint venture between US giant Groupon and Tencent (HKEx: 700), and come as Lashou, another top group buying site, struggles to launch an IPO as it too grapples with fierce competition and a looming cash crunch. (previous post) One source told me earlier this week that 55tuan has finally managed to find an investment bank, though he declined to name the bank, leading me to believe that it’s not a major player. Regardless, the fact that most or all of China’s group buying sites are losing big money will make IPOs by Lashou or 55tuan highly unattractive to investors, who would rightly fear the companies could easily go out of business. Accordingly, I doubt we will see any IPOs by Chinese group buying sites either this year or in 2012, and more likely we’ll see a major market consolidation that will force many players either to combine or close before 2 or 3 large, profitable companies finally emerge.

Bottom line: Mass layoffs by 55tuan are the latest sign of distress in China’s group buying market, with IPO bids by Lashou and 55tuan likely to fail as the sector undergoes a major consolidation.

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