Vancl Slashes Delivery Arm 凡客诚品削减物流业务
The latest sign of distress in the battered e-commerce sector is coming from online clothing retailer Vancl, with media reporting the company has slashed operations at its package delivery arm in what looks like a desperate cost-saving move. Frankly speaking, I wholeheartedly support this kind of move, if it’s really true, as I personally believe that e-commerce companies shouldn’t be delivering parcels to begin with, and instead should leave that part of the business to professional specialists like UPS (NYSE: UPS) and China’s own China Postal Express, which itself is preparing for a domestic IPO to help fund its ongoing expansion. (previous post)
Followers of China’s ultra-competitive e-commerce sector will know that the parcel delivery business is also very overheated, as thousands of small and mid-sized companies vie for business delivering the millions of items that consumers are buying online. Growing chaos in the delivery space led many of the bigger e-commerce companies to announce they would launch their own delivery services to ensure quality. Now it appears that Vancl is having second thoughts about that decision.
According to the latest media reports, unnamed sources are saying that Vancl’s Rufengda Express logistics arm plans to shutter operations in 20 of the 26 cities where it operates, cutting its workforce by half to around 2,000 in the process (English article) The cuts appear to be mostly in smaller markets, with the reports saying the delivery arm will maintain operations in major cities including Beijing, Shanghai and Guangzhou.
Followers of the e-commerce space will know that this latest move by Vancl comes just a couple of weeks after a series of bloody price wars between names like Jingdong Mall, Suning (Shenzhen: 002024) and Dangdang (NYSE: DANG) consumed the industry and filled national headlines. (previous post) Those price wars mostly involved electronics, and thus Vancl’s name didn’t appear in any of the daily reports from that memorable week.
But like many of its e-commerce peers, most of whom are rapidly burning through limited their cash, Vancl is also feeling intense pressure to cut its costs amid signs that investors aren’t going to give it any new money once its current funds run out. The company reportedly slashed about 5 percent of its workforce late last year, calling the move a regular business adjustment. (previous post) And in fact, rumors of the cutbacks at Rufengda first surfaced as early as April this year, at which time Vancl appeared to confirm the move by also calling it an adjustment. (previous post)
Like a number of other Chinese e-commerce firms running low on funds, Vancl has been hoping to raise new money for more than a year now through a US initial public offering. But a confidence crisis towards Chinese companies following a series of accounting scandals that began last year has put the brakes on nearly all new IPOs since last fall.
Investors have shown a particular lack of interest in money-losing companies like Vancl, meaning the company probably won’t be able to make an IPO until next year at the earliest. In the meantime, look for Vancl and its money-losing peers to continue more major cost cutting moves as many go into survival mode as they wait for the competition to subside and investor confidence to return to financial markets.
Bottom line: Vancl’s big cuts to its delivery arm are part of an ongoing series of cost-saving moves as it and its peers try to conserve cash until competition subsides and financial markets improve.
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