Dangdang needs partners to book in better profits
- As a specialist in books, Dangdang is facing tough competition from eBooks
- Search engines don't show Dangdang’s flash sale site, due to a mix-up
- Specialising in a shrinking market makes Dangdang’s outlook bleak
By Neil Flynn
One of my main research focuses is China’s ecommerce industry, which has been undergoing exponential growth for several years, and has recently enjoyed international exposure due to Alibaba’s record breaking IPO last month. But one firm that has always intrigued me is Dangdang, simply because for a firm with a billion dollar market cap, I don’t actually know anybody that uses it.
But as these firms compete with each other across a wide range of different products, price competition leads to many firms having large inventories of old stock that they can’t sell. Therefore flash sales are a very effective at reducing this, because old stock can be sold cheaply. The leader in China’s flash sales market is VIPshop (唯品会) with a market share of 38.1%. Dangdang’s flash sales site is called 尾品汇, pronounced ‘wei pin hui’, and sounds exactly the same as VIPshop’s Mandarin name.
In fact, searching for Dangdang’s flash sales site in Mandarin will see the search engine show results for both firms, with VIPshop always listed first because it’s a bigger and more popular site. Yet, when users search for VIPshop in Mandarin, the search engine won’t show Dangdang’s flash sales site. This is an awful marketing strategy, as potential new customers are being directed to a larger rival, who sells many of the same fashionable goods as Dangdang.
But in my view, a firm shouldn’t have to rely on promotions and flash sales in order to maintain an already low profit margin. Alibaba announced yesterday that it had partnered with smartphone manufacturer Meizu in order to develop its Android-rival mobile operating system. This will eventually see Meizu offering direct shopping links to Alibaba, and will help it to grow its eBook sales. This is the type of partnership that Dangdang should be aiming for, given that it is specialty is books. Partnership with a domestic smartphone manufacturer will create a direct link between smartphone users and Dangdang’s eBook store.
-- Edited by Adam Courtenay
Neil Flynn is head equity analyst at Chinese Investors