Chinese imitators of Groupon facing lean times

Summary:China’s group-buying websites, struggling to turn profits, have reduced their staffs and branches to curtail costs.

As Groupon, the world’s leading group-buying website, sharply cuts down the capital it planned to raise, its Chinese imitators are facing bigger trouble.

China’s group-buying websites, plagued by the difficulty of making profit in a short time and the worsening environment for capital-raising,  have reduced their staffs and branches so as to curtail costs.

Who would have imagined this a year ago, when business was thriving for the thousands of sizable group-buying websites, with enormous investment put in them?

Gaopeng.com was the first to cut down its staff. As a joint venture of Groupon and Tencent, Gaopeng, in its initial stage, scooped a large number of employees from its competitors. However, according to an anonymous employee,  more than 500 employees have been kicked out only six months since its inauguration. 55tuan.com, another group-buying website, has reduced employees in a dozen of its branches.

In fact, half of China’s Top 10 group-buying websites are cutting down staff, including websites with great venture capital, such as Lashou, which boasts a capital of over $100 million.

Accoding to Feng Xiaohai, CEO of Manzuo, the widespread employee reduction is related to the unsatisfying performance of Groupon. Statistics in Groupon’s prospectus show its monthly loss is as much as $5 million. As its overestimation led to capital shortages for Chinese group-buying websites, they have had to cut down staff to reduce costs.

Wang Huiwen,  vice president of Meituan group,  announced a net deficit of 12 million RMB each month so far. He also mentioned that Meituan group has 2,500 employees, compared with much larger staffs at other  group-buying sites.

Feng Xiaohai, CEO of Manzuo, said an important reason for the losses is vicious competition: “It used to be a nice business system, but then vicious competition prevailed, leading to the loss.” Immoral practices, such as poaching talents and grabbing market share with low prices, rendered group-buying business almost unprofitable.

Xu Maodong, CEO of 55tuan, said, “Last year our average gross profit margin was 20-30%. If that margin remained in group-buying market, most websites could make a profit.”

It has been a common practice for China’s websites to grab market share with low prices. For example, Taobao, China’s biggest e-commerce website, beat eBay China with its free-of-charge policy.

While Groupon is in the count-down of its IPO plan, many Chinese group-buying websites are delaying carrying out IPOs. Feng Xiaofeng said, “A change of structure will be necessary for China’s group-buying websites. As for their IPO program, it very much depends on the market conditions.” Indeed, now isn’t a good time for them to implement this program.

Lashou.com, China’s most promising group-buying website to appear on America’s stock market, will put off its IPO plan until the end of this year, according to one of its employees. Du Yinan, CEO of 24quan, another group-buying website, said, “None of China’s group-buying websites can be listed on the stock market by the end of this year.”

However, group-buying websites remain confident about the market. Du Yinan, for example, believes that as China has a market large enough, some group-buying company will surely join in the stock market. An employee with Meituan.com wrote on his blog, “ As Groupon will carry out IPO, a brighter future will be lying before group-buying websites. Of course, the competition will be fiercer and the road will be tougher. We need to improve ourselves to catch up.”

Now one question remains: Who will run farthest and have the last laugh?

Topics: Banking, Browser, China, Legal, Software Development

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