China B2C online retailers: Making money is not an option

How could a niche player have edged its way onto the top place in less than four years, leaving behind the two forerunners and online B2C giants--Dangdang and Joyo, both with a ten-year claim on the turf? The answer is low price.
Written by Zhang Dan, Contributor

China's leading online B2C (Business-to-Customer) retailers have been locked in a fresh round of price wars as the week-long National Day holiday has triggered a surge of buying frenzy.

Online consumers hunting for a good deal for 3C products may find themselves drowning in a sea of dizzying promotion ads.

Joyo Amazon (Amazon.cn) offers favorable discounts for house-appliance buyers whose one-time purchase reaches a specified sum. Dangdang, listed in NYSE late last year, launched a promotion campaign called  "Beheading Operation", offering "slashed" prices. And all their moves are aimed at one goal, to compete with their biggest rival 360buy (Jingdong Mall) for market share.

According to an EnfoDesk report on China's online retailers' performance during the 2nd quarter of this year, Taobao Mall lead the retailers by gaining 32.8% of market share, while 360buy won second place by securing 12.4%, followed by Joyo Amazon which stands at 2.3%.

Taobao Mall does not directly sell products to its customers; it serves instead as an e-commerce platform for retailers. By that calculation, 360buy is the largest B2C online retailer in China.

But how could a niche player have edged its way onto the top place in less than four years, while leaving behind its two forerunners and online B2C giants--Dangdang and Joyo, both with a ten-year claim on the turf?

The answer is "low price."

"We do not allow making profit out of book-selling three years from now, and I will fire any manager who let it happen, "said 360buy's CEO Richard Liu earlier this year through his personal account on China's popular Twitter-like microblogging site weibo.com.

The statement came as 360buy, which had been widely known as a 3C online retailer, started to sell books online in an apparent declaration of war against the giant online bookseller Dangdang.

Dangdang CEO Li Guoqing, in a harsh response, said the company is ready for a price war--which he termed as a main marketing strategy in China e-commerce--in the next three years.

But a price war could have been something unexpected for Li when 360buy spearheaded a series of low-price campaigns and caused its sales to explode.

360buy's revenues skyrocketed to 10.2 billion yuan (or 1.6 billion USD) last year from 4 billion yuan (or 0.3 billion USD) in 2009. And its CEO Richard Liu said this year's sum is expected to reach 24 billion to 26 billion yuan (or an estimated of 4 billion USD), another big leap from 2010.

But as the low-price policy boosts business volumes, it is doing it at a bitter cost to the B2C retailers in China.

360buy is still bogged in a deficit, though Richard Liu said they expected a balance next year.

Meanwhile, Dangdang's 2ndquarter report also shows scathing figures, with a 53.3% growth in revenues against a 60% increase in losses compared with the same period last year. The company's deficit now tops 4.4 million USD and its CEO Li held "advertising investments"-- in other words, promotion campaigns -- mainly responsible.

To take it more positively, these B2C giants are still expanding in scale despite sacrificing in profit. But some of the other B2C retailers have undergone a disastrous defeat.

Few media reports have given their focus to Newegg China recently if it were not for its cooperation deal with Alipay.com, Alibaba's third-party Internet payment subsidiary.

Ten years after since it stepped into China's B2C market, the biggest 3C products retailer in the U.S. Newegg still has a small and stagnant market share here to worry about, with only 1% as was unveiled by the EnfoDesk's recent report.

However, Newegg China CEO Chi Yongxin remained optimistic despite the drawback, saying the branch is expected to achieve a balance within one or two years.

There is indeed a reason for optimism for those B2C players, considering that the market in China is so huge and growing.

One more thing the EnfoDesk statistics shows is that China's B2C trading volumes in the second quarter this year has climbed to 54.26 billion yuan (or about 8.5 billion USD), a 14.7% increase compared with January-to-March figures and a 172.6% jump compared with the same period last year.

And they also have a reason to be patient before they can begin hauling in huge profits from the fat market. Amazon.com, as a pioneer in B2C arena, made a profit only after losing money for seven straight years since its foundation, given relatively less competitive environment than what is happening in China today.

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