Dangdang turns the page on e-commerce expansion
- Summary:
- China's been knocked off its top slot in the e-commerce global rankings, but Dangdang continues to impress as it transitions from its bookshop origins.
According to the 2015 Global Retail E-Commerce Index from AT Kearney, China lost its top slot as the world’s most successful nation for e-commerce, as an improving economy in the US stole the number one slot.
E-commerce sales in China hit 12.3 trillion yuan in 2014, up 21.3% year-on-year, so although the rate of growth slowed down, it’s still a major contender. AT Kearney notes:
Make no mistake about China: It remains one of the most attractive online retail markets in the world. The world’s most populous country (nearly 1.4 billion people) is active online—more than one-third of those who go online at least once a week are “continuously connected,” according to the Connected Consumer Study, and another 58% check the Internet two to four times per day.
According to AT Kearney, China’s online buyers are:
sophisticated, with well-developed brand awareness for and trust in the biggest names, including domestic leaders Alibaba, Tmall, and JD.com as well as international players such as Amazon and eBay. Chinese shoppers have also embraced e-commerce as something of a cultural phenomenon, particularly on Singles Day (November 11), which has become much like the US.’s Cyber Monday.
There are some issues facing the Chinese domestic market, most notably in terms of regional differences, with tier 1 cities inevitably doing a lot more luxury goods purchasing, while shipping and logistics concerns remain with some of the more outlying regions. But overall, it's clear the domestic Chinese market remains buoyant.
Beyond China
Outside of China, the best known e-commerce retailer is probably Alibaba, which boasts more than a trillion yuan in annual sales and last year went public in the US with a market value of $231 billion.
Somewhat overshadowed of late by Alibaba is rival Dangdang, which is drilling down on its digital strategy, extending its digital publishing platform for original content on the assumption that new content will results in higher usage and stickiness.
The firm is making a big push to transition from being an online book mall to a wider shopping experience, but its foundation in books remain strong. Executive Chairwoman Peggy Yu explains:
Dangdang is a company that is rooted in books and now we are going beyond books and we are the dominant player in the book industries. So we believe there is deep value in vertically integrating the industry and we are pushing very aggressively along the book industry value chain. We have a large publisher cycle and we have the largest reader base and now we are launching a lot of e-reading applications with our readers.
Upstream we are developing platforms for our publishers as well. So we are going to do more original content, we are going to do a lot of work that means publishers can mostly translate their content into our format. That makes different kinds of reading products for our customers, such as letter reading, such as paper flipping, reading and then things that go along well with this kind of mobile reading habit.
We think that the paper book has longevity. At the same time we want to have many strong products that go along very well with the mobile oriented customer and their habit change.
To that end, Yu reckons Dangdang can boast some early success:
For digital reading and the digital business, in the last quarter of 2014 we launched Dangdang e-reading 4.0. We observed that the consumer average customer reading has reached about 40 minutes. We’ve also launched some publishing and data formatting, letter reading and audio-book product. The number of e-book SKU has also increased this quarter, and then we've some other activities. The download of our digital books for the quarter, it was 11 million copies.
That said, it’s not a lucrative revenue stream just yet, as Yu admits:
In terms of revenue e-reading sale does not generate meaningful revenue at this time. We believe that e-reading will go very closely with our paper book reading and increasing customer’s stickiness. [That it also comes] with applications that play well and are attractive to mobile-reading population is very important. So that’s the direction we’re making our effort into.
The biggest challenge is to balance the short term investment versus the short-term revenue. We do not expect meaningful revenue in the near-term, and we’re making investments for e-reading and all the technology applications and the related expenses associated with it. So the challenge is that we can make money elsewhere to help us to increase our consumer stickiness and to give very robust reading application experience to our customer, so that’s the challenge we face.
Beyond books though is the allure of being a more diverse e-commerce player. Yu says:
We’re also working on new destination categories, such as apparel, such as baby and maternity, but those things are going hand in hand with each other.
Apparel is such a big market, and offline apparel retailers have very high markups, which give us e-commerce companies such as Dangdang, a lot of incentives to give customers big discounted apparel and at the same time keep a healthy take rate for us.
So with apparel being very large, Dangdang is trying to concentrate on the type of apparel that is appealing to our cosmopolitan, large city dwelling and professional working women for the most part - and then more and more men as well. That’s the kind of apparel store we’re trying to develop.
It is my belief that apparel market itself is very large and we’re going to see multiple apparel e-commerce companies in this landscape, and I’m sure Dangdang is going to be one of these very well to do apparel e-commerce companies.
And there’s always the opportunity for cross-selling, she adds:
Dangdang’s book consumers buy categories outside of books and when other consumers come to Dangdang, they also shop for books.
So I think books is a very strong segment that is giving us revenue profit for us to keep our growth. It’s not two strategies, it’s the same strategy, which is using the money we get from books and then invest in books to also invest for new stock categories.
My take
Dangdang has some bold ambitions in an increasingly crowded space in the market. As the likes of Amazon push into the Asia Pac market, can the firm pull off the same trick in Western markets? The firm is back in the black and this week issued some solid numbers that sent its share price up 13%, so something in its messaging is going down well with investors. Will it also work with customers? That's a question that it's too early to answer.