If imitation is the most sincere form of flattery, Jeff Bezos, the founder and chief executive of Amazon.com, should be glowing with pride.
Dangdang, the Chinese equivalent of Amazon, has recently announced plans to launch an electronic platform similar to Amazon’s Kindle, selling e-books for PCs, mobile phones and e-readers, says the Southern Metropolis Daily.
It is certainly not the first time Dangdang has learned from Amazon’s best ideas. Peggy Yu, who founded Dangdang with her husband in 1999, has made no effort to disguise her admiration for Bezos. Books covering Amazon’s rise to prominence are required reading for all Dangdang staffers, says the New York Times, and even after years of seeking to emulate Bezos, Yu still regularly visits Amazon.com for new ideas.
In the Chinese market, that has helped Dangdang compete with Joyo Amazon, the US firm’s China subsidiary (see WiC63). Both retailers control a similar share of China’s business-to-consumer sector (about 9%, as of the third quarter, iResearch estimates).
To fund its new e-book venture and improve existing operations Dangdang filed plans last month for a $221 million initial public offering in the US with a listing scheduled for December 7, says the 21CN Business Herald. FinanceAsia reported that the ADSs are offered at a price between $11-$13, which represents a price-to-earnings ratio of 38 to 44 times based on 2012 earnings. Put in perspective, Amazon is trading at 35 times projected 2012 earnings.
Analysts say Dangdang’s offering will likely attract considerable attention. Total transaction volume for Chinese online retailers grew 107% to Rmb252.7 billion ($38 billion) last year. The trend continued in the first half of this year, when total transactions surged 103% to Rmb213.3 billion versus the same period in 2009.
There is also an enormous untapped market. In the US, about 4% of consumer goods were sold online as of the end of last year, compared with only 2% sold via the internet in China, a figure that market research firm iResearch expects to rise to 5% by 2014. Moreover, Dangdang will be the first major Chinese online shopping site to go public.
Still, despite the rosy outlook, some are worried whether it’s growing fast enough. Last year, its book-selling business grew about 60% from a year earlier, says Asia Times. That may sound good but “the growth rate lagged the overall market and it will be even slower in the future,” says an industry analyst. “As Dangdang already has about 10% of the overall book market in China… it would be hard to expand [the book-selling business] a lot.”
To boost sales, Dangdang has diversified into bigger ticket-items like consumer electronics. But competition is fierce.
The Beijing-based e-retailer 360buy.com, which specialises in electronics, is four times bigger than Dangdang in terms of transaction volumes, and growing much faster – with 35.6% of the total B2C (business-to-consumer) market in the third quarter of this year, according to iResearch.
Dangdang must also compete with the formidable Taobao.com, which started as an online auction site but has moved into traditional online retailing in recent years. Part of Hangzhou-based Alibaba Group, Taobao dominates China’s consumer-to-consumer (C2C) market, with a whopping 79.3% share of the mainland’s online shopping sector in the second quarter (aggregated across its B2C and C2C businesses). Transaction volumes have been doubling for each of the past five years, reaching Rmb208.3 billion in 2009.
Dangdang seems unfazed. Its executives say that, given the huge growth potential of China’s e-commerce market, there is plenty of room for a range of companies to grow.
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