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Dangdang: set to emulate Eslite?

As e-commerce has spread across the globe, newspapers have often heralded the ‘death of the high street’, as the lower overheads of online retailers allow them to launch devastating price wars against their offline enemies. Now, as is often the case in conventional warfare, online book retailer Dangdang has begun occupying enemy territory.

Late last year Dangdang announced its intention to open 1,000 physical stores over a three-year period, with the first due to debut in Changsha, measuring in at 1,200 square metres.

But some warn these expansion plans may be a little ambitious considering the retailer’s fairly weak starting point. Despite the Dangdang’s strong origins as a virtual bookstore – dubbed “China’s Amazon” – CBN Weekly reports that the company has suffered losses for the last three quarters and only managed to get through 2014 with the help of government subsidies and tax rebates. Considering Dangdang’s development plans, the magazine writes: “Dangdang would struggle to even cover the salaries of the staff required to run such a large unit.”

Similar to the first of Amazon’s offline bookstores, which opened in Seattle last year, Dangdang intends to match the online and offline prices of its books, which could reduce the margins at its physical stores to 15%, CBN Weekly suggests.

In order to reduce these costs, Dangdang’s vice-president Zhang Wei says it plans to team up with shopping malls in an attempt to cut operational overhead. Owing to China’s glut of malls – many of which have vacancy issues – Zhang told Xinhua that he “hopes our partners can provide store spaces of over 1,000 square metres free of rent for five years”.

As per Dangdang’s projections, this means the company is seeking over 1 million square metres of rent-free retail space in the next three years.

Although profitability might be lower, purchases through bricks-and-mortar bookstores still account for the majority of book sales in China, according to research carried out by Alibaba’s Tmall: in 2015 the book industry sold 62.4 billion items, only 28 billion of them online. (A third of those online sales were carried out through Tmall, indicating it enjoyed 73% year-on-year growth.)

The rising competition from other online retailers such as Tmall, JD.com and Amazon must be a persuasive factor for Dangdang to test the ground offline, where facets other than price can, or indeed must, be used to gain an advantage. Zhang explains: “Our bookstores will become a cultural complex combining sales of books and other related products with higher profits.”

This bookstore model is akin to that of the Taiwanese chain Eslite, which bolsters its book sales with those of miscellaneous items such as thermos flasks and stationery, as well as channelling business through in-store cafes. In some of its stores book sales only account for 60% of Eslite’s revenue.

Eslite chairman Robert Wu Ching-yu claims its development strategy is to “build stores that correspond to the character of the local community and the needs of the local readers”. Personalising the shopper’s experience in this way is an area in which Dangdang might do well, by utilising its online data to more accurately target customers.

Mind you, Dangdang’s inspiration Eslite will also offer some bricks-and-mortar competition.

The Taiwanese book chain began its expansion into mainland China last year, opening a mega 15,000 square metre bookstore in Suzhou as part of a larger shopping complex. It is likely to add a second outlet in the Shanghai Tower, a 128-storey skyscraper that is set to open this year.

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