Investor Journal, 3/05/12
Guo He, senior VP and head of PR for Chinese B2C e-commerce site Dangdang (NYSE: DANG), has disclosed that Dangdang and home appliance and consumer electronics retailer Gome's (0493.HK) jointly operated consumer electronics e-commerce channel may launch in the first half of March.
Zhang Bing, Gome.com.cn's head of procurement and sales who led Gome's six-month-long talks with Dangdang, said the two companies have completed connecting their respective service, finance, and technical systems.
Dangdang will partner with vertical B2C sites in sectors such as consumer electronics, apparel, wine & spirits, and foodstuffs this year. B2C online shoe retailer Letao announced this week it will join Dangdang's open platform. Letao CEO Bi Sheng said that Letao aims to forge a long-term partnership with Dangdang. Letao has already opened a store on Hangzhou-based B2C e-commerce site TMall.
Dangdang's open platform has two types of stores, according to Guo: first, private brand stores for company's such as Lenovo, which operates an official flagship store on the site, and second, stores for vertical B2C partner sites, which open shops under Dangdang's "Shopping Street" model.
Dangdang's vertical B2C partnerships primarily work on a sales revenue share model, with two types of partners: those that use Dangdang's warehousing centers to store their products as well as use Dangdang's payment systems and delivery services, and those that do not, according to Guo.
"When users place an order using Dangdang's payment system, merchant partners receive a revenue share after costs are deducted. Open platform partners are responsible for shipping the orders. If needed, Dangdang can also provide logistics and delivery services.
Guo claims that Dangdang takes the smallest revenue share in the industry. Revenue share varies depending on product type. Products with relatively high gross profit margins such as apparel have higher revenue shares, while lower margin goods such as 3C goods receive a lower revenue share.
As to whether the partnerships will reduce traffic, Guo said that after users first purchase a Letao product on Dangdang, they may make their next purchase directly from Letao's site, pointing out that comprehensive e-commerce sites have advantages over vertical B2Cs, offering one-stop shopping and a wider selection. Guo added that Dangdang can partner with multiple vertical sites in a single product category.
Many vertical B2Cs are drawn to Dangdang's open platform because Dangdang's customer base has relatively high incomes, educational background, and consumer habits, according to Guo.
The main reason for adopting a non-self-operated open platform model, Guo said, is not to reduce costs. "Vertical B2Cs are highly specialized and have experience our in-house teams lack, so we invite the specialists to sell their goods on our platform."
The platform also helps Dangdang save time by partnering with a vertical B2C site instead of negotiating with each brand in a vertical category individually, and reduce operating costs as many vertical sites don't require Dangdang's storage or logistics services, but only need access to the platform and backend, even uploading their own product images and information, said Guo.
Merchants are required to contribute consumer protection funds in advanced, a standard requirement in the industry. Dangdang also provides training regarding its users' habits, product image selection, and sales. The primary criteria for partner selection is user experience.
Dangdang said that it has a sales figure target but declined to provide details, saying it currently is not concerned with profitability but instead is focused on expanding its product categories and selection.
Editor's Note: For more information on this topic, please see "Dangdang to Expand Open Platform Partnerships," MD 2/24/12 and "Rumor: Dangdang to Join QQ Buy Platform," MD 3/02/12 and "Rumor: Gome to Join Dangdang Platform," MD 2/13/12 issues.