Weekend Links: O2O Business in China

Warning: JR is trying to explain the economy to himself. His word pool and previous knowledge about this topic are shaky, and the following may or may not make sense – you’ll have only have yourselves to blame if you base your homework (or investment decisions) on this post.

Going “Brick-and-Mortar”

Let’s get industrial. O2O is about [people] buying things online, but collecting them from a shop on their side of the computer or smartphone – or having the stuff delivered to their doorstep. But China’s woefully inefficient logistics network .. acts as a brake on e-commerce growth, the Economist wrote in August, and that leads to online retailers seeking “brick-and-mortar” outlets to increase the points of delivery and to make their goods more accessible for their online customers.

Dalian Wanda Group’s (万达集团) and Suning Commerce Group (苏宁云商) are a recent example in the news. Wanda’s property development section (the company’s other major trades would be culture and tourism)  provides department stores or plazas all over the country, and Suning Commerce Group is a retailer with reportedly more than 1600 stores across mainland China, Hong Kong, and Japan. The two have signed a cooperation agreement: Suning will open stores at Wanda Plazas throughout the country, Reuters wrote on September 6.

National Soft Power, too

China News Service (CNS) explained, on September 7:

Suning coming into play is a direct result of an upgrade at Wanda. Wang Jianlin has long indicated that the answer would be revealed on this day.

其实,细心的人早就能发现这次合作的蛛丝马迹。它与万达正在进行的业态升级紧密关联。甚至可以说,苏宁的入局,正是万达进行业态升级的直接成果。王健林一直引而不发,直到这一天揭晓答案。

The adjustments had been watched by many skeptical observers for about half a year, without Wang Jianlin providing much of a response during all the time, according to CNS. But as for Wanda’s department stores, or plazas, CNS has reassuring news:

Are Wanda’s stores really as bad as comments from outside suggest? Not at all. One one occasion, in an internal meeting, Wang Jianlin revealed that nearly half of the Wanda stores were incurring losses, but that the other half of them were profitable. He was in a position to cut the outlets that were incurring heavy losses, optimize the portfolio, and then have a attractive story to tell to the Hong Kong capital markets, with a beautiful financial report.

万达百货真的有外界评说的那么糟糕吗?并不是。王健林曾经在一次内部会上透露,万达百货有近一半是亏损的,但还有另一半是盈利的。他完全可以砍掉亏损严重的门店,优化资产组合,用亮丽的财报去给香港资本市场讲一个动听的故事。

The CNS article also points out that Wanda became involved in the culture industry in 2012.

Compared with real estate business, the contribution the culture segment could make to [the Wanda group’s] revenues and profits was very low, but it perfectly fitted into the strategic requirements of the national advancement of soft power, and its synergy effects with real estate, tourism, and other trades was obvious. As big onlooking companies  from the real estate began to recognize [Wanda’s approach], they scrambled to emulate it.

2012年,万达发力文化产业。跟地产比起来,文化产业能够贡献的收入和利润份额在当时非常之低,但是却紧密契合了国家提升软实力的战略需求,与地产、旅游等行业的协同效应非常明显。以至于在后来,许多大型地产企业都看明白了,开始争相效仿。

CNS also refers to the acquisistion of AMC Theatres (AMC Cinemas), and Infront Sports and Media, and offers an explanation as to why such acquisitions would make sense, and concludes:

There are many more such examples. Every draw in this game of chess was made not from a spur of the moment, but as a move taken after careful consideration, serving the transformation plan for the entire Wanda group. This is also true for the adjustments of the stores, and the introduction of Suning.

这样的例子还有很多。万达的每一步棋子都不是临时起意,都是深思熟虑之后的谨慎之举,并为整个集团公司的转型大计服务。调整百货,引入苏宁,也是如此。

The message provided by CCTV’s website for the foreign audience is equally heartwarming:

The Wanda Group, headed by Asia’s richest man Wang Jianlin, seems unstoppable.

Complementary illustration ...

Complementary illustration …

The Financial Times, in an online article published on August 6, isn’t quite that enthusiastic – although, it should be said, their misgivings aren’t about the Wanda-Suning romance which was only made public in September, but about the O2O industry in general. Rising labor costs could hamper the business model, and it is not entirely clear what lasting new business models will emerge.

That said, if O2O is really a lifestyle, as suggested by Chinaskinny, the question might come up, sooner or later, if and how costs play a role in that customer “hobby”, and if the promises it makes to the supplier side are sustainable, For sure, the example of the nail specialists who can make so much more per hour, if based on O2O, is all over the internet, as observed by the FT.

____________

Related

» Baidu Q3 forecast, TechCrunch, July 27, 2015
» Traditional Industries, new Bones, April 17, 2015
» Central Committee Cultural Decision, Oct 28, 2011

____________

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: