Major e-commerce pioneer Dangdang struggling to survive

Once described as "China's Amazon," e-commerce website Dangdang.com is finding itself fighting to stay afloat due to rabid competition.

The company started selling leftover stock on May 7 despite of an earlier strategy aimed at middle and high-end clothing. CEO Li Guoqing told the Beijing News that his company is struggling to balance its expansion.

The price of Dangdang's shares has dropped from $35 per share to less than $5, despite a booming e-commerce sector that has enjoyed average annual growth of 66 percent.

Dangdang was founded in 1999, while its main competitor 360buy.com emerged five years later. In that time, 360buy has surpassed Dangdang, with its 2012 sales volume exceeding 60 billion yuan ($9.69 billion) compared to Dangdang's paltry 5.19 billion yuan.

Other competitors, including Tmall, Suning and Yihaodian, have also outgrown Dangdang, leaving the company with a shrinking market share.

Analysts have attributed the company's poor performance to a failure to map out appropriate strategies for business expansion.

E-commerce analyst Li Chengdong said Dangdang's budgeting was unduly conservative in its initial stage of expansion, while its counterparts have boldly expanded through risky financing strategies.

Li said his company, which got its start selling books, has been more cautious and prudent than other companies that head into the sector with nothing to lose or fear.

The CEO said 360buy should target markets that differ from those targeted by Dangdang, rather than trying to dominate the entire sector, so that all companies can profit.

Li's wife and company president Yu Yu said Dangdang has survived the competition and remains a leading brand, despite its sales slump.

However, Dangdang's prices, product diversity and inflexible payment methods have stopped it from expanding as quickly as its competitors.

Analyst Ding Chenling said the company's biggest problem has been its slow reaction in upgrading its business structure.

The company's book sales, which serve as a pillar for the company, have been threatened by competitors, particularly 360buy, which has relied on a low-price strategy to beat its rivals.

China's online book market is valued at 30 billion yuan, much less than the value of the home appliance market, but still enough to support Dangdang when it was still dominant.

However, fierce competition has compelled Dangdang to diversify its business and improve its margins.

Dangdang's business report for the fourth quarter of 2012 showed that its sales volume for general merchandise totaled 1.15 billion yuan, while book sales totaled just 930 million yuan.

Yu said the data reflects the realization of Dangdang's diversification.

Li said in March that garment sales will become the company's third-largest source of revenues following books and maternity products.

However, Dangdang's general merchandise business is not expected to show impressive performance, as its counterparts' general merchandise offerings are more developed and mature.

In order to prop up its flagging sales, Dangdang opened an online outlet in October 2012 on Tmall, a B2C platform operated by Taobao, China's largest online retailer.

Li admitted the decision was a compromise to preserve the company's development, as it lacks sufficient capital because of a long-time deficit.

Tmall and 360buy took 52.1 and 22.3 percent of China's online shopping market, respectively, by the end of 2012. Dangdang, on the other hand, had a market share of just 1.2 percent.

Although cooperation between Dangdang and Tmall may benefit both, experts believe it will ultimately impair Dangdang's brand value.

The company's net deficiency in 2011, the year after it was listed in New York, was 229 million yuan. 2012 saw the deficiency grow 94 percent year on year in 2012 to 444 million yuan.