(Ecns.cn) -- A group buying website co-owned by US-based Groupon Inc, the biggest online coupon company, laid off a third of its total workforce at its Shanghai office on August 19.
The layoffs of 150 staff members at Gaopeng.com, jointly established by Groupon and Tengxun, one of the leading portals in China, signals a dramatic turnaround for a company that just months ago aimed to dominate China's online group-buying market.
The company started firing staff last month and "people have been leaving the company almost every week recently," a mid-level employee told the 21st Century Business Herald.
On Monday, an online post urged Gaopeng staff members in Shanghai to dress in black to protest the sudden job cuts. Up to 30 percent of its employees will be cut, according to a netizen. Some of those being laid off were permanent workers, but most were contract employees terminated after a six-month probation.
Gaopeng has operating centers in about 40 cities, including Beijing and Shanghai, as well as facilities in third-tier cities that are set for closure.
Even its Beijing-based headquarters has been included in the layoffs, a senior officer of the company told China Youth Online.
Analysts say that Gaopeng's situation is likely to have a domino effect on the many group-buying clones that have failed to provide reliable customer service.
Several departments at 55tuan.com, a local group-buying website, fired staff members in July. About 20 of its former employees had filed complaints to the Arbitration Commission in Beijing's Haidian District by August 4.
A blind expansion
Group buying has attracted venture capitalists to invest millions of dollars into the sector despite its infancy in China. According to Analysys International, an internet research firm, there were 13 fundraising drives for nine group-buying websites in 2010, with total capital of about 700 million yuan ($108.3 million).
The number of group-buying websites, which began to appear in the country around March 2010, had jumped to 4,500 by the end of May, according group-buying navigation website Tuan800.com.
The websites tend to "burn money," as they put it, to expand and improve their services and to invest in marketing to increase recognition. Those without deep pockets have fallen behind.
With a population of 485 million Internet users, China's online market has become intensely competitive. Global e-commerce services such as eBay have struggled to gain a foothold against aggressive local rivals.
Groupon, a latecomer to China's group-buying arena, has seen the cost of its marketing exceed revenues, while Chinese group-buying websites have not yet become profitable.
The ambitious company said it would combine Groupon's global group-buying experience with Tencent's deep knowledge of China's online community.
"The bubble of the group-buying industry is as big as the ozone layer, but winter for the business is coming soon, and it will be freezing," Wang Huiwen, vice president of meituan.com, told China Youth Online.
Wang is the first industry insider to point out the ridiculousness of such expansion. The cost of a group-buying website increased ten-fold in the first half of 2011, while the gross profit declined from 20% to 10%, he said.
Shen Boyang, manager of Nuomi.com, has also felt the chill. The website lost 4.2 million U.S. dollars in the second quarter of 2011.
"It (Nuomi.com) is just a small website, so you can imagine how much the big players are losing," Shen said.
