Letao CEO: I’m Cutting 80% of Ad Expenditure – Let’s Stop the E-Commerce Price Wars

B2C e-commerce site Letao.com is cutting its advertising budget by 80 percent, says its CEO, Mr. Bi Sheng, as it burns through approximately half of the company’s expenses. That onerous overhead is one that apparently all smaller online retailing sites are suffering, as competition in this sector gets ever more fierce.

Beijing-based Letao started out specializing only in shoes, though it has since taken an adventurous turn into mobile gaming related merchandise on the ‘Applife’ section of its site, where it sells official clothes and shoes from gaming hits Angry Birds, Plants vs Zombies, Fruit Ninja, and Taiko Drum Master. Indeed, when we looked at Rovio’s Chinese-themed update for Angry Birds Seasons a few months ago, we also looked at how the Finnish game dev company had tapped Letao.com to be its official clothing distributors.

Speaking very frankly to Sina Tech news – indeed, much more candidly that most CEOs ever do – Bi Sheng said he often feels that the entire e-commerce sector in China is not sustainable as it stands at the moment. He added, “This July I felt that the entire market is not right,” and that gut reaction prompted him to slash 80 percent of Letao’s expenditure on advertising in a bid to reduce wastage. He revealed that his site was spending 350,000 RMB ($55,000) per month last year on Baidu’s ad platform, and that had doubled to 700k earlier this year. So, presumably after these cost-savings, Letao will spend just 140,000 RMB per month on those online ads. It’s not clear how much it is spending on other forms of critical advertising in this sector, such as outdoor ads in major cities.

Letao has plenty of competition too – from the major brand storefronts on Alibaba’s Tmall to upcoming specialist sites like OKBuy (which also focuses on shoes).

The Zappos-like Letao raised a huge 200 million RMB (US$31.4m) in series-C funding at the start of this year – from the likes of Ceyuan Ventures, DT Capital Partners, and the Tiger Fund – and also stated at the time that it would not engage in a price war.

From Bi Sheng’s frank chat, there’s no suggestion that Letao is having problems – just that the whole sector needs to cool down on the cut-throat ad spending and think of other ways to innovate and draw in customers. But with B2C competitors like Dangdang (NYSE:DANG) and 360Buy always at each other’s throats, and the big hitters Alibaba and Tencent (HKG:0700) edging closer in battle, that’s not too likely to happen.

[Source: Sina Tech news – article in Chinese]