5,000 Group Buy Sites in China, But No One’s Making Money

We told you last week that winter is coming for net startups in China. And we’ve been following the floundering of Groupon in China — short version: things are going poorly for them.

Today, the Economic Observer is reporting some more grim news for group buy sites in China: the competition is fierce and the rewards for victory are scant. This is something you probably already knew, but you might still be surprised by the numbers: China has over 5,000 group buy websites, 3,000 of which were launched in the first half of this year. And every single one of the nation’s top ten group buy sites is losing money, according to the CEO of 55tuan, which is one of the top ten sites by most reckonings.

Of course, it’s unlikely that group buy will remain unprofitable forever if Chinese consumers are interested in it. But according to some, consumer interest in group buy sites is already dwindling. The Economic Observer quotes a disappointed Xu Lei, the CMO of Yougou (a group buy site), as saying that “group buying has already undergone a fundamental shift, consumer interest is weakening, and the sales attained by group buy sites have yet to reach half of what was predicted.”

Part of the problem is that running a nationwide service is ridiculously expensive because there are relatively few chain stores in China, necessitating a large number of on-the-ground employees in any location a Chinese group buy service wants to cover. But hiring a large number of employees cuts deep into one’s budget — Groupon seems to have learned this the hard way as they’re firing staff and shuttering branches nationwide. They’re probably the highest profile group buy site that’s doing that right now, but they’re not the only ones. The Economic Observer article cites several e-commerce companies that are planning to or already have pulled out of the group buy game entirely. As the CEO of one Taiwanese e-commerce company put it, group buy “is just not ideal.”

So what’s the future of group buying sites in China? We’re not sure, but we’re willing to bet that at the very least, one year from today there will be a whole lot fewer of them.