Groupon gets jittery in China

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Daily deals website Groupon has shut more than 10 offices around China and laid off hundreds of staff, the Wall Street Journal reported on Wednesday.

Groupon Inc.’s China joint venture has fired a large number of workers for poor performance as the company competes for customers in the world’s largest Internet market, a person with knowledge of the matter said.

The Gaopeng.com site is financially viable and still hiring, said the person, who declined to be identified because the moves weren’t announced publicly. The firings weren’t made out of necessity, the person said.

“They’ve been firing people for at least three months,” James Liu, a photographer for GaoPeng was quoted by the paper as saying.

Groupon and GaoPeng told the Wall Street Journal that the office closures are part of a change in strategy. A spokesman for GaoPeng said the firm planned to focus on middle- to large-sized cities.

Groupon said earlier this month that it was cutting some underperforming staff at its Chinese joint venture Gaopeng. Gaopeng, has a small slice of the group-buying market in China, behind more popular sites such as Lashou, Meituan, Wuwutuan.

Groupon, which plans an initial public offering, is making “progress” in China after opening Gaopeng.com earlier this year with investment by Tencent Holdings Ltd., Groupon Chief Executive Officer Andrew Mason said in June. Gaopeng, also backed by Yunfeng Capital, a private equity fund begun by Alibaba Group Holding Ltd. Chairman Jack Ma, offered daily deals for goods and services in 30 cities as of June.

“Groupon’s approach to international expansion is to aggressively create a large presence upfront and refine our strategy as we gain deeper insight into the local market,” Julie Mossler, a spokeswoman for Chicago-based Groupon, said in an e-mailed statement. “We view any adjustments to the business as very typical in order to build a long-term foundation for success.”

Former and current employees of Gaopeng.com say more than 10 offices were closed, and a lawyer representing former Gaopeng employees estimated that about 400 people have been fired, the Wall Street Journal reported earlier. The moves may mark a reversal of Groupon’s China expansion plans, the newspaper said.

Slow in building presence

Chicago-based Groupon Inc. spent much of 2010 expanding overseas. The result was that 58% of the company’s $1.52 billion in revenue in the first six months of 2011 came from outside the United States. China seemed a logical fit, not only because of its growing economy, but also because collective buying is an established phenomenon there, providing a built-in audience for Groupon.

But Groupon was slow in building a Chinese presence, and by the time its site, GaoPeng.com, launched there in February, the market was cluttered with more than a thousand rivals. GaoPeng now hovers on the outskirts ofChina’s top-10 daily-deal sites. The site attracted 2.4 million visitors per day in May, according to iResearch Consulting Group ofBeijing, which ranked it in the top 10 in terms of traffic. GaoPeng ranked sixth in the number of deals offered but only 12th in revenue among deals sites in June, according to Dataotuan.com, a deal aggregator based in Shanghai.

The Chinese daily-deal market ?is like the Oklahoma land grab, and Groupon is quite late to the party. They came in and expected prime land by a babbling brook, but they just got the panhandle,? says Scott Silverman, Beijing-based regional director for the Asian operations of San Francisco ad agency Godfrey Q & Partners LLC.

Now Groupon is struggling to catch up. As it prepares for an initial public offering it hopes will raise $750 million, the promise of a strong performance in China is central to the notion that Groupon can sustain growth (from $30 million in revenue in 2009 to $713 million last year and about $1.5 billion in the first half of 2011).

Q2 loss

Daily deals juggernaut Groupon managed to significantly slash marketing costs last quarter, but its net loss in the second quarter of this year has?almost tripled?compared to last year as it hired more than 1,000 new employees, according to an?SEC filing?published early this month. Basically, the company is still growing tremendously?but losing big money in the process.

The updated financial details show that Groupon increased revenue from $3.3 million in Q2 2009 to $878 million in the second quarter of 2011, while net income swung from $21,000 for the second quarter of 2009 to a staggering net loss of $102.7 million for the second quarter of 2011.

Groupon hired more than 1,000 employees in the 3-month period ? growing its sales force to more than 4,800 people ? which caused a serious bump in ?general and administrative expenses?.

In total, Groupon grew from 37 employees as of June 2009 to 9,625 employees as of June 2011.

Groupon serves 175 North American markets and 45 countries as of June 30, 2011.

MENA PRESENCE

Early this year, Groupon launched operations in India, Israel and South Africa via acquisition of local daily deals sites.

This acquisition widened its global footprint to five continents, and continues Groupon?s rapid global growth and extend its reach across India, the Middle East and South Africa.

Early this month, there was a change of guard at Groupon Middle East, less than six months after the launch of the discounts website in the UAE.

The offshoot of the US-headquartered site has replaced its regional managing director, and appointed a new chief executive to oversee Middle East operations.

Groupon offered its first UAE promotion in March this year, but has failed to gain significant ground on Cobone, the local leader in the daily deals market. The shakeup of its senior management in the Middle East comes a time of intense competition among similar ‘group-buying’ sites.

Ainsley Duncombe, who co-founded the discounts site LowCostDubai.com, took up the position as chief executive of Groupon Middle East on August 1st, The National has learned.

Groupon rose to prominence last year, when it walked away from a $6 billion takeover offer from the web search giant Google.

The site, which offers daily discount deals in hundreds of cities across the world, is the number one group buying site globally. It has filed documents for a much-anticipated initial public offering, which could set a value for the company as high as $25 billion.

But the rise of Groupon has seen a number of competitors spring up; there are up to 20 ‘group-buying’ websites in the Middle East region along, according to some estimates.

Such competition has prompted management changes in other markets too.

Sources: Sfgate, Economictimes, Chicagobusiness, Seekingalpha, Marketingworldmag, Thenational

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