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Inspired by the success of Groupon, Chinese versions of the U.S. group buying website have multiplied into the thousands in recent years. But now, these companies are struggling to survive, with nearly 5,000 Groupon-like websites facing tough competition and diminishing cash reserves.
Sinking ships, that's pretty much the picture of the current group buying segment of China's booming online retail market.
According to Tuan88.com, an Internet portal that aggregates Chinese group buying deals - group buying exploded in China last year, with over 5,000 such sites sprouting up all over the Internet.
But poor service complaints from consumers have reduced the initial enthusiasm for the bargain shopping platforms. Analysts say, disreputable group purchase companies have chipped away at the trust consumers and wholesalers have for the retail platform. And with little to gain from advertising, they say the market will eventually be reduced to a few reputable companies who can survive in the long-term.
Niu Liben, CEO of Fclub.cn, said " In some cities, the coupons sold by some group buying sites cannot be used anymore, these websites are at a dead end, they've had to shut down the business."
Groupon, which sparked the group buying phenomenon, has also entered the Chinese market. Its joint venture with Tencent Holdings - GaoPeng.com - has gradually grown in popularity. But it only has a small slice of the group buying market in China, trailing a slew of more popular local players. In August this year, Groupon's China business began to laying off hundreds of employees.
The managing director of Weikee.cn, believes that only around five percent of current group buying websites will survive.
Su Shaohuan, MD of Weikee.cn, said " I think eventually only 5 percent (of China's group buying sites) will survive, and 95 percent will die out."
Adding to the current woes, the changing of investor sentiment is also weighing on the futures of Chinese group buying ventures. Many Chinese group purchase companies such as Meituan, Wowo, Lashou have received investment of over 50 million yuan. According to online statistics, China's group purchase industry has raised funds of more than six billion yuan over the past year. However, Lashou has failed to go public and Meituan is still burdened with heavy losses and debts.