BEIJING (Reuters) - Amazon.com Inc (AMZN.O), the world’s largest online retailer, is prepared to run losses in China to secure a position among the top three players by sales in the country’s cut-throat but booming e-commerce market, its China chief said on Thursday.
China’s $36 billion e-commerce industry is hyper-competitive with online retailers and marketplaces such as Dangdang Inc DANG.N, 360buy and Alibaba Group’s Taobao Mall frequently launching price wars and marketing campaigns to win market share.
The latest salvo was fired by Taobao Mall earlier this week when it said it will spend 200 million yuan to subsidise a four-month home appliances and electronics promotion, to compete with 360buy.
“We are not so concerned about when we make money or how much money we make,” Amazon’s Wang Hanhua told Reuters in an interview.
“We tend to take a very long-term view of things. We believe that China’s e-commerce eventually will be huge. It’s not going to be a winner-takes-all market...We will definitely aim for the top three in China,” he said.
Figuring out where Amazon ranks now is tricky. The company reported $5.76 billion in first-quarter sales from international sites including China, but it does not break down results by country. Wang declined to provide figures for China.
Industry data that measures market share in China is calculated according to transaction volume, not sales. Based on those figures, Amazon trails far behind 360buy, which controls half the business-to-consumer online market to Amazon’s 7 percent.
Although Amazon’s China business is still relatively small, sales are growing at a triple-digit rate, making it the company’s fastest-growing national market, Wang said. Amazon declined to say how many people it employs in China.
The company has a history of incurring losses while building up its business. It became a dot-com darling in the late 1990s thanks to explosive U.S. sales growth, but after years of losses investors began to question whether it would ever become profitable.
It eventually did, but repeating that feat in China may prove even tougher because Amazon must compete with well-established companies.
Wang said Amazon will not shy away from price wars to match competitors in a market where losses are common because China’s e-commerce players spend heavily on marketing to draw customers at the expense of margins. Amazon plans to increase its marketing spending by about 50 percent this year, but Wang declined to provide figures.
Amazon bought Joyo.com in 2004 for $75 million and turned it into its main China unit. Last year, it changed its branding, dropping the Joyo name in favour of Amazon China, and shortened its local Chinese website to “http://www.z.cn”.
Its popular Kindle device, an e-book reader, is not available in China, but Wang said the company is in talks with Chinese publishers on content deals before launching the device, which he hopes will happen in less than two years.
One area Amazon may have an advantage over domestic competitors is logistics - making sure purchases made online are delivered swiftly. The company has built 11 fulfillment centres that handle warehousing, inventory management and logistics, more than its rivals, Wang said.
That advantage may not last. Alibaba said last year it would invest between $3 billion and $4.5 billion on logistics.
The stiff competition does not seem to worry Wang who says that in calls with Amazon’s founder, Jeff Bezos, the discussion centers on the Chinese consumer, not the company’s performance.
Amazon’s China race “is not a sprint,” Wang said. “This is a marathon.”
Editing by Emily Kaiser