Three CEOs in Under Three Years: Why Can't Wanda Get the Hang of E-Commerce?

No clear strategy, no clear thinking — so where does the goal of 10 billion yuan in profit and a group-wide listing by 2020 even come from?

That makes three.

On Tuesday a string of outlets reported that Li Jinling, CEO of Wanda's e-commerce business, had resigned. He joined the company in February 2016.

Few people were surprised. Ever since Wanda announced in 2012 that it was going into e-commerce, it has gotten rid of an e-commerce CEO almost every year.

Asked about the reports that Wanda's e-commerce CEO had quit, Qu Dejun, president of Wanda Internet Technology Group, said the company had never offered an annual salary as high as 8 million yuan for the job. More to the point, he said, e-commerce is only one sub-business of the internet group, and "Wanda never said it wanted to do e-commerce."

Set aside whether that squares with what Wanda itself said on its own website a few years ago. Three CEOs in three years, the Tencent-Baidu-Wanda alliance that formed and fell apart, and the successive failures of "Wanhui.com" and "Feifan.com" are enough to show how unsure — or how lost — the company has been about where to take this business.

Those contradictions have now been folded into a Wanda internet operation called Feifan, which is out chasing a fresh round of hot money. According to what Wang Jianlin told Wanda's 2017 work conference, Feifan is to raise a 10-billion-yuan Series A this year, turn a profit overall in 2018, and by 2020 clear 10 billion yuan in profit and list as a group.

China's e-commerce market has already chewed through several rounds of new concepts and reinvented itself more than once. Against that, Wanda's moves look clumsy and late to every idea — and yet they come wrapped in a blind confidence and a stubborn determination to make the thing work.

But as you can see, the plan didn't pan out, and almost nobody seems willing to take responsibility for the result.

So it's worth asking why Wanda keeps missing the right direction in e-commerce, or in the larger "internet" idea. And what, exactly, is the "brick-and-mortar plus internet" business model Wang Jianlin says he wants?

Three CEOs in three years: does Wanda even know what kind of people it wants?

Li Jinling's background looks like exactly the kind of professional manager Wanda likes: his first job was at Procter & Gamble, the "Whampoa Military Academy" of fast-moving consumer goods, followed by stints at Motorola, Pepsi, eLong, Mangocity and several other companies — big-company pedigree plus internet experience.

The two men who held the job before him, Gong Yitao and Dong Ce, had solid records too.

Gong Yitao had been a manager in Google's e-commerce technology department at headquarters and a senior director of international transaction technology at Alibaba. By his own account to China Real Estate Business, he spent two years after arriving at Wanda building from nothing: he drew up the entire O2O business strategy and built the back end of "Wanhui.com."

Dong Ce was a co-founder of the luxury e-commerce site "Jiapin.com." He took over as CEO of Wanda's e-commerce business just as the Tencent-Baidu-Wanda tie-up was announced, so he started over on a new platform, "Feifan.com," and pushed a membership system.

It wasn't only these three. As with Wanda's other new businesses, nearly the whole senior team in e-commerce and internet operations came from well-known technology and internet companies. Earlier, Qian Jin, who ran Wanda's hotels, came from Starwood, a big name in that industry.

Behind these executives — hired on the theory that they could open up new businesses fast, even give Wanda an edge in the industry — sits the nearly 100 million yuan Wanda pays every year to every well-known headhunting firm in the country.

The "8-million-yuan salary" figure also came from a recruitment notice a headhunter posted online. Ever since Wanda said in 2012 that it would do e-commerce, the pay for the CEO job has been reported at around 2 million yuan. Even so, after Dong Ce left, it took headhunters a full eight months to fill the seat.

That is the opposite of what happens in commercial real estate, the business Wanda knows best and has turned into a routine. Dong Weilin, marketing director of Wanda's Xishuangbanna resort, once told QDaily that the senior team in that division is "extremely stable": "Anyone who's lasted five years here can't be poached even at double the pay."

It isn't just headhunters who can't get a fix on Wanda's e-commerce ambitions, which keep swelling and keep changing shape. Wanda itself may not be able to say what kind of manager would fit.

Which is why gossip about the money, and about what the job actually involves, dominates the answers to questions about Wanda's e-commerce business on Zhihu.

The e-commerce Wanda talks about — the online-offline model — has never left the concept stage

Back in 2014, when Tencent, Baidu and Wanda announced a joint venture to explore an O2O business model together, Wang Jianlin made no secret of what he expected from the platform. He wanted every resource and every idea Wanda had, or could imagine, poured into it.

Besides the 5 billion visits Wanda itself will see by 2020, (Wanda's e-commerce business) could also become an open platform that anyone in China running resorts, cinemas, cultural venues or restaurants could use. The value is enormous — we're exploring this on behalf of the entire offline business world.

So Wanda went to Baidu, said to possess "big data" and "artificial intelligence," and to Tencent, which owned traffic gateways like WeChat and QQ and wanted to be the "connector" as every industry went digital. Wang Jianlin later remarked that when it came to actually doing the work, people from those two companies had less feel for it than he did, and he barely touches the internet. Still, only by bringing in more resources did this entirely new business model stand a chance.

But judging by the homework the three CEOs turned in one after another — "Wanhui.com," "Feifan.com" and the Feifan app — the model never got past the concept stage.

Look at what Feifan.com does today and the idea now resembles an all-in-one system for managing offline retail brands. Free Wi-Fi and point-of-sale terminals feed malls data on shopper behavior, which they can use when signing tenants or reshuffling their mix. Membership schemes can be linked across brands, so one phone number gets you served at many stores inside and outside the mall — which also makes it easier for brands to adjust their marketing.

Because it rests on Wanda's hundreds of physical malls, the whole structure spans brands and categories at once. Nobody has pulled that off — not Suning or Intime at home, not Walmart or Carrefour abroad. The closest thing to it is Alipay's Koubei, which, after several funding rounds worth billions of yuan each, has turned itself from an online food-delivery brand into a supplier of operations and marketing systems for retailers.

In other words, it's hard to say who Wanda's e-commerce business even competes with. Beyond a pile of concepts that read like gimmicks, Wanda has never made clear to anyone outside what kind of e-commerce business it wants to run.

That may be what gives Qu Dejun the nerve to overturn the old story now and say in public that "Wanda never said it wanted to do e-commerce." Selling goods, selling solutions, selling internet finance products — every idea can be tossed into that perpetually "unfinished" e-commerce site and tested.

If this is a traditional company reinventing itself, Suning is the case worth studying

When traditional brands like Suning and Walmart talk about "the internet," they mostly mean B2C e-commerce in its most conventional sense: connect the inventory, build delivery or in-store pickup, and give shoppers the same convenience online and off.

And in that transition, the channel advantages they built up in traditional retail still count for something. Take Suning.

In the era of the appliance superstore, the big chains were the only way an appliance maker could reach consumers. To get better shelf placement and more chances to sell, brands had to pay the stores every kind of marketing fee — entry fees, management fees, advertising fees. From the other side, Suning could use the value of its channel as its main chip in talks with upstream suppliers, pushing purchase prices lower and pocketing a wider spread.

Once that inventory was connected to the e-commerce business, the profit advantage already in hand didn't vanish overnight. That is why Suning, a traditional company, made the crossing to full-line e-commerce relatively smoothly.

iResearch data puts Suning's share of China's B2C market at under 4%. That is still a place at the table — and a coherent story to tell.

Wanda has nothing so solid in its hands. What it manages inside its commercial real estate system is the larger idea of a "brand," not individual "products."

Wanda's roster of partner brands alone runs to more than a thousand long-term collaborators. To keep performing the miracle of "opening fully leased," Wanda and its tenants have gradually become a single bloc, arriving as one packaged set in city after city, large and small.

But as Wanda's land costs climb and spending power in lower-tier cities fails to keep up, the bigger, image-conscious brands are reconsidering whether this alliance actually serves them — never mind putting their own goods up for sale on Wanda's e-commerce platform.

By the time channels like JD.com and Tmall had reached a certain size, around 2013-2014, appliance makers really did shift the center of gravity of their sales, and Suning's high-margin model hit a wall.

Wanda, meanwhile, was working out how to fill the holes left in its malls by the retreat of KTV and department stores. A year after the Tencent-Baidu-Wanda alliance was formed, Wang Jianlin told a retail forum hosted by Suning that he was considering working with Suning.

In a piece of fairly dark comedy, that same afternoon the forum's theme became "a comprehensive strategic partnership between Alibaba and Suning Commerce." Jack Ma and Zhang Jindong stood on stage together and announced that Alibaba would pay 28.3 billion yuan for 20% of Suning, that Suning would open a flagship store on Tmall, and that Suning would open its logistics network fully to Alibaba.

Wanda never managed what Suning did — enough control over the brands it manages, far enough upstream, to build a real B2C business. That is the main reason outsiders keep saying "Wanda's e-commerce never got going." Then again, managing product inventory down to the last detail while keeping pace with consumer tastes that change by the week was probably always beyond Wanda.

Even if it really had no idea how to do e-commerce, how did Wanda forget its own trick — buy, buy, buy?

With nearly 800 billion yuan in total assets and an acquisition-driven expansion strategy already proven in several industries, Wanda's failure to spend big in the early years on a mid-sized or large Chinese e-commerce site and remake it for its own ends looks, in hindsight, like a serious mistake.

One possible reason: by 2013-2014, when Wanda announced it was going into e-commerce, there wasn't much left worth buying.

Apart from Alibaba and JD.com, Yihaodian and Joyo were wholly owned by Walmart and Amazon, out of reach. Vertical players led by Dangdang were hard to fit with Wanda's brand portfolio. And sites like Xiaohongshu and Yangmatou, hoping to ride the "overseas shopping" idea to a breakthrough, were still too small.

But if Wanda had started a year or two earlier, it might well have squeezed out the Walmart of today.

After buying Yihaodian in 2012, Walmart never worked out what to do with this Chinese online supermarket. In the United States it bought Jet.com and folded it quickly into its e-commerce and store operations; Yihaodian, by contrast, ended up as a bargaining chip in Walmart's purchase of a stake in JD.com.

With growth slowing in both users and transaction volume, JD.com hasn't had an easy year or two either; its share price has fallen again and again. Having swallowed Yihaodian and the crowdsourced delivery company Dada, JD.com is now pulling back and reorganizing. Even if the whole company can't be bought, some of its businesses could surely be moved off the "not for sale" list.

Today there is even less on the market worth buying — though given industry talk that Alibaba is considering a stake in RT-Mart, Wanda might look at Carrefour China, which has an e-commerce business of its own.

The opposite example comes from film, where Wanda moved early.

It started by taking over the cinema-chain business Warner had walked away from, and ten years later it was the first company in the industry to own both ends of the chain. Over those years the openings kept coming, at home and abroad.

In the cinema business Wanda started in, offline assets and bargaining power were scattered, so buying small chains like Chongqing World Trade Cinema and Dadi Cinemas was no great feat. Overseas, Wanda used AMC, the second-largest U.S. chain, which it invested in back in 2012, as a base for a run of deals — taking Australia, North America and Europe one after another, and working its way into content producers like Legendary Entertainment and DCP.

In sports, tourism and other fields Wanda was determined to build, the same buy-buy-buy strategy was carried out just as firmly. The one business that seems to have been abandoned is e-commerce.

So it all comes down to timing and resolve.

Wang Jianlin's real aim was to pull people back offline, but he never said how

Call it e-commerce, O2O or "brick-and-mortar plus internet" — Wang Jianlin never put the weight of the business online. What he thought about most was how to pull people back offline.

On the face of it, Wanda's biggest advantage over the internet companies chasing O2O is its offline platform.

"The offline resource we have the most of is merchants."

That's true enough. Wanda's advantage still lies in property. Cinemas, resorts, theme parks — they all run around the real estate business. In 2016, selling apartments and collecting rent still accounted for more than 56% of the whole group's revenue.

But put together the number of new Wanda Plazas opened in the past two years and the total foot traffic each Wanda Plaza draws in a year, and one thing stands out:

fewer and fewer people are actually walking through any given mall. This is of a piece with something we've written about many times — the chill in the brick-and-mortar economy, and the assorted new tricks companies have invented in response. Only by getting more people into offline malls, and getting them to come back more often, can these malls survive.

In the early days Wanda solved this with entertainment — cinemas, KTV — and it worked well. The problem now is that whether they're shopping, watching films or ordering food, consumers spend most of their time online.

As physical venues lose their pull, the problem hits more than the existing Wanda Plazas. It also undercuts Wanda's confidence in selling the "Wanda model" to other developers as it shifts to an "asset-light" approach. Only bigger crowds and better sales figures can keep the Wanda brand rising in value.

So beyond the "consumer profiles" and "precision marketing" Feifan promises brands, the most powerful tool is still discounts — discounts on a large scale.

Across 2016, Wanda ran 11 big promotional campaigns through the Feifan app, producing 56 billion yuan in sales, with more than 50% of participating merchants posting double-digit growth or better year on year.

Wang Jianlin was rather pleased with that: "This shows Feifan helps brick-and-mortar business grow — a win for both sides, a win for many sides — rather than knocking out or crowding out real business. Let me make one point in particular: 56 billion yuan in sales may not look like a huge absolute number, but we managed two things — very few fake orders, and very few returns." He may have been taking the chance to needle Tmall, which booked 120.7 billion yuan in sales on "Double 11" in 2016.

But Wang Jianlin probably won't dare bring up his old bet with Jack Ma again. In China, online e-commerce and offline malls and supermarkets have both grown into stable, substantial businesses. If brands have already grasped the need to advance online and offline in step, then a big player in physical retail like Wanda should have seen it sooner than anyone.

Cover image from Wanda Group's official website