On the afternoon of J
uly 18th, Dangdang CEO Guoqing Li (NYSE: DANG) challenged 360buy (JingDong Mall) once again during an interview with Sina Tech.He admitted that a dark winter is ahead for financing and pointed out that there have previously been bubbles in which companies grew through huge losses. Dangdang couldn’t escape this round of crisis for US-listed Chinese stocks.
Dangdang has been highly volatile since its debut on the NYSE, soaring to a high of $36.4 and crashing down to a low of $9.84. Faced with a tumbling stock, Mr. Li, who cursed investment banks’ underestimation of the initial stock price, has frequently reasserted his opinions. He remains confident in his company’s business and financial strength and stated that he would repurchase $2 million worth of stock via his personal fund.
Since 360buy CEO Qiangdong Liu publicized his “cold winter” theory, the question of an Internet bubble has become a hot topic. Mr. Li believes that even though Chinese Internet companies went public in US one after another, they have clear profit models, which is different from the Internet bubble 10 years ago.
“This is not a bubble in the Internet industry as a whole, although indeed, some companies are bubbles,” said Mr. Li. His evidence is that the capital market is currently very hot and there are many companies that have managed to finance an amount of 20-50 million USD. This is high time for bubbles to appear. “Everyone is waiting and seeing. The winter for the capital market has arrived.”
So how can we judge which companies have bubbles?
Mr. Li indicated that he admired a company that can maintain a 100% to 200% growth rate, but one also needs to address profits and losses. “Everybody can maintain a high growth rate by incurring huge losses. If you make Suning or Gome [large Chinese electronics retailers] lose 3% or 10% of revenue, they would have a total income of 400 instead of 100 billion yuan.”
This comment seems to allude also to Dangdang’s competitor, 360buy. According to data released by Mr. Qiangdong Liu, the CEO of 360buy, the firm has been growing at a rate of 200% to 300%. Last year, 360buy had revenue of 10.2 billion yuan. Mr. Liu estimated that 360buy would become profitable in the second half of 2010.
Mr. Liu’s view is that being unprofitable does not reduce ability to later turn a profit. His choice is to expand first.
“A balance can be struck between high growth rate and profitability.” Mr. Li does not agree with Mr. Liu’s opinion. He believes that a company could expand its market share through sacrificing profit or grow even bigger by incurring some losses rather than “huge losses.”
“Some companies lost half of their gross profit in exchange for growth and they will become profitable one day. But if losses are more than twice gross profits, I would say it’s all made up,” said Mr. Li.
As for Mr. Liu’s theory of investing heavily in 360buy’s logistics, Mr. Li said, “If I want to buy land and build a warehouse, I would see even lower spending on logistics, because the expense will be amortized over 40 years. So I don’t know how he can lose money.”
Mr. Li believes that in the Internet industry, being in the top 2 in a competitive market is of great value. If a 100% annual growth rate can be achieved, it will be very good company.
The following is an excerpt of the interview with Sina Tech.
360buy has lost a huge amount by selling 3C (computers, communications, consumer electronics) and is no match for Dangdang
Sina: 360buy, a very big competitor to Dangdang, is jointly blacklisted by 24 publishing houses, because their prices are too low. What is Dangdang opinion on this?
Mr. Li: 360buy is losing huge amount of money on its sale of 3C. In terms of selling books, it is no match for Dangdang. We are still engaged with various kinds of competition with the old competitor, Amazon.cn. As for the publishing houses’ discount limits on 360buy and its refusal to conform, my take is that there is a limit on everything in relation with upstream and downstream participants. Dangdang posted a 25%-off sale a while ago and made brand owners angry. From our perspective, 25%-off is acceptable. But if you want to break the discount limit, especially selling at a price lower than the purchase price, it will be an illegal price war and China’s Anti Unfair Competition Law will take care of it. So I think the cause of 360buy’s dispute with publishing houses is that the company has broken their bottom line.
Sina: You just mentioned that 360buy would not be Dangdang’s competitor?
Mr. Li: They still have a long way to go in the field of book-sales. At least, they are not a competitor for now. I’m not sure of that in the future.
Sina: What do you think of this competitor [360buy]? Will it be a big threat to you?
Mr. Li: I don’t see any threat in book sales, because Dangdang has occupied a very large share of the Chinese book market, even bigger than that of Amazon in US. With such huge market share, we can be very flexible. So I don’t see any threat in the short run.
Sina: Will large-scale discounts and a slow distribution system be the next core issues?
Mr. Li: At present, Dangdang has the largest number of distribution centres. We offer a “cash on deliver” service in 700 cities. We had the problem of slow distribution in the past two years and it will be like that in the next two years, not just during promotional periods. The development of e-commerce is faster than that of couriers and there have always been inconsistencies. A promotion of just 3 to 4 days is acceptable.
Sina: So this is to say that there is a series of support systems behind the price war?
Mr. Li: Yes. As long as you have money. There are also many couriers that are criticised by many people. I admit couriers have many problems as well. If you pay the publishing houses, you can offer huge discount on the books bought from them. If you pay couriers, they can recruit a group of delivery people quickly and put them to work after two weeks’ of training. The key to a price war is strength and financial power. Whoever has enough money will be the winner in this business.
Sina: Will price war be the way Dangdang approaches future competitions?
Mr. Li: I believe there will always be price competition in the retail industry.
Sina: 360buy’s management attacked Dangdang by saying that the book industry is monopolistic and many publishing houses have kidnapped by Dangdang, including those for children. What is your opinion on this point?
Mr. Li: We have strategic cooperation with many publishing houses. They offer Dangdang the biggest discount. The strategic cooperation has two layers of meaning. Some publishing houses grant online exclusivity to Dangdang. Some grant national exclusivity on some products. This is a normal upstream to downstream relationship and doesn’t have anything to do with monopoly. It is a strategic choice of upstream publishing houses.
Sina: So you are not concerned that new competitors like 360buy have sufficient funds and great strength to impact the seemingly stable relationship with publishing houses through lower prices?
Mr. Li: There is an upstream and downstream concept of mutual benefits. Many industries have hidden rules and clear rules, which I don’t think can be broken by some $500 million or $800 million. 360buy has lost so much to 3C. Where else can it spend money on?
Sina: What do you think of the payment problem you just mentioned?
Mr. Li: Dangdang makes the fastest payment to publishing houses and has the shortest cash conversion cycle in the Chinese book industry. You can check every single Xinhua Book Store. All publishing houses are satisfied with us.
Sina: Paid e-books look promising in the future. Dangdang has always been working on this. What is its next move?
Mr. Li: An e-book reader in Western countries costs the same as 10 books. One in China costs 100 books. Neither 1200 yuan nor 1500 yuan is right. I propose a 499-yuan reading machine and this will be an opportunity. It will become a reality by the end of this year. I have been lobbying painstakingly with authors and publishing houses over the past three years. I believe our digital download platform will be online in October. The platform will support all reading devices.
Sina: Dangdang has been deeply involved in the book industry for over 10 years. Where is the ceiling of the industry?
Mr. Li: The bottleneck is simple. The size of the market is too small. Excluding games, the 70 billion in book sales has been largely monopolized by Xinhua Book Store, especially elementary and middle school textbooks. They take 40 billion. 30 billion is left for retail. Of those 30 billion, we occupy 20%, which is just 6 billion. I am talking about the price before discount. Recently, we entered into some alternative markets, like diapers, milk powder and toys. The toy market is worth tens of billions yuan in the whole country. The diaper market could probably be worth 10 billion yuan. The market for household items and apparel, excluding uniforms, is about 400 billion yuan. Any of these markets is at least 10 times of the market of books.
On dropping below the IPO price: most American investors are incompetent
Sina: A very obvious attribute in this round of the US-listed Chinese stock crisis—or perhaps the word “crisis” is too strong—is that many companies that have just gone public slid tremendously, including Dangdang. How concerned are you about the drop of the stock price?
Mr. Li: Western investors consider Qihoo (NYSE: QIHU), Renren (NYSE: RENN) and Dangdang as targets to short, because these three are the very ones that are the highest valued and have the highest PE ratio. I previously thought that western capital market was more mature than China’s and Western media were more independent. So I chose to go public in US, which is less likely to be controlled. But I found out later that most American capital, funds and individual investors are incompetent and replicas of the mass media.
Sina: What do you mean by that?
Mr. Li: They blindly follow each other. They don’t do research on the fundamentals of a company, but would prefer follow other people like a blind sheep. It looks like the capital market is just a mess. I am not concerned. We have seen several companies that cooked their books. But we can’t label all US-listed Chinese companies in the market because of this. The rapid growth of the Chinese economy and the companies that are able to stand the test of time will eventually be discovered by the capitals that seeks value, especially when Dangdang has the immeasurable charm that they don’t. They have bubbles, huge losses and high estimated values whereas Dangdang can continue to grow at a high speed and profitably. I have confidence in this. As for how long it will last in the short run, I don’t think anyone can tell.
Sina: The American capital market you just mention turned out to be a ‘mess’. Was this different from your expectation of the American capital market?
Mr. Li: Yes. I thought their financial investors were more mature. But it turned out that they are ignorant and far from mature, and are fooled by brokerage company employees who are Tsinghua and Beijing University graduates.
Sina: Peggy Yu [Dangdang chairman and Mr. Li’s wife] and you are repurchasing $2 million of Dangdang’s stock. Why are you doing this?
Mr. Li: Peggy and I agree on this: Dangdang is now undervalued. Its issue price of $16 is also seriously undervalued in my opinion, let alone the current even lower price. http://news.ichinastock.com/2011/07/dangdang-ceo-says-his-firm-is-undervalued-sets-22-target-price/ So what can we do in this situation? First, is to work hard on the fundamentals. Dangdang is responsible for its quarterly performance. The performance of Q4 last year and Q1 this year reached everyone’s prediction set out during our roadshow. Second, is that I will boost shareholder’s confidence by repurchasing stock via my personal fund.
Sina: From your personal experience, after Dangdang went public, what changed in your daily routine?
Mr. Li: It doesn’t make a difference in the operation, because Peggy has very effective communications with investors. The biggest difference is in our personal life. If the company hadn’t gone public, cursing others in lyrics wouldn’t be a problem. I didn’t bother anybody at all. But people think that if you are the CEO of a public company, you have to behave yourself. But I have no idea how I’m not behaving myself.
A cold winter for capital has arrived, high growth through huge losses is a bubble
Sina: The recent wave of Chinese IPOs in the US saw companies such as Dangdang, Renren, and emerging ones like Jiayuan (NASDAQ: DATE) and Phoenix New Media (NASDAQ: FENG). What relationship do you think there is between this big wave of IPOs and the Chinese Internet bubble around 2000? Do you think the two are similar?
Mr. Li: No, I don’t think the two are the same. 10 years ago, Internet was still a concept. There was limited traffic and a limited number of users. Profit models were nowhere to be found. Today, companies, including Jiayuan and Pheonix New Media as you just mentioned, have well-defined profit models. I think this is a completely different industry. Nor is it a bubble.
But I still believe are bubbles in some individual companies in this wave. There are many companies that have raised $20 million, $30 million or $50 million. This means that investors have passion. So this is the time for a bubble, because nobody has the determination and courage like Dangdang to bootstrap for 10 years. They might be right as well: ‘f**k it. we’ll just make a bet on this and see how it goes after 3-5 years’. It’s absolutely OK. It’s like what a gambler does.
Sina: So when will the cold winter for e-commerce, if there is one, arrive?
Mr. Li: There has never been a cold winter for Dangdang in the past 10 years. We can say that the winter for capital market is coming. Everybody is looking on. Companies are very much undervalued. Some investors take advantage of this and try to convince entrepreneurs to undervalue their businesses by saying it’s good that you can still survive this. It’s actually a blatantly rip-off. But it’s no winter for consumers. Companies that are good at what they are doing can still maintain their growing momentum.
Sina: How do you differentiate between companies with bubbles and those without? What’s your standard?
Mr. Li: We admire a company that can grow at a rate of 100% or even 200%. But we are also concerned whether or not they can maintain a balance. What is your expense structure? How do you maintain balance? Everybody can grow at a high speed at the cost of incurring huge losses. If you make Suning or Gome [China’s largest electronics retailers] lose 3% or 10% of revenue, they will have a total income of 400 instead of 100 billion yuan.
Sina: If you have to make a choice between expansion and profit. Will you choose profit before choosing expansion?
Mr. Li: Not necessarily. It is a balance. There is a balance between a high growth rate and profits. You can sacrifice profits in exchange for market share or grow bigger by incurring some loss, but not huge losses. Some companies exchange half of the gross profit for growth. They will be profitable one day. If they sacrifice all the gross profit for market share and are profitable one day in the future, that also makes sense to me. But if the loss is more than twice of the gross profit, I will say it’s all made up.
Sina: We have heard some similar feedback from Qiangdong Liu [CEO of 360buy], for example. He told me that the big losses at his company are incurred in infrastructure like warehouses and distribution centres, not on things like concept advertising, brand advertising, or even spraying money from a helicopter. He says infrastructure programs will facilitate future growth. What’s your opinion on this?
Mr. Li: If I wanted to buy land and build warehouses, I would have even lower spending on logistics, because I amortize the expenses over 40 years. So I have no idea where he is losing all that money. It is even a bigger problem that he doesn’t lose any market share. Vancl, for example, spent the largest amount of money on marketing. When it has built a customer base bigger enough, it cut the spending on marketing and advertisement. That story also makes sense to me. The expense doesn’t grow proportionally along with the sales volume. When you say that the money is lost on operations, my understanding is that the loss is proportional to your sales volume. There is very limited room for the operational costs to change.
Sina: We have noticed that you are quite thrifty in some aspects of managing the company. You are not very willing to move the company to any expensive office buildings. Nor do we often see big Dangdang advertisements. What is your view on management, especially the balance between investment and output?
Mr. Li: Gross profit margin in the retail industry has always been very low. It is always our idea to save every single cent to improve our service for customers. We acknowledge that an advertisement can bring much traffic in the short run. But we don’t think the competition in the retail industry is one-year long, but rather three-years long or five-years long. We improve customer service through price wars and build our customer base by attracting one after another.
An Internet company that seeks monopolies can never be profitable
As the domestic book retail industry has a scale of 30 billion yuan every year and there already appears to be a growth bottleneck, Dangdang has to look for changes and launch big-scale expansion towards the general merchandise industry with a bigger market base.
In 2005, Dangdang initiated a general merchandise channel. Like Amazon, it transformed from a company selling just publishing products to an “online Walmart”, working hard to be the “Amazon in China.”
In May this year, Dangdang changed its user interface. Apparel, household items, cosmetics and accessories occupy the majority of the main page. This indicates that Dangdang will launch another campaign to scramble for market share after going public.
From selling books to general merchandise, Dangdang, an e-commerce veteran, has stepped into a new battlefield. However, after the initiation of diversified businesses, Dangdang is facing giants that have already occupied various markets, 360buy in 3C, Vancl as a self-developed apparel brand and Taobao Mall which reaches into all marketplaces. The competition looks very intertwined.
Sina: 360buy again. Traditionally it sells 3C (computers, communications, consumer electronics). Now it starts to sell books. You just mentioned that Dangdang has started to sell milk powder and diapers. We are seeing a common trend. Every single big e-commerce company will chip into the market from a certain angle. Is Dangdang’s future goal to be a platform company that covers a comprehensive list of merchandise?
Mr. Li: The retail industry has several different modes. Suning and Gome specialize in 3C home appliances. This is a mode and nobody will think these two are competitors of Walmart and Carrefour. Walmart, Carrefour, Wu-mart and RT-mart represent another business mode. The third is a mid- to high-end mode. Shopping centres specialize in hand cases, bags and accessories. On the Internet, however, if anyone wants to be profitable, he can’t seek to monopolize the field. If so, he will lose money and can never be profitable. This has something to do with positioning. But in the early stages of the e-commerce business, being a generalist has worked.
Host: Why can monopolizing never be profitable?
Mr. Li: Because you can’t possibly offer all specialised services to all clients. Amazon in the US is not able to do it today. So far, Amazon does not sell high-end cosmetics.
Sina: You just mentioned that players will specialize in the market.. This is your idea.
Mr. Li: Yes.
Sina: What will Dangdang’s specialty be aside from books?
Mr. Li: In our general merchandise, we propose 4 target types: children, household items, skin protection products and apparel. There are our 4 core target types.
Sina: Are these not enough?
Mr. Li: These are already a lot. You have also seen that our food sector and health product sector is growing very fast. Our 3C business understands consumers. Wise consumers can make sensible comparisons and find that Dangdang often has the lowest price in 3C. For us, convenience products bring in new customers.
Sina: Convenient products, that’s a broad definition.
Mr. Li: The previously mentioned are target products. What are the differences between target products and convenient products? For target products, we want to be the first among B2C websites. For customers, they feel those types are very safe and the lowest in price. And all customers in different age groups and different areas, Beijing, Shanghai and Korla, can get this service. This is for our target products. For convenience products, they may be out of stock sometimes. When we get some at a low price, everybody can get it at a low price. We don’t guarantee that we can get more. Convenience products are only for some cities. This also answers your previous question. In the era of Internet, no one can monopolize everything.
Sina: What kind of relation do the four core types have with books? Why did you choose these four in addition to books?
Mr. Li: This brings us an advantage. Customers of books vary a lot. Both rich people and poor people buy books on Dangdang. People with appreciation, interest and taste buy books on Dangdang. Those without these qualities also buy books on Dangdang for specific purposes.
For us, this is an attraction, a trap and an opportunity. It is a trap because it seems like we can sell anything we want. But it’s a question whether we can expand and create core advantages. After much communication with customers, we found out why selling children’s products is a good choice. Because Dangdang differs from Taobao in that its customers feature three “highs”: high degrees, a high education level, and a higher age by 10 years. We certainly want to take advantage of this. Every day, we sell an average of 5000 books on pregnancy. We can say that there are 2500 customers, each of whom buys 2 books. Some of them haven’t had kids yet and we remind them that there are several kinds of milk powder that you can choose from. Milk powder manufacturers are very happy to hear this and even provide us with marketing funds. You can also see that our children’s toys sell very well. But we cover children up until 11-years old. We haven’t yet figured out a pattern for children older than 11 years. They may not like what their parents buy for them. They are willing to be independent. Children old than 11 have sense of gender. So that fits our customers well. This customer population is Dangdang’s unique advantage. Our skin protection products and cosmetics also sell very well.
Part of Dangdan’s general merchandise business to become profitable next year, price war depends on in-house brands
Sina: We have read in Dangdang’s first quarter financial reports that net profit was 687.6 million yuan, with a growth rate of 53.4%. But the operation lost 1.3 million yuan. We have found relevant explanations. It was the losses caused by the revenue structure and an increase in sales costs. How long will this situation last? When will there be any change?
Mr. Li: This is our original expectation. The retail industry features losses. Often times, it depends on the rebate you get at the end of the year. The amount of rebate depends on whether you have reached the sales volume. The rebate can become your profit. So in the first quarter, we were making predictions. Some people say that our profit slid compared with the fourth quarter of last year. Of course it was so and this is what makes it the retail industry. In the first quarter of this year, we grew by 203%. This is why I think a PE ratio of 104 is lower than it should be. A profit growth of 203% justifies a PE ratio of 150. So I was not very satisfied at that time.
Second, some people questioned why the company grew by 50%. This is because our book business accounts for a large portion. Amazon in US grew by just 18% over the same period and it occupies an even smaller market share. Our general merchandise business grew at a rate of 261%, which is really fast.
Sina: You once said that the company would use the profits in books to compensate for the losses in general merchandise. How long will this mode last?
Mr. Li: For the present and the next 6 months, our book business can compensate for the losses in general merchandise. Starting next year, our book business won’t have the ability to do so, because general merchandise will occupy a much bigger percentage. Our book business grows at a rate of 40% to 50%. Our general merchandise business grows at a rate of 260% to 300%.
Sina: What are you going to do then?
Mr. Li: Next year, the general merchandise business will generate much larger sales volume than books. There must be some types that we are more specialised in and better at it so that we will be able to generate profit out of them.
Sina: Next year, some types in the general merchandise business will start to…
Mr. Li: Profit is certain. Some of our in-house brands of shoes didn’t realise profits. But during the fierce price wars, other brands we own, like some bags, generated profits.
Sina: Will general merchandise business continue to launch price wars and adopt a strategy of low prices?
Mr. Li: We will continue to initiate price wars for our in-house brands.
Sina: We previously heard from you that the company would establish in-house brands in household items. How is it going now?
Mr. Li: Starting from September, you will see in-house brands appear in household items.
Sina: Will the company conduct large-scale marketing campaigns like [online-only apparel brand] Vancl?
Mr. Li: We don’t need to. We are a company with a long history. We have large traffic on a daily basis and many customers who trust us. We have customers with goodwill and don’t have to spend money attracting new ones to buy our in-house brands. And we only want sales volume of in-house brands to be 20% of general merchandise. 80% is for other merchandise. 20% comes from in-house brands that support the price war.
Sina: When it comes to developing in-house brands, there are several ways to do it, developing on one’s own, mergers and acquisitions. How do you consider this?
Mr. Li: I have thought about it. Developing self-owned brands is very tricky. It takes time and is very risky. If you make the wrong choice on style, products won’t sell at all. Dangdang will spend efforts on different brands. We won’t reject acquisitions either.
Sina: At what time will the books business and general merchandise business be of equal importance?
Mr. Li: When annual sales reaches 10 billion yuan. It won’t be long.
Sina: In the area of apparel, we are also seeing very strong competition. You have Vancl and Taobao. In the area of general merchandise, 360buy is also expanding its product lines. In the meantime, Taobao Mall will become another strong competitor in this field. So how will Dangdang handle the competition coming from them?
Mr. Li: I don’t see Vancl as our competitor. It mainly relies on its in-house brands and sells a small percentage of other merchandise. That’s my view on its position in the market. Taobao is our competitor, but it has its own dilemma and I have my own. It has many more styles than Dangdang has and can thus help consumers pick which one they like. But it has its own problem. A T-shirt sells for 35 yuan. Should the price include the shipping fee? If so, manufacturers will lose a lot of money by making the shipment. If not, who is responsible for the 15 yuan shipping fee? At Dangdang, I offer “pay on arrival.” The customer can buy not only the 35-yuan T-shirt, but a razor along with it. The total payment is 100 yuan. Here at Dangdang, the shipping fee can be as low as 5 yuan or 8 yuan. So I think our overall operation cost is much lower than that of Taobao. And this is why we can afford a price war.
Sina: We see that Jack Ma has split Taobao into three parts. Will Taobao Mall’s equity carve-out influence the competition in B2C?
Mr. Li: Taobao Mall, along with Taobao’s C2C business, is the Chinese e-commerce company with the slowest growth rate, merely 90%. Any of our general merchandise businesses, excluding books, is growing way faster than this. So he was pressured to make some significant changes. This is what an entrepreneur should do.
“Same day delivery” depends on procedure optimization, no need to hire delivery personnel
Sina: For e-commerce, logistics is a very important factor. There are people who even say that logistics is industry bottleneck.
Mr. Li: Many of Dangdang’s customers are satisfied with our logistics. The deeper meaning is that we don’t divide customers or logistics services to a deep extent. Some want their purchase to arrive in 4 days and some want 7 days. I accept that. Some want second-day delivery and some want same-day delivery. There are even some people who want their purchase to be delivered in 4 hours. If no one is there to further divide the business, different layers of demand will appear.
We can’t offer all services free of charge. But now with price war ever escalating, courier companies are faced with much pressure. If you pay them more, they will offer better services. It has nothing to do with hiring our own deliver personnel. It’s not to say that once the delivery guy hears that he is working for Mr. Li, he will work his arse off. Why would he? He doesn’t even see me once in a decade. The problem is that e-commerce companies pay couriers too little. They are in great pain.
Host: How to resolve the issue? Is there any plan?
Mr. Li: The simple way is to raise prices. Dangdang is the leader. Once Dangdang raises prices, other couriers will force other companies to raise price as Dangdang often accounts for 30% to 40% of their business. Dangdang has the strength to specify industry rules. But now that it’s a public company and you force me to raise prices, how can I be profitable? So I told couriers that we have room for procedure optimization. We have run tests in several cities. We have made speed faster at the same cost. I can’t say more now. Why would we dare to introduce the “same day delivery” service in over a dozen cities? We have optimised our procedures. This is the first. Second, we have a large scale. In the next, we will do things to push couriers to grow.
Sina: Many big e-commerce companies are considering building their own logistics system. What is Dangdang’s view on this?
Mr. Li: Dangdang has its own warehouses. We hire workers ourselves. Those who collect and package are our own workers. Whether or not to establish one’s own courier system, different companies make different choices.
Sina: What is Dangdang’s choice?
Mr. Li: If what you sell requires a lot of customer service, you have to have your own delivery personnel. The customer service I’m talking about includes installation and prevention of corrosion. Vancl has its own courier because they believe they will deliver with a smile. But a smile is not enough. The couriers we have contracted can also smile for customers. If you pay 0.2 yuan more, I will give you a smile. There is no need to establish our own as it costs much more. If you tell Vancl’s delivery people to not only install and test the product, but provide some guidance, then he wouldn’t be called a delivery person, but a purchasing guide or an apparel-matching specialist. And that would require the company to establish its own courier service.
Sina: Following your logic, Dangdang doesn’t need to establish its own delivery team, as books don’t involve that many complicated problems.
Mr. Li: Yes. We would rather accept returns and refund. We can let you try on the apparel you bought, just as Taobao does, and wait for your patiently. But it’s just waiting. Any contracted courier delivery person can do this. We pay couriers 4 to 5 yuan for each package of books they deliver. We pay 8 yuan for the delivery of apparel. So we don’t need to establish our own delivery team.
Co-president Peggy Yu becomes CEO, assumes additional responsibility
Sina: Many people have said that there are few examples of a couple succeeding in the business world [Peggy Yu is Mr. Li’s wife]. If a couple starts a company, their family time will be squeezed. Is it so for you?
Mr. Li: No. We have a lot of time for the family. My son requires that she [Peggy Yu] have dinner with him three days a week and I have dinner with him three days a week. Every year, we go on vacation several times.
Sina: Is it difficult for you to switch between roles?
Mr. Li: This is true. Sometimes we tell jokes and my son makes requests. He will say that you have given me the time but your mind is not here.
Sina: You are discussing affairs of the company at the table.
Mr. Li: Or when my son tells us what he is interested in, we go absent-minded. He is not happy about this and asks us to be focused.
Sina: Will you and Peggy make a decision that you won’t talk about business after returning home?
Mr. Li: Our decision is that we won’t talk about business when we are in bedroom. But sometimes if we want to, we need to ask each other if the other is in a mood. We may go to the balcony or kitchen to discuss. But sometimes we are not sure about the company’s strategy or concerned about a budget presentation. We may get sleepless. What then? Can you sleep in the room downstairs?
Sina: This requires techniques. How do you balance this?
Mr. Li: Since we are together, we need to make compromises. The most difficult thing used to be that I would ask her to accept my decision even if I couldn’t convince her.
Sina: Were you such a person?
Mr. Li: Yes.
Sina: What now?
Mr. Li: Sometimes I will say, maybe you are right. Let’s do what you say. I don’t think what I want to do will get the board’s approval. If not, I will let it go for the time being.
Sina: So many people think you and Peggy have different personalities.
Mr. Li: We do. I am an aggressive and innovative person who prefers high performance. But she likes to control and balance.
Sina: So everybody is trying to find out whether Mr. Li or Peggy is the decision maker. Where there is disagreement, how do you handle it?
Mr. Li: We are a couple working for one company. This is definitely not something good. It is bad. For example, during a board conference, if we disagree with each other, other vice presidents will be puzzled.
Sina: Yeah, should we listen to him or her?
Mr. Li: But we will tell the vice presidents before they take the position that you have to accept a situation where we disagree with each other. There are two ways. First, listen to your supervisor, not us two. Second, if we disagree with each other on something big, we will have a board vote. I will listen to any decisions after the board vote. But Peggy cares more about balance. She won’t say anything at the beginning if the board disapproves her proposal. Later, she is not willing to accept the result.
Sina: So there is a very big risk for a “couple company”. Does your relationship affect the development and direction of the company to a great extent?
Mr. Li: Of course. There has been a big change before the company went public. I’m not sure if you have noticed. Prior to IPO, we were called co-Presidents. What a pity it is that I have been a co-President for 10 years. Why would the board trust me? I was called CEO and she was called executive chairman after the company went public. I have more power so that I don’t have to listen to all decisions made by Peggy, the executive chairman. Previously, as a co-President, I had to. This is a major change. The board has let me assume such a big responsibility. Later, after the Sina Weibo microblog incident, the executive chairman has been very actively in operations recently.
Sina: If you are asked to make a judgment between Mrs. Yu’s role in your career and the development of the company, which will it be?
Mr. Li: The most important one is that Peggy is irreplaceable as a bridge to capital. I always fumble for words when I communicate with investors. Once in a meeting, I won’t hesitate to say anything. Humans are emotional animals. I don’t play golf with anyone. Nor do I eat dinner with others. I meet other people on a quarterly basis. I won’t accept any invitation to meet or having dinner with me alone. But Peggy plays a crucial role in maintaining relations with investors and communicating to investors what Guoqing Li is thinking about. It’s such a blessing that she is my wife. If she were a vice president, nobody would believe her.
I’m not one who relies on my wife, Dangdang wouldn’t exist without Guoqing Li
Sina: As for the Weibo incident, we would like to know what Mrs. Yu’s opinion when it was a media storm. Has she always supported you?
Mr. Li: I have said a long time ago that I’m willing to influence others and share my viewpoints, methods and positions and this is why I opened a Sina Weibo account. Peggy didn’t like it. Later, she and the board agreed. I told them that we were now a public company and you must agree to let me open an account. It was on Dec. 5 that I opened an account. I let the management know. I said I had been concerned about this too much and I had tolerated it for many years. Well, there goes the weibo post. Now Peggy respects my idea. She just reminds me to take care with my use of language.
Sina: She doesn’t have a weibo account?
Mr. Li: No. She doesn’t like to share her life with the public and let the public judge her life. She doesn’t like it.
Sina: You do?
Mr. Li: Yes. I am a person who is willing to influence others.
Sina: Will she convince you to close your weibo account some day?
Mr. Li: Weibo causes troubles. After all, you can’t curse people in the lyrics you put on Sina Weibo. Another time, I cursed a hedge fund company. I got them offended. It wasn’t a curse. It was criticism. A constructive criticism. Peggy hopes that I can close it. She said you might as well close the account.
Sina: But you didn’t listen. It is still open.
Mr. Li: I asked, why I should close it? This is my passion. Just like Dangdang, it is equally important to me.
Sina: Actually at the time the shouting match broke out with “Big Morgan Lady” on Weibo, many people…
Mr. Li: The shouting match with “Big Morgan Lady” has now been described as a cursing battle. First, I never cursed her. She used profane language against me. I never used it. Second, she is not at all a “Big Morgan Lady.” Those lyrics criticised the investment bank. And she was a fake “Big Morgan Lady” [the user was pretending to be a banker at Morgan Stanley, the underwriter of Dangdang’s IPO]. Let’s call her a Sina Weibo user.
Sina: When the dispute, or shouting match, broke out with the investment bank on Weibo, Dangdang was also criticised. Some industry people said that as a public company, Dangdang shouldn’t have treated it in this way. It looked like Dangdang used the bank and threw it away. What do you think of the criticism?
Mr. Li: F**k off. Who was used? Who was thrown away? We paid them. We are Party A, these sons of bitches. They used me, I didn’t use them. I could have gone public without them. There are many investment banks that wanted to underwrite me. As a company owner in the west, especially an entrepreneur, it is all too normal to criticise Wall Street as greedy and describe them as robbers and vampires. In China, hedge fund companies and investment banks seem to be on an altar, with everybody’s eyes glued to them…
Sina: So you aren’t afraid of offending people?
Mr. Li: So I did.
Sina: Are you not afraid that this will have some negative effect on Dangdang?
Mr. Li: There are positive effects. I have thought about it. Dangdang is a retail industry company selling consumer products. There is much room for me, as Dangdang is not an advertising company.
Sina: We have also seen that your company startup experience was full of twists and turns. Even your ex-girlfriend at the time said that you were toiling in the muck. But Mrs. Yu, who was working at Wall Street at that time, had a well-paid job. How did you attract her to start a company with you?
Mr. Li: Back then, we were domestic private brokers. There was no venture capitals. Many areas were monopolized by state-owned enterprises. It was difficult to expand. Can a company make profit by toiling in the muck? Yes. But it can’t grow bigger and you don’t feel happy. When Peggy decided to date me, it was in Manhattan. Everyone was surprised. Her Wall Street friends told her that they heard she was duped by a self-employed guy. I indeed was [self-employed]. She once asked her friend to do investigation in Beijing and found I was a self-employed guy. Later when I was in US and met her friends, I told them that I was not a self-employed person. I was Beijing University graduate and once worked at a secretary’s office. How could you say I was a self-employed person? So what has attracted her? She felt that I have a spirit of entrepreneurship. I remember that her Wall Street friends, both big names and nobodies, commenting on me. They thought I didn’t understand a word. But I did. They questioned whether I was a good seed and whether Peggy could grow it well.
Sina: But it turned out that you were really a promising seed.
Mr. Li: But it was not only my wife and investors but also my ability to capture opportunities and persistent work along with the management team that grew that seedling into a quality product. So I’m not one who relies on my wife to survive. They always think that without Peggy there wouldn’t be Dangdang. Without Peggy, there would be Dangdang. Without Guoqing Li, there wouldn’t be Dangdang. That’s true. So they don’t know the situation. They always think that Peggy is taking charge in Dangdang.
Sina: Is this a comment that you care about a lot?
Mr. Li: The rumour on the Internet almost became a fact. It looks like Peggy feeds Guoqing Li. How can this be? I’m not that good-looking. Many people said something vicious on the Internet: Where would you be without your wife? Even my wife says that without her I would still be who I am.
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