Chinese consumer electronics company LeEco officially put the brakes on its ambitious U.S. expansion plans Tuesday, laying off 325 of its U.S.-based staff and in turn acknowledging that it had underestimated the challenges of selling its products and services to North American consumers.
In a statement, LeEco said that it is undergoing “a significant restructuring and streamlining of our business, operations and workforce.” The company said that it was committed to its U.S. business, and to supporting its existing customers, but that any further U.S. expansion would have to wait until it had solved financing issues. “The breadth of our business model is capital intensive, and our leadership has been working to secure the appropriate level of funding for the U.S.”
In the near future, LeEco’s much smaller staff will be focused on Chinese-language customers, according to the statement: “Our goal is to continue to gain momentum. In the past few months, we have gained a large foothold in Chinese-speaking households in the U.S. by offering tailor-made products and content for this community. We believe this provides us an opportunity to build on our strengths and grow from there.”
LeEco was founded as a video streaming startup in China in 2004, and expanded into the consumer electronics space in the following years, building first TVs and connected devices and then phones. But LeEco’s plans went further than that: The company also expanded into the film industry, build a VR headset and a smart bike, and started to work on an electric car — all efforts that were driven by a dizzying network of corporate subsidiaries.
LeEco began to take first steps into the U.S. market in 2015. At first, LeEco only hired a modest team, but then massively accelerated its U.S. expansion in 2016, moving into a new San Jose office and hiring hundreds of staffers. The company even acquired a massive real estate site formerly owned by Yahoo with plans to build a city-like office complex with enough space for 12,000 employees.
In July of last year, LeEco announced the acquisition of U.S. TV manufacturer Vizio for $2 billion to get an instant foothold in the local TV market. And in October, it officially announced its entrance into the U.S. market, where it aimed to sell Android-powered smart TVs and phones and directly compete with giants like Samsung and Apple.
In China, LeEco has successfully been using the concept of flash sales, getting consumers to buy phones and TVs directly from the company online. It it’s motherland, LeEco has also been successful at establishing subscriptions and membership plans, selling access to content as well as expanded warranties and early access to future products.
Both strategies didn’t work in the U.S., where LeEco was slow to launch its products in retail stores, and online sales remained far below company expectations. The company’s Ecopass subscription plan, which meant to turn consumers into paying subscribers and repeat customers, was officially killed last month.
LeEco’s failure in the U.S. wasn’t just driven by not being able to understand the local market. The company also struggled with a rapid turnover of executives hired to lead the U.S. branch, and dozens of reviews on Glassdoor reveal what can best be described as a toxic work environment.
But LeEco’s ultimate undoing may have been a massive cash crunch, which forced it to abandon the Vizio acquisition last month, and now let to the company all but giving up on most of its U.S. plans. LeEco founder Jia Yueting, who stepped down from the company’s CEO post this weekend, acknowledged as much in a letter to employees late last year.
In that letter, which was at the time leaked to Bloomberg, Jia foreshadowed this week’s actions by writing: “We blindly sped ahead, and our cash demand ballooned. We got over-extended in our global strategy.”