A wave of layoffs at Gaopeng.com, the Chinese arm of US-based Groupon Inc, signals a dramatic turnaround for a company that just months ago aimed to dominate China's online group-buying market.

Analysts said that Gaopeng's situation was likely to have a domino effect on the many group-buying clones that have failed to provide reliable customer service.

The company started firing staff last month and "people have been leaving the company almost every week recently", a mid-level employee told the 21st Century Business Herald.

A former employee at the Beijing branch bitterly complained about the layoffs under the alias of "Gaopengbuxingle" (Gaopeng will fail) on Sina Corp's micro blog platform.

The former staffer wrote that the company announced nationwide job cuts on Friday afternoon and told employees not to disclose details to the media.

On Monday, an online post urged Gaopeng staff members in Shanghai to dress in black to protest the sudden job cuts. Up to 30 percent of the employees will be cut, according to the netizen. Some of those being laid off were permanent workers, but most were contract employees who were terminated after a six-month probation.

Gaopeng has operating centers in about 40 cities, including major cities such as Beijing and Shanghai, as well as facilities in third-tier cities that are set for closure.

Ouyang Yun, Gaopeng's chief operating officer, said that the company is just "experiencing a reshuffling of personnel and only dismissed (employees) for poor performance".

The company was formed through a partnership between Groupon and China's Internet conglomerate Tencent Holdings Ltd in February.

Investors include Yunfeng Capital, a Chinese private equity fund co-founded by Internet business guru Jack Ma, the chairman of domestic online commerce giant Alibaba.com Ltd.

A latecomer to China's e-commerce arena, the ambitious company said it would combine Groupon's global group-buying experience and Tencent's deep knowledge of China's online communities.

With a population of 485 million Internet users, China's online market has become intensely competitive. Global e-commerce services such as eBay Inc have struggled to gain a foothold against aggressive local rivals.

Data from Analysys International, an Internet research firm, show Gaopeng.com gets 1.71 million clicks a day. Its major competitor, Lashou.com, gets 6 million, ranking only eighth.

Competition among Chinese group-buying websites is not about the products they offer but the services they provide, according to He Xiao, an analyst with CCID Consulting Co Ltd.

Running Gaopeng requires a very high level of resource integration. It must build up a credible business in record time, screening out unqualified merchants for its clients, the analyst said.

"For instance, some restaurants may be incapable of hosting a large number of guests at the same time and you need to filter them out."

Yi Ming from Shanghai bought a box of peaches on Gaopeng.com but wasn't satisfied with her transaction. She complained that the vendor Gaopeng recommended had failed to meet her delivery needs and forced her to wait for two weeks in vain.

"Backed by Groupon, Tencent and other venture capitals, Gaopeng should not be running low on cash. So its shrinking profitability indicates it needs more innovative ways to lure clients," Chen Shousong from Analysys International said.

An example is the recent rise of Dianping.com, China's largest dining and review site, which has gradually shifted from its review-based model to offer group-purchasing services.

"The website can draw on its solid user base and wide-ranging connections with merchants of qualified services," Chen said.