Name dropping marks start of new direction for Suning
By Ding Yining |
March 5, 2013, Tuesday
|
Print Edition
Print Edition
SUNING, China's largest home appliance retailer, signaled its diversification into more general merchandising by announcing that it will drop the word "appliance" from its official company name.
In an ongoing reshuffle of its business structure to promote greater coordination between its offline stores and its online unit, the former Suning Appliance Company Ltd, now calling itself Suning Commerce Group, said it would spend 22 billion yuan (US$3.52 billion) on expansion by the end of 2015.
The investment includes 12 sorting warehouses and 60 dispatch centers nationwide.
The shift in Suning's business model is pushed by two trends: the popularity of online shopping and sluggish sales of home appliances. In order to improve its revenue in a highly competitive market, the company needs to go beyond its traditional roots.
By the end of this year, all of Suning's 1,700 existing stores in China will serve as pick-up depots for orders placed on Yigou, its online shopping arm.
The company has also set up three independent business management centers to run its chain store, e-commerce and sourcing businesses.
"The reshuffle of its business structure will allow each business unit to have higher efficiency, but spending on information technology and logistics infrastructure will put pressure on its profitability in the near term," said Huatai Securities researcher Geng Kun.
Suning's chairman, Zhang Jindong, said in Nanjing last month that the future retail business model would be a combination of physical stores, e-commerce and retail service platforms.
The company said it will work closely with suppliers to give them access to its supply-chain management and delivery network.
The more value-added services Suning provides for consumers and vendors, the less the company will be forced to rely on sales of home appliances to generate profit.
Reduced in scale
At some of its outlets, home appliance counters will be reduced in scale to make room for more general merchandise, such as toys, household detergents or sporting equipment.
According to the National Bureau of Statistics, growth in sales of home appliances and audio and visual equipment in 2012 slowed to 7.2 percent from 21.6 percent a year earlier. The drop was due, in part, to the end of government incentives, such as subsidies for rural people to buy new refrigerators and other appliances.
The company said in a preliminary earnings report last week that its profit fell 44 percent from a year ago to 2.68 billion yuan, a faster pace than the 37 percent profit drop in the first three quarters.
Its revenue was up 4.78 percent, representing a sharp decline from last year's 24 percent jump, with same-store sales 12.38 percent lower than a year earlier.
Yigou, a bit of a latecomer to digital retailing, reported sales last year tripled to 18.3 billion yuan, but that paled alongside the 19.1 billion of sales recorded by rival Taobao on Single's Day - China's version of Valentine's Day on November 11 - when Taobao staged a 24-hour bargain bonanza.
Analysts see little relief for Suning this year amid such cutthroat competition.
For Suning, the challenge is to reorient corporate thinking beyond appliance selling.
General merchandise requires a wider and more detailed approach to retailing.
Take a pack of tissues as a simple example.
On Suning's Yigou site, I found few choices and a lack of product information compared to other online shopping sites.
But an empire isn't built in a day. It took Taobao years to build its market dominance in the online realm, and rivals have been playing catch-up ever since.
In the short term, tough competition and a drop in revenue at Suning's bricks-and-mortar stores could hurt the company's profits, Citic Securities researcher Zhao Xueqin said.
Online retailing is increasingly becoming a battle of who can provide the best consumer services and how closely vendors and suppliers integrate, said independent e-commerce consultant Lu Zhenwang.
Suning does have rich experience in retailing.
Its task is to leverage that advantage into logistics and inventory management. It will take more than dropping a word from the company name to accomplish that.
In an ongoing reshuffle of its business structure to promote greater coordination between its offline stores and its online unit, the former Suning Appliance Company Ltd, now calling itself Suning Commerce Group, said it would spend 22 billion yuan (US$3.52 billion) on expansion by the end of 2015.
The investment includes 12 sorting warehouses and 60 dispatch centers nationwide.
The shift in Suning's business model is pushed by two trends: the popularity of online shopping and sluggish sales of home appliances. In order to improve its revenue in a highly competitive market, the company needs to go beyond its traditional roots.
By the end of this year, all of Suning's 1,700 existing stores in China will serve as pick-up depots for orders placed on Yigou, its online shopping arm.
The company has also set up three independent business management centers to run its chain store, e-commerce and sourcing businesses.
"The reshuffle of its business structure will allow each business unit to have higher efficiency, but spending on information technology and logistics infrastructure will put pressure on its profitability in the near term," said Huatai Securities researcher Geng Kun.
Suning's chairman, Zhang Jindong, said in Nanjing last month that the future retail business model would be a combination of physical stores, e-commerce and retail service platforms.
The company said it will work closely with suppliers to give them access to its supply-chain management and delivery network.
The more value-added services Suning provides for consumers and vendors, the less the company will be forced to rely on sales of home appliances to generate profit.
Reduced in scale
At some of its outlets, home appliance counters will be reduced in scale to make room for more general merchandise, such as toys, household detergents or sporting equipment.
According to the National Bureau of Statistics, growth in sales of home appliances and audio and visual equipment in 2012 slowed to 7.2 percent from 21.6 percent a year earlier. The drop was due, in part, to the end of government incentives, such as subsidies for rural people to buy new refrigerators and other appliances.
The company said in a preliminary earnings report last week that its profit fell 44 percent from a year ago to 2.68 billion yuan, a faster pace than the 37 percent profit drop in the first three quarters.
Its revenue was up 4.78 percent, representing a sharp decline from last year's 24 percent jump, with same-store sales 12.38 percent lower than a year earlier.
Yigou, a bit of a latecomer to digital retailing, reported sales last year tripled to 18.3 billion yuan, but that paled alongside the 19.1 billion of sales recorded by rival Taobao on Single's Day - China's version of Valentine's Day on November 11 - when Taobao staged a 24-hour bargain bonanza.
Analysts see little relief for Suning this year amid such cutthroat competition.
For Suning, the challenge is to reorient corporate thinking beyond appliance selling.
General merchandise requires a wider and more detailed approach to retailing.
Take a pack of tissues as a simple example.
On Suning's Yigou site, I found few choices and a lack of product information compared to other online shopping sites.
But an empire isn't built in a day. It took Taobao years to build its market dominance in the online realm, and rivals have been playing catch-up ever since.
In the short term, tough competition and a drop in revenue at Suning's bricks-and-mortar stores could hurt the company's profits, Citic Securities researcher Zhao Xueqin said.
Online retailing is increasingly becoming a battle of who can provide the best consumer services and how closely vendors and suppliers integrate, said independent e-commerce consultant Lu Zhenwang.
Suning does have rich experience in retailing.
Its task is to leverage that advantage into logistics and inventory management. It will take more than dropping a word from the company name to accomplish that.
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