Last man standing
Last man standing
Investors in Suning Appliances may have been feeling a touch of schadenfreude in January as they surveyed the carnage among the firm’s competitors. GOME, Suning’s primary competitor, said last month it anticipates a net loss for 2012, as it reported US$110 million in losses for the first nine months of last year. Biting the dust in a more dramatic fashion, German electronics retailer Media Markt announced in the same month that it would close shop in China.
Suning itself is not entirely immune to the economic downturn, with the company forecasting a 2012 profit of as little as US$463 million, 40% below its 2011 earnings. But in stark contrast to its competitors, Suning’s sales doubled in 2012, with revenue rising 211% year-on-year. The company has built a resilient business model by diversifying its product range through astute acquisitions and new store openings. And its investment in its logistics networks puts it in good stead to maintain its lead.
The rise of e-commerce has given consumers an unparalleled ability to compare prices, triggering price wars among electronics retailers that pummeled their margins. The end of favorable government subsidies introduced during the financial crisis and the slowing growth in new home purchases also hurt sales in the appliance industry.
To overcome the erosion of its core market, Suning has turned to expanding its product range. The company greatly broadened its online product mix in September by acquiring Redbaby, a successful e-commerce site. Redbaby, which sells a wide range of products from mother and baby goods to cosmetics and books, also helps bring female customers to Suning, which has predominantly appealed to men in the past.
The acquisition of Redbaby also served Suning well as it buffered the estimated US$240.51-320.42 million in losses it suffered from closing some less profitable brick-and-mortar stores. Redbaby posted average annual revenue growth of 50% over the last five years, with 2011 revenue of US$240.51 million.
Suning has also widened its offline product mix. It opened its first Suning Expo store, which sells general household items, in Shanghai in October and plans to open 400 more by 2015. The expansion marks Suning’s entry into low-cost consumer products that range from diapers to rice cookers.
The company is also venturing into luxury and imported retail goods. In July, it disclosed it would open 30 more Laox stores, an upmarket Japanese department store which sells a significant stock of imported goods and was acquired by Suning in 2011.
Both these ventures will reduce Suning’s exposure to the currently weak market for appliances.
Growing in cyberspace
While expanding its product ranges, the company is also cementing its cyber footprint. Suning’s foray into online retail has been successful so far. Its e-commerce revenues rose 210.8% in 2012 from a year earlier, hitting US$2.44 billion.
The company announced in December that it plans to set up a small loans company to assist its struggling suppliers. As Suning is widening its range of online goods to appeal to attract a broader consumer base, buoying its suppliers is a way to ensure the continued production of its entire product range, some of which may otherwise disappear during a manufacturer’s leaner times.
It also obtained an express delivery license from the China State Post Bureau in December, so it can now operate its own service, which GOME has not yet done. This focus on logistics will allow the company to tighten control over its delivery operations, thus upping the ante of its online service quality.
The company’s expansion online is also supported by its pre-existing network of 1,800 stores, which allows it to adopt a two-pronged strategy for promoting its goods. Chinese consumers enjoy first visiting an offline store, before making an online purchase: Half of the 4,000 consumers polled by Boston Consulting Group in a 2010 survey said they prefer to shop that way. Suning, with its vast and expanding network of stores is ideally placed to capitalize on this preference.
Suning has to diversify to survive, and it is doing so vigorously. The company’s steps to diversify both online and off should bring about more misfortune for its competitors, giving its investors further cause for a surreptitious smile.