Household appliances makers, both domestic and foreign, are now investing in exclusive retail outlets on the mainland to beat dwindling margins and low visibility from selling their wares at big-format electronic retailers, chiefly Gome and Suning.
The move has been undertaken more as a means to help these appliance makers enhance their brand value and awareness among Chinese consumers, rather than giving them a quick leg-up in competition against organized retail chains, analysts said.
In March, Bosch Siemens invested 4 million yuan in a 210-sq-m store in the bustling commercial area of Nanjing.
This was the first of its kind for Bosch Siemens, and the company said it was planning to open more stores in Beijing and Shanghai.
Midea, China's leading electrical appliances manufacturer, was more aggressive. It opened its first M-Home store in Shanghai in April 2007, but by end 2008 it had 200 stores across the country. The company has said it would add another 300 to 400 stores this year.
Falling commercial space rentals recently have been one of the key reasons why household appliance producers massively invested in own stores.
But this was not the most important reason. For long, Gome and Suning have been pressing household appliances makers to cut prices drastically in order to provide the cheapest products amid rising competition.
This became more frequent after the global financial crisis crimped spending. So, appliance makers were forced to own stores for better margins, although they claim the strategy is more broad-based.
"It is part of a strategy of branding, and the move is something we have been mulling over for long," said Roland Gerke, president and CEO of Bosch Siemens Home Appliances (China) Ltd.
"We don't expect to threaten Gome and Suning, since we position the store as a platform to display our products and services. Of course, it is also a sales channel," he said.
There are mainly hi-tech gadgets and imported electronic pieces on display at Siemens' stores. For many consumers, its products don't come cheap. For instance, the cheapest coffee machine in the store retails for around 20,000 yuan.
Analysts said the appliance makers would take time to earn profits from own stores and not become powerful enough to beat established retailers.
"Managing a store is not easy as it costs huge money. The expansion is usually slow," said Guo Yang, an analyst at Oriental Securities.
Moreover, Gome and Suning have many advantages. "They have a powerful sales network, good logistics, quality services, and a variety of products for consumers to choose from," he explained.
(China Daily April 10, 2009)