Opinion     

Home appliance retailers join in web shopping fight

CE.cn, June 8, 2012

• Since the beginning of this year, the home appliance chain-store industry has met with severe challenges. The market performances of GOME and SUNING were significantly dimmer than they used to be: in the first quarter, SUNING scored a net profit of RMB 951 million Yuan, a decrease of 15.3 percent compared with the same period of last year; GOME also claimed that its net profit in the first quarter decreased considerably compared with the same period of last year.

  After ten years of rapid growth, the household appliance chain-store industry now has to face the reality that ownership in the primary and secondary markets is becoming saturated. The expansion model characterized by turf seizing can hardly last any longer, and online retailing is impacting the offline market. It has become imperative now for the household appliance chain-store industry to seek transformation and changes.

  Vigorous effort to snatch online market share

  "Even during the May Day holiday that is traditionally a peak household appliances consumption period, sales were not as good as expected. Sellers had no choice but to extend the promotion period". A person from the household appliance industry suggests that due to such factors as the expiration of household appliance trade-in policy and regulation of the housing industry, the performance of the household appliance market in this year has been languid. In the first quarter, revenue of SUNING's comparable stores decreased by 7.24 percent compared with the same period of last year.

  While sales in brick-and-mortar stores chill, online sales are becoming more boisterous with every passing day. Ecommerce enterprises entered the household appliance market with competitive prices and have been developing quickly. Sales of 360buy.com's household appliance alone have been growing at an annual rate of about 200 percent. Recently, 360buy signed 3-year purchase contracts worth of RMB 80 billion Yuan will major Chinese and foreign household appliance manufacturers including Samsung and Haier. Its intention to compete upfront with GOME and SUNING is hardly veiled.

  In face with the swift development of ecommerce, the household appliance chain-store industry must catch up forthwith if it wants to gain the initiative in the new round of channels reform.

  "Online retailing will become a new channel that runs neck to neck with and is mutually complementary to entity stores", says Sun Weimin, deputy director of the board of SUNING. Sun suggests that although currently the benefits of online investment are considerably worse than offline investment, SUNING has made it clearly in its marketing reform that it will definitely do online sales, big time, because it represents the general trend of the development of internet.

  Suning.com, a subsidiary of SUNING, has managed to get a spot in the top 3 of China's B2C industry in 2 years' time. Its target of sales in this year is RMB 30 billion Yuan. In order to accelerate the development of its online business, SUNING has transferred over 20 senior managers to suning.com, and elevated the status of suning.com to a "headquarter-level" independent business unit. In late April, SUNING invested RMB 1 billion Yuan in building a world-class ecommerce headquarter, which will assume such operational functions in the future as global smart management, global comprehensive purchase, open-platform operation, national cloud data maintenance, user experience optimization, and logistics control.

  GOME carries out dual brands operation strategy in the online market. Initially, it bought the ecommerce site coo8.com, quickly expanding its online market share; then it began to build its GOME online store to thoroughly promote its online competitiveness. Han Depeng, chief director of GOME's online store, suggests that the primary target of the construction of GOME's ecommerce platform is to build the most advanced back-stage support system in the industry and become one of the top 3 of China's overall B2C market within 2 or 3 years.

  In comparison with 360buy.com and other ecommerce websites, household appliance chain-store enterprises possess advantages in terms of supply chain, and, with the profit from their offline operation, have more capital to spend. What they lack is ecommerce experience and online influence.

  In order to catch up with and overtake their competitors, household appliance chain stores make use of the volume advantage of their bulk purchase to launch series of low-price attacks. According to price comparison on etao.com, the price of products in GOME's online store stayed at a low level throughout the May Day holiday. The price advantage of such products as TV, air-conditioner, refrigerator, and washing machine was kept at higher than 10 percent. Li Bin, deputy executive director of suning.com, announced recently that, following the fourfold growth of sales in the previous round of promotion, the May promotion would be held from May 16 to 18, with the company planning to put RMB 2 billion Yuan of discounted products on sales with a profit reduction of RMB 400 million Yuan, which would create the lowest price online and help the company to grab the top position in the market with its price advantage.

  Make focus effort to improve operation

  Although currently promotions of the online market are going on vigorously, but the profit model of online shopping is not yet clear, and ecommerce companies are still feeling their ways. For household appliance tycoons, operating online and offline simultaneously is a strategic choice, and it's now imperative for them to adjust and reform their entity stores.

  Both GOME and SUNING have more than 1,700 franchises now. As growth of sales slows down in the market, operational cost rises, and requirements of user experience go up, the expansion of household appliance chain stores that depends solely on increasing the number of stores has come to a deadlock, with profit ability starting to slip.

  SUNING made a clear statement that the retail industry must transit to the stage of thoroughly refined operation and management. Therefore, while increasing operational efforts in its flagship stores in order to penetrate deeper into the market, SUNING has also made adjustment to or shut down 35 low-efficiency stores in the first quarter.

  "Retailing enterprises must return to the nature of commerce and put operational quality in the first place", says Wang Junzhou, president of GOME. Wang suggests that the core of the retailing industry used to be volume expansion, but now we are in the phase of commodities and consumers management, the challenge being the ability to manage single item and consumption demands. GOME is starting to switch to a business model that is guided by consumer demands and centered on the thorough integration of the supply chain.

  Information construction is an important tool to increase commercial competitiveness. GOME has recently adopted a leading ERP system, achieving synergy with the supply chain in such aspects as orders synergy, inventory synergy, revenue and settlement synergy, and promotion synergy. Consumption demands information is shared. On this basis, retail enterprises can guide production effectively based on demands, carry out item planning with suppliers, and even co-design commodities.

  In early April, GOME reached a strategic operation agreement with Qualcomm. The two parties, working with China's three major telecom operators and mobile phone manufacturers, will carry out extensive cooperation in cooperative customization of smart phones and forward-looking research, making joint effort to promote the popularization and consumption of smart phones. "The operation cost of all cooperation partners will be reduced, and the investment-output benefits can be maximized, which will naturally reduce consumers' purchase cost."

   

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