China Consumer

Realistic goals?

Suning wants sales to exceed $100 billion

Watch out Wal-Mart: boss Zhang

The decision from 360buy, one of China’s leading online retailers, to begin preparations for an IPO on Nasdaq has been causing a stir. At its root: a rumoured fundraising target of $4 billion. An IPO of that size would be the largest ever for an internet company in the US, surpassing Google.

But Zhang Jindong, chairman of China’s largest retailer Suning, has also been paying close attention. And when he learned about the size of 360buy’s planned offering he immediately put a call into Sun Weimin, president of Suning, says 21 CN Business Herald, to tell him to accelerate investment in Suning.com, its own e-commerce platform.

Already China’s largest retailer in bricks-and-mortar stores, Zhang is not about to be outdone in the world of virtual shopping. Suning knows it has to develop more of an internet offering as more consumers look online for deals. Since 2008 the electronics retailer has also been building out the logistics network that services its vast offline retail chain. Six logistics centres have begun operation, and another 18 are in the pipeline.

Why the rush? In the second quarter this year, China’s online retail transaction volume hit Rmb179 billion, up 77% on the same period last year, says iResearch, a Beijing-based research firm. At that rate, internet retail sales in China will overtake the US by 2015, according to a report published by the Boston Consulting Group this week.

Zhang told 21CN that Suning.com alone expects to reach Rmb300 billion ($45 billion) in sales by 2020. It doesn’t disclose online sales currently but analysts estimate that it has some way to go before hitting those levels, with Suning.com making about Rmb2 billion in revenues last year.

Not everyone is convinced: “Such a big number. Suning is like all the other internet firms that like to make up big numbers to sound more impressive,” Li Guoqing, Dangdang’s chief executive, responded dismissively.

But Li Bin, general manager of Suning.com, told South Weekend that the sales goals are not unrealistic as Suning.com will be selling much more than electronics. Li sees the internet model as like an online department store, offering everything from furniture to apparel. Electronic goods will account for only a third of revenue, with the rest coming from a range of new categories.

Like books: to promote its new online bookstore in October, Suning.com launched what it has called the most generous price reductions in e-commerce history. Discounts of as much as 85% were on offer in the three-day promotion, forcing other online booksellers (like Dangdang and 360buy) to quickly follow suit.

The book bonanza faced a few problems. Customers complained that the selection was too narrow and that popular items were out of stock, says New Express. After-sales service also needs improving. Compared to Dangdang and 360buy, Suning.com took up to 4 more days to deliver a package, with Li admitting that the promotion led to a spike in traffic that put pressure on its logistics system.

Still, Suning will probably be happy to have generated so much attention. “None of them cares that much about book sales,” Ding, a online shopper, told the Shanghai Daily. “All they care about is catching the attention of consumers. They are all evolving into online department stores.”

Suning says it will also keep up the pace with its store opening programme, from 1,700 today to 3,500 by 2020. Chairman Zhang, who founded Suning in 1990 selling air-conditioners in Nanjing, has set targets for a Rmb650 billion sales empire, more than seven times the revenues that Suning is expected to report this year.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.