Suning discovers land

Hot property: Zhang Jindong

The China edition of Forbes magazine recently named Zhang Jindong its businessperson of the year. The chairman of China’s largest electrical appliance retailer Suning Group has “led his company through adversity, while challenging himself, fully expressing the determination and courage of an entrepreneur,” the magazine gushed. But this year Zhang will put his leadership skills to the test once again by taking the company he started in 1990 into less familiar territory. After years of success on China’s retail scene, Suning now wants to become a serious player in the property market.

Zhang has never openly revealed his ambitions in property development, but industry observers say he’s been dropping hints in the last few months. One clue is that he’s been referring to the retailer’s parent Suning Appliance Group as Suning Group, which suggests that he wants to distance the company from appliances as it moves into other sectors. Zhang then sent the clearest signal yet of the new direction when he declared that Suning’s commercial property development arm would play a key role in helping the parent multiply its business turnover to Rmb1 trillion ($160 billion) by 2020 from Rmb190 billion last year, says China Business Journal.

Suning’s entry into property development has been in the works for a while. In fact, the company’s 2011 financial statement indicates sales revenue of Rmb96.1 billion from property activities, and The Manager’s Daily has reported that Suning has a land bank of more than 30 million square metres. Zhang also revealed in an earlier interview that Suning was developing as much as 8 million square metres of commercial property last year alone.

“China’s largest [commercial] property developer is Suning. But no one knows about it because Suning never publicises the number of properties it holds,” says Ren Zhiqiang, chairman of Huayuan Property and one of the most followed tweeters in the country. Suning’s property business is like “a nuclear submarine that is only starting to emerge,” agrees 21CN Business Herald.

Zhang’s move into property may reflect a weakening outlook for his core business. Retail rents and labour costs have been rising, and profits from selling electronics and household appliances have been under pressure (see WiC161 for coverage of a price war in the sector).

Thus far the bulk of the company’s property investments are in first and second-tier cites like Beijing, Shanghai, Tianjin and Chengdu. An 88-storey skyscraper is also under construction in Nanjing, where the company is based. The majority of its portfolio will consist of what the company terms as Suning Plazas – large developments incorporating shops (anchored around Suning’s own electronics outlets, of course), hotels and office space. The goal is to build 300 Suning Plazas around the country over the next seven years.

If Zhang succeeds, Suning Plazas will likely pose a threat to Dalian Wanda, the first developer to pioneer mixed-use commercial projects. Its 55 Wanda Plazas around the country are known for combining shopping malls with housing, hotels and cinemas. (The company grabbed headlines last year with its $2.6 billion acquisition of the US cinema chain AMC.)

Still, some analysts say Suning’s transition from retailer to property developer may not be straightforward. “The operation of commercial property demands extensive master planning,” an industry observer told 21CN. “While residential developments are often a one-time operation, commercial property operations are much longer term and require continued capital investment. They also require strong property management and a good tenant mix to sustain the project.”

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