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Suning claims momentum after price war with 360buy

  • Staff Reporter
  • 2012-08-29
  • 14:50 (GMT+8)
Suning Appliance founder Zhang Jindong. (Photo/CFP)

Suning Appliance founder Zhang Jindong. (Photo/CFP)

Zhang Jindong, the founder of Chinese electronics and appliance retailer Suning, has told staff at his company's Nanjing headquarters that they have fought an excellent fight in its online price war against rival 360buy, reports the Guangzhou-based magazine Money Week.

He told his employees that the price war was only a stimulus which would not yield much by itself. "Instead, we will wear 360buy down in a long war of attrition," Zhang said

According to independent market monitors, on Aug. 15, the first day of the war, 360buy — also known as Jingdong Mall — saw the most number of visitors of all online shops, with its traffic increasing by 132% However, Suning recorded the largest growth of 706% in its visitor numbers.

In the following days, while the number of visitors to 360buy returned to normal, traffic levels at Suning remained high.

The magazine quoted Li Li, a close friend of Zhang, as saying that the Suning founder had vowed to surpass not only 360buy, but also Alibaba's Tmall, aiming for revenue of 1 trillion yuan (US$157.8 billion) before 2020.

When Suning Appliance, now one of China's largest electrical retailers through its network of stores and online sales platform, was listed on the Chinese stock exchange in 2004 at a price of 30 yuan (US$4.73), few institutional investors were interested.

In April 2005, the company surprised market analysts by reporting operating revenue of 9.10 billion yuan (US$1.4 billion) and a net profit of 2.18 billion yuan (US$344 billion), representing a growth of 83.33% over the previous year and earnings of 1.95 yuan (US$0.31) per share. Institutional investors began to scramble to buy Suning's stocks.

In 2004, Suning opened an additional outlet for 2 million yuan (US$315,500), which would bring revenues of between 15-20 million yuan (US$2.36-$3.15 million) a year. At that time, an analyst said the company was adding an extra outlet every five days, compared to one outlet every 40 days in 2001. The chain's rapid growth made it a favorite of institutional investors.

However, for unknown reasons these investors began selling their holdings in Suning in 2011, although its net profit of 482 million yuan (US$76 million) on revenue of 93.88 billion yuan (US$14.8 billion) that year was much higher than its profit of 401 million yuan (US$63.3 million) on revenue of 75.5 billion yuan (US$11.9 billion) the previous year.

The exit of investors sent the company's stock into a nosedive. Suning issued new shares in July at the price of 12.15 yuan (US$1.91), when its stock price was 8.5 yuan (US$1.34). By Aug. 22, its price had declined to 6.05 yuan (US$0.95), 36.92% lower than April.

However, the weekly quoted Li Li as saying Zhang was undaunted in his ambition to surpass 360buy and to compete against Tmall for first place in China's online shopping sector.

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