Gome and Suning have always been fierce rivals in the consumer electronics retail market. People generally have this impression of Suning as the leader and Gome as the follower. Last year though, the tides of fortune made a surprising shift in Gome’s favor.
This piece is written by Hanna Chen, analyst consultant based in Shanghai L'Atelier Asia.
A BATTLE OF NUMBERS
After RMB 597 million losses in 2012, Gome finally got out of the red in 2013 with RMB 310 million profits. Meanwhile, its main competitor Suning’s net profit decreased by 86.32% last year compared with 2012. As Gome worked its way out of the crisis, Suning kept bleeding cash in its investments.
Even though they had launched their own e-commerce site, Gome is still predominantly a traditional retail company. The three core index, as Fangwei, the CFO of Gome put it, were total revenues, which increased by 10.4% to 56.4 billion Yuan, offline store revenues of 897 stores, which increased by 13.7% to 47.8 billion Yuan, and gross margin, which at 18.4% is 1.7% higher than the year before. Outside this index is the online revenue, which according to analyst estimates is less than RMB 5 billion and only takes 8.87% of total sales.
In contrast to the rosy growth figures for Gome, Suning’s picture is dire: 86.32% decrease in net profit, 7.19% growth in revenue and 3.48% lower gross margin than the previous year. Within the overall profit of Suning, its online sales take up 20.7% and this figure is still rising. Ironically, it is also this great investment in e-commerce which put Suning into financial difficulty in 2013.
RIVALS WITH OPPOSITE STRATEGIES
Obviously, Gome’s ambition is to dominate the whole offline appliance market, even covering the supermarkets and department stores. According to the CEO of Gome, supermarkets and department store’s sales of appliances decreased by 15% in the last 2 years and many of them are willing to outsource this business to Gome.
Suning, on the other hand, has diversified a lot more. After rapidly developing its online business, it is now entering finance. It recently applied for licenses for insurance agent, consumption loans, funds payments, and private banking. It has acquired vertical online retailer RedBaby and video portal PPTV. Today, Suning is more like an internet company instead of an appliance chain store and they are continuing to invest for the future.
SUNING’S GAMBLE ON THE FUTURE
It’s a trend that e-commerce competitors (especially B2C platforms) are grabbing market share from traditional vendors. Consumer behavior is changing fast. If you wanted to buy a TV a few years ago for example, you would go to appliance forums to see the popularity ranking and comments, travel to different stores to compare the price and the quality, and buy the TV on the spot. With the emergence of platforms like JD, more and more people prefer online purchasing considering the advantages in price, quality and service.
Since appliances are high-priced items, more and more people find it ideal to first search online about the product, go to an offline experience store and see the product in person, and complete the purchase online to enjoy the free shipping and good service at home.
Suning is ideally positioned for these two scenarios. Advantages in offline store experience, online commerce integration, and a reputation as “appliance expert” can give Suning a headstart in the consumer journey of the future. Will Suning get a reward from its huge investment or fall behind Gome? Let’s see whether this gamble on the future will pay off in the next few years.