Suning Stumbles in E-Commerce 苏宁易购未实现去年营收目标
I’ve been writing for most of the past year about China’s bloody e-commerce battles, and now we’re getting some figures that finally show how bad the situation is with news that up-and-comer Suning (Shenzhen: 002024) has missed its 2012 online sales target by a relatively large margin. This bad stumble reflects the fact that China’s e-commerce market may have big potential, but the overall space is still limited in size. What’s more, with so many big names fighting for a piece of the pie, everyone is having to sell their products at very low prices that ultimately result in lower overall revenues and operating losses.
Let’s have a look at the latest news, which has media reporting that sales for Suning’s online business, Suning.com, reached about 15.2 billion yuan last year for physical products and 18.3 billion yuan for overall sales. (English article; Chinese article) Both figures were well short of the company’s target for 20 billion yuan in online sales for last year, equivalent to about $3.2 billion.
Suning was quick to point out that its e-commerce business more than tripled, rising 210 percent from the previous year. The company also added that it met its other online targets for daily traffic, registered users and daily orders. Taking all of that into account, it looks clear that the company’s revenue shortfall was probably the direct result of having to constantly lower prices to meet its other targets and build up its market share in the face of stiff competition from both Chinese and foreign rivals.
China’s general merchandise e-commerce space is now extremely crowded, with domestic players Alibaba and Jingdong Mall both ahead of Suning in terms of overall market share. The Chinese players are also facing stiff competition from global giants Amazon (Nasdaq: AMZN) and WalMart (NYSE: WMT), both of which have significantly boosted investment in their China operations over the last year.
While Suning was happy to talk about its e-commerce revenue and other online metrics, one figure that it apparently didn’t want to discuss was profit performance for its online business. I suspect the online unit posted a massive loss, which would probably mirror similar losses being incurred by most of China’s major e-commerce players. Those ballooning losses claimed one of their first major victims earlier this month, when Dangdang (NYSE: DANG), one of China’s oldest e-commerce names, reportedly embarked on a major overhaul aimed at making the company into a more niche-oriented player as it abandoned its more general merchandise focus. (previous post)
None of the other major players have made similar recent moves yet, and I doubt we will see any similar retrenchments from other major operators in 2013, as most still have large cash piles that they can use to fund their loss-making operations. Suning didn’t discuss its goals for 2013; but I suspect the company will aim to at least double its online sales this year, as it makes a broader move beyond its traditional home electronics and appliance business into trying to become a more general merchandise retailer like WalMart and Alibaba.
None of the other major players are publicly traded, so we’re unlikely to get many more clues on just how much money they are losing as they continue to fight their never-ending e-commerce wars. At the end of the day, those wars are likely to continue unabated in 2013, even as losses continue to mount and Jingdong Mall and Alibaba march towards their widely discussed IPOs.
Bottom line: Suning’s failure to meet its 2012 e-commerce revenue target underscores that stiff competition continues in the space, with little possibility for relief in 2013.
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