RETAIL: Suning Expands In Japan, Wins Broadband Nod
Bottom line: Suning’s Japanese expansion and receipt of a new license to build and operate a private broadband network are both positive developments, but also reflect a lack of quick progress in transforming its core China-based retail business.
A couple of new reports involving Suning (Shenzhen: 002024) made me realize it’s been quite a while since I’ve written about this company that is trying to transform from a traditional retailer to a major e-commerce player. Both reports are interesting and noteworthy, though neither is related to its e-commerce drive, which doesn’t appear to be going anywhere quickly.
One of the deals involves Suning’s purchase of a money-losing Japanese electronics seller 5 years ago, and will see it now plow several billion yuan into a major expansion of the Laox chain of home appliance stores. The second deal has Suning named as one of 4 companies to receive licenses to build broadband networks to offer services under a newly announced pilot program to open the sector to private money.
The fact that neither of these headlines involves Suning’s core China-based retail business is revealing, reflecting the company’s struggles as it tries to transform itself from a traditional electronics seller to a more diversified retailer with strong online and offline presences. Despite pumping huge sums into that campaign, Suning still only controlled 3.1 percent of China’s B2C e-commerce market last year, making it a distant third behind Alibaba (NYSE: BABA) and JD.com (Nasdaq: JD), with 59.3 percent and 20.2 percent, respectively.
Suning certainly isn’t the only one struggling to compete with those 2 giants, and other big names like Amazon China (Nasdaq: AMZN), Wal-mart-backed (NYSE: WMT) Yihaodian and local player Vipshop (NYSE: VIPS) are also trying to find a place in the market. Against that backdrop, perhaps it’s not surprising that Suning is turning its attention to other endeavors that can generate some more short-term excitement and provide much-needed new growth opportunities.
We’ll begin with the Japanese deal, which will see Suning invest 2-3 billion yuan ($325-$500 million) to open around 30 new Laox duty-free stores over the next 3 years. (English article; Chinese article) Suning originally purchased a minority stake in Laox in 2009, and boosted that to a controlling 65 percent 2 years later. Laox was losing money when Suning acquired its majority stake, but has returned to the black since then and posted a 65 million yuan profit last year.
Laox still reportedly makes most of its money from traditional retail shops, meaning this new investment is probably more a regional diversification for Suning rather than an e-commerce play. This new investment appears to reflect Suning’s confidence in Laox, and perhaps we’ll see some related announcements soon in the Japanese e-commerce space.
Next there’s the broadband move, which is part of China’s recently announced plan to allow private companies to build infrastructure in the sensitive telecoms sector. (previous post) That move was announced in May, and now the telecoms regulator has just announced the awarding of the first 4 licenses under a pilot program to execute that policy. (Chinese article) I’ve never heard of the other 3 license winners, which include Great Wall Broadband and a Datong Network.
This new program looks a bit like another one launched last year, which sought to open the telecoms services market by licensing private companies as virtual network operators (VNOs). That program also saw Suning become one of several dozen private companies that were allowed to sell their own-branded voice and data services by leasing network capacity from China’s big 3 state-run wireless carriers.
Most of China’s other big e-commerce companies also received VNO licenses, and the fact that Suning has now also received one of the first licenses under this new pilot broadband program indicates it’s probably quite well connected with China’s telecoms regulator. We haven’t heard too many updates from Suning on its VNO progress, probably because such progress has been slow. But this latest development certainly looks positive for the company’s broader drive into the telecoms services space.
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