Suning: China’s New Walmart? 苏宁：中国的下一个沃尔玛？
Chinese media are buzzing this morning with reports that retailing giant Suning (Shenzhen: 002024), a name synonymous with electronics, is preparing a major push into general merchandising, laying the groundwork to create a retailing giant that could someday challenge the likes of Walmart (NYSE: WMT) and Carrefour (Paris: CARR). According to the reports, Suning will start its newest retail drive by converting four flagship stores in Beijing, Shanghai, Guangzhou and Nanjing into the new general merchandising format, which will be rebranded as Suning Expo. (English article; Chinese article)
The company plans to open 20 new Suning Expo stores by the end of this year, and aims to have 400 stores within 3 years. China already has a number of similar homegrown chains such as Wumart (HKEx: 8277), but none approach the size and scale of Walmart and Carrefour, which are hugely popular among Chinese shoppers.
Suning already has some experience in general merchandising through its e-commerce site, Suning.com, which is much broader in its offerings than the traditional Suning electronics stores. The company’s strategy received a strong vote of confidence a year ago from Hony Capital, the venture capital arm of Lenovo (HKEx: 992) parent Legend Group, which purchased 1.2 billion yuan, or about $190 million, worth of Suning shares for 12.15 yuan each in a private placement. (Chinese article) Those shares have lost about half of their value since that time, including a steep drop this year as Suning’s profits plunged due to a series of online price wars. But Hony’s chief still says he has no regrets about his investment.
Suning last month announced plans to raise more money to support its various online and off-line initiatives, saying it would make its first-ever corporate bond offering worth up to $1.25 billion. (previous post) So the question now becomes: What are Suning’s chances of success in this latest initiative and, equally important, does it have enough cash to give its new online and offline efforts the funding they need to succeed?
If I were betting, I would say that this new offline Suning Expo initiative stands a fairly strong chance of success, perhaps 70 percent or better. Suning has a number of advantages to make this initiative succeed, including a relatively long operating history, a good record on execution of business strategy, and more than 1,000 store locations nationwide that it could convert to Expo stores.
The company, through its e-commerce site, also already has strong relationships with general merchandise suppliers that it would need to stock the new stores. Last but perhaps most important, Suning is still profitable and has good access to capital markets, meaning it should be able to get the cash it needs to fund this and other initiatives. If indeed this Expo drive succeeds, look for an interesting new competitor to emerge to challenge Walmart and Carrefour not only in China, but perhaps also on the world stage in the next 5-10 years.
Bottom line: Suning’s new foray into general merchandising stores stands a 70 percent chance of success, potentially creating a new rival to Walmart and Carrefour in China.
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