War of Words, Wal-Mart Heat Up E-Commerce 中国电子商务价格战愈演愈烈
I wrote yesterday that China’s big e-commerce names are showing no signs of easing up their fierce battle for market share (previous post), and today we’re getting news bites from industry giant Jingdong Mall and global retail titan Wal-Mart (NYSE: WMT) that indicate the situation could get considerably worse before it starts to improve. Leading the news today are the latest comments from Jingdong Mall’s talkative CEO Liu Qiangdong, who has suddenly decided that profits aren’t important for his recently established electronics business, at least not for the next 3 years. (English article; Chinese article) Meantime, in separate news Wal-Mart has won approval from China’s regulator for its previously announced plan to boost its minority share in e-commerce firm Yihaodian to a majority stake, meaning we could soon see a major new offensive from Yihaodian in this already crowded and massively money-losing market. (Chinese article)
All of this comes as another major e-commerce player, electronics giant Suning (Shenzhen: 002024) said earlier this week it would issue up to 8 billion yuan in corporate bonds, its first-ever such offering, partly to help pay for its own aggressive e-commerce initiative. That news led to a sell-off in Suning shares, which tumbled 7 percent to a 4-year low on Tuesday in Shenzhen and were down another 3.6 percent in early trade on Wednesday.
Let’s look first at the news from Jingdong Mall, also known as 360Buy, whose chatty founder Liu has said he’s willing to accept zero profit margins for his recently launched electronics and home appliance businesses over the next 3 years. Furthermore, he said his site will offer all of its large household appliances for 10 percent less than the prices offered in Suning’s chain of real-world electronics stores.
Liu’s words are just the latest development in the increasingly competitive consumer electronics and home appliance space, also known as 3C, and certainly don’t bode well for either e-commerce firms or traditional retailers. Earlier this year e-commerce leader Alibaba also announced its own initiative to boost its 3C business (previous post), and traditional 3C powerhouse Gome (HKEx: 493) also recently announced a major initiative in the online space through a tie-up with e-commerce major Dangdang (NYSE: DANG). (previous post) With this latest offensive by Jingdong, we can expect to see the fierce competition continue in 3C for at least the next year.
Meantime, China’s Commerce Ministry has announced its approval of Wal-Mart’s plan to boost its minority stake in Yihaodian to a controlling 51.3 percent. Frankly speaking, I would have been surprised if the regulator rejected the plan, since there are certainly no monopoly implications from the purchase due to the existing intense competition in the e-commerce space.
Still, this official green light from the regulator means that Wal-Mart is likely to soon pour more of its huge resources into Yihaodian, adding yet another major player to China’s e-commerce mix. Wal-Mart will join rival US retailer Amazon (Nasdaq: AMZN), which earlier this year also poured major new resources into its China site. (previous post) With so many well-funded players showing such determination to dominate the market, don’t look for China’s e-commerce price wars to slow down anytime soon.
Bottom line: New signals from Jingdong Mall and Wal-Mart indicate China’s e-commerce wars won’t slow down anytime soon, and could even intensify in the months ahead.
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