WWW.MARKETLINE.COM MARKETLINE. THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED Master Company Report Suning Appliance Co., Ltd. April 2017 Table of Contents Company Information Overview Suning Appliance Co., Ltd. (Suning) is a specialty retailer engaged in operating home electrical and electronics shops. The company operates a chain over 1,664 retail stores under the brand name of Suning. The company’s product portfolio includes consumer appliances, which include color TVs, digital products, dishwashers, small kitchen appliances, computers, communication appliances, air conditioners, washing machines and fridges. The company also offers services through its web site which include real-time interactive consultation and product maintenance. It offers its merchandise through its wholly owned chain of retail stores and website. The company principally operates in China and is headquartered in Nanjing, China. The company reported revenues of (Renminbi) CNY135,547.6 million for the fiscal year ended December 2015 (FY2015), an increase of 24.4% over FY2014. The operating loss of the company was CNY610 million in FY2015, compared to an operating loss of CNY1,458.9 million in FY2014. In FY2015, the company recorded a net margin of 0.6%, compared to a net margin of 0.8% in FY2014. The company reported revenues of CNY36,871.7 million for the second quarter ended June 2016, an increase of 15.8% over the previous quarter. Business Description Suning Appliance Co., Ltd. (Suning) is one of the largest Chinese retailers. The company sells consumer appliances, computer and communication products. It was formerly known as Suning Appliance Chain Store (Group) Company Limited. The company’s business can be categorized into one business segment namely, Retail. The company, through its Retail business segment, is engaged in operating a chain of more than 1,664 stores in 271 prefecture-level cities across China. Suning operates these shops under the brand name of ‘Suning’ and it divides its chain store formats into four types, namely, 1,546 House conventional stores, six boutiques, 104 towns shops, and eight Tesco Shi Life Plaza. The company has built a network of its retail electronics shops covering provincial capitals, prefecture-level cities and district business circles. These shops are either located in some malls or strip centers. Some of these shops are also independently located. Suning, through these shops, offers a wide and deep selection of electrical goods and electronics items including computers and Laptops, audio and video devices, disc players, mobile phones and other telecommunication products. It also sells household appliances including air conditioners, color televisions, washing machines and other such products. Suning shops offers to its customers. The company also offers diverse services to its customers such as free installation, warranty maintenance and repairing services through these stores. The company presents information technology (IT) products, and computers and computers peripherals from its exhaustive SKU’s of 1,000 brands, and 200,000 types and specifications. Suning is also engaged in other business activities including developing, selling and system integrating computer software, Internet information service, industrial investment, place rental, counter rental, domestic products exhibit service, enterprise image strategy, economic information consultation service, personal training and business agent service. The company, in addition to its retail electrical shops, sells its product portfolio through e-commerce website, namely, www.cnsuning.com. This website provides its stores merchandise and diverse information relating to its products, their prices, the company and its stores. Suning operates its chain of store across four markets across China, comprising 565 stores in tier 1 market, 472 stores in tier 2 markets, 507 in tier 3 market and 120 tier 4 markets. The shops are located in provinces namely, Shanghai, Beijing, Guangdong, Zhejiang, Anhui, Shaanxi, Fujian, Jiangsu, Hunan and Shanxi regions of China. The company has logistics centers in Hangzhou, Beijing and Nanjing. Key Facts Head Office : No. 1 Suning Avenue Xuanwu District City: Nanjing State: Jiangsu Zip: 210042 Phone: 86 25 84418888 Fax: 86 25 84418888 Country: China Web Address: www.suning.cn Turnover: $21,800.99 Financial Year End: December Employees: 24,951 Primary Stock Exchange (Ticker): SHENZHEN STOCK EXCHANGE (002024) Source: MARKETLINE MARKETLINE Company History The company was incorporated by Zhang Jindong as 'Suning Appliance Chain Store (Group) Company Limited'. The company became a public limited entity as it was listed on the Shenzhen Stock Exchange. The company successfully got ISO9000 Quality Management System certification for its rigorous, standard, scientific and efficient interior management. The company opened its 10 flagship retail electronics stores across various provinces of China. The company implemented SAP/ERP system, the first retail company to do so in China. The company won a Top 10 Charity Enterprises award hosted by several departments of Chinese central government. The company planned to acquire Beijing Dazhong Electric Appliance Co Ltd., a home appliances retailer in China. Later, it shelved its plans to acquire the same for some unknown reasons. The company won most coveted award namely, Enterprise of the Most Responsibility for year 2007 given by CCTV 2007. In 2009, the company entered into an agreement with Whirlpool Corp, to gradually become the sole seller of Whirlpool's products in China. The company entered into an agreement with Pioneer Corporation, a manufacturer of consumer and business-use electronics products, to allow Pioneer to use the company's sales channels. The company acquired additional stake in Laox, a Japanese electronics retailer for JPY2.5 billion. In February, the company has completed the acquisition of Hong Kong electronics retail operator Citicall Retail Management Ltd. for HKD 35m. In September, the company acquired Redbaby for a consideration of $66m. In May, the company established its retail store in Tibet. The company's Suning Commerce Group Co. Ltd., partnered with Alibaba Group Holding Ltd, where Alibaba acquired 20% stake in Suning Commerce Group Co. Ltd for US$4.6 billion. Major Products And Services Suning operates consumer electronics and electrical stores across China. The company’s major products and services include the following: Products: Computers and Laptops Audio and Video Devices Disc Players Mobile Phones Other Telecommunication Products Air Conditioners Color Televisions Washing Machines Services: Free Installation Warranty Maintenance Repairing Services Internet Information Service Industrial Investment Place Rental Counter Rental Domestic Products Exhibit Service Brands: Suning Management Statement The statement given by Mr. Zhang Jindong, the chairman of Suning Appliance Co., Ltd. is given below. The statement has been taken from the company’s website. During the past years’ development, Suning is favored with constant care and uniformed expectation from the governments, experts, media and customers all around. Such social attention is the spiritual support directing Suning to grow up with more perseverance and enterprising efforts. Experiencing the development, Suning has become a social undertaking more than my private career. And during which period, I am honored to have made friends with thousands of famous tycoons in home appliances field all of world. We become sworn friends from business partners. The most valued experience is, Suning has learnt a lot of business management practice, from the cooperation and communication with those business partners, and has accumulated more strength to grow up further. Also thanks to my colleagues who have done hard work into creative mission, and common job into outstanding achievement. With a long way to go, personal value is not about the amount of treasure he holds, but the added value he creates. Looking forward, stick to where we are, we target to make Suning to be the best chain service brand in China, and to achieve personal value with contribution to families, staffs and the society. Top Competitors Darty plc Joshin Denki Co., Ltd. Kojima Co., Ltd. Nojima Corporation Locations and Subsidiaries Citicall Retail Management Ltd. 2A Sai Yeung Choi Street Plaza, 21 Floor Mongkok Hong Kong Special Administrative Region of China 852 2783 2999 852 2783 8309 www.citicall.com.hk SWOT Analysis Overview Suning Appliance Co., Ltd. (Suning) is a specialty retailer engaged in operating home electrical and electronic appliance stores. The company operates a chain of 1,644 retail stores under the brand name of Suning. It has a strong market presence and offers a wide choice of products to its customers. Its future growth may be driven by strategic initiatives and online retailing. However, it is currently limited by its geographic concentration and weak operational performance. Furthermore, it suffers from intense competition in first-tier Chinese cities and its market share is threatened by counterfeit products. Strengths Weaknesses Strong Distribution Channels Strong Market Presence Wide Product and Service Offering Geographical Dependency Operational Inefficiency Opportunities Threats Rising Demand for E-Retail Strategic Initiatives Increase in Counterfeit Products Intense Competition in Tier-1 Chinese Cities Shortage of Talented Manpower Suning Appliance Co., Ltd. : Strengths Strong Distribution Channels Suning strongly positions itself in the market by focusing on its efficient distribution channels. It has national distribution network composed by regional distribution center, city distribution center and cross dock, supporting the distribution within a radius of 80 to 300 km with a capacity of above 150 thousand sets per day. The company strongly aligns itself with efficient information systems like TMS and WMS. This makes home deliveries possible within 24 hours. It also provides regional after-sales service center, regional call center, and regional training center among other. Logistics is one of the core competences for the company. Suning has logistics centers in Hangzhou, Beijing and Nanjing. The suchlike projects are under construction in Shanghai, Tianjin, Shenyang, Chengdu, Changchun, Wuxi, Hefei and Xuzhou. By 2015, Suning plans to construct 60 logistics and distribution centers in China. The company might gain customer’s confidence and maximize the value of its content through efficient distribution channels. This may have a favorable impact on the company's business. Strong Market Presence The company has a strong market presence in China. It is the second largest electronics retailer of the country, based on revenues. It ranks in the top 5 in the Internet Retailer Asia 500 guide and No.50 among the top 500 Chinese companies. Further, it occupies the 2nd place in the list of top 100 non-governmental listed companies in the country. As of December 31, 2012, the company had 1,644 retail stores with presence in over 251 prefectures in China. Its brand value and market capitalization totaled to $12.5 billion and $500m. It has a strong presence in some of the important cities like Shanghai, Beijing, Guangdong, Zhejiang, Anhui, Shaanxi, Fujian, Jiangsu, Hunan and Shanxi. It is estimated that by 2020, it will achieve the count of 3,000 stores nationwide with the sales volume of above RMB350 billion. It will also complete the construction of 300 flagship stores. With its strong market presence, the company enjoys economies of scale and high customer loyalty. Wide Product and Service Offering The company’s stores offer, its customers, a wide choice of appliances and provide the related services. Suning Appliance divides its chain store formats into 4 types namely, 1,546 House conventional stores, six boutiques, 104 towns shops, 8 Tesco Shi Life Plaza. It’s stores operate in a total area of 6.929 million square meters. Suning primarily sells products from eight categories including, air-conditioners, refrigerators, washing machines, color TV sets, audio-video products, small home appliances, telecom products, computers and digital products. It offers nearly 1,000 brands and more than 200,000 stock keeping units (SKU’s). It also plans to open 200 new chain stores annually. Suning’s product offering is complemented with its services. It offers all related pre-sale, sale and after-sale services. The company undertakes several staff training programs to enhance its overall shopping experience. It operates its own regional distribution centers, after-sale and customer service centers in order to enhance the convenience of its customers. Such a strong product and service offering can not only help it increase sales but also attract new customers through the power of word of mouth marketing. Suning Appliance Co., Ltd. : Weaknesses Geographical Dependency Although, the company operates in 271 prefecture-level cities across China its operations are constricted to this region. This increases the company’s risk associated with the country. In case of any adverse environmental, social, political or economic factors affects the country, the company’s performance may be affected. Unlike its globally diversified competitors, the company can do little to compensate. Furthermore, due to its limited geographic presence the company may have lower bargaining power with its international suppliers. In electronics retailing, forming alliances with globally renowned manufacturers can be a key to success. The company’s limited geographic presence can make it a less preferred retail partner for the global electronics manufacturers. Operational Inefficiency The company's has been exhibiting a declining trend in its operating income for the past three years. Though the company revenue has increased from to CNY93,888.58m in 2011 to CNY98,357.16 in 2012, its operating income decreased to CNY3,013.6m in 2011, a decrease of 53.2% over the previous year. The decrease in operating income has resulted in the decrease of net income from CNY4,820.59m in 2011 to CNY2676.12m in 2012, indicating a decrease of 44.5%. For the fiscal years ended December 2012, 2011 and 2010, the company's operating margin were 7.19%, 6.86% and 7.19%. The decreasing trend in operating margin indicates that the company's operating expenses grows at a higher rate than that of its revenue. The company's operating costs as a percentage of sales were 96.93% in 2012, 93.13% in 2011 and 92.80% in 2010. The company's declining operational efficiency affects its financial and operational condition. Suning Appliance Co., Ltd. : Opportunities Rising Demand for E-Retail Having failed to really take off during the early part of the century, China’s online retailing market value has been roughly doubling in value each year for several recent years, and continues to show a rapid pace of growth. Compound annual growth rate (CAGR) for the 2004 to 2010 period were 95.9% for the total online sales market, including C2C, compared to 87.4% for B2C over the same period, but B2C has now accelerated to become the fastest growing segment of total internet transactions volume. According to industry estimates, the B2C online retail market will continue to grow faster than the C2C sector, and have an expected CAGR for 2011 to 2015 at about 73% per annum, compared to about 40% per annum for total Internet transaction volume over the same period. By 2015, total Internet transactions are forecast to reach over RMB2.5 trillion (or about 20% of total national retail sales in China), while B2C online retail sales are likely to reach RMB950 billion, or about 9%of total retail sales. The company is planning to invest over JPY13 billion in China to expand its operations in this region and to exploit the opportunities offered by the Chinese market. Strategic Initiatives The company can expand its presence outside China and enhance its buying operations through new establishments and acquisitions. In May 2013, the company established in store in Tibet, offering a wide range of electrical equipments and marking its presence in the country. Through this, the company expands its global footprint further assisting it to improve its market presence. In September 2012, the company acquired Redbaby, a vertical ecommerce platform focusing on the baby and maternity products. The acquisition is the first by the company in e-commerce space. Through this, the company plans to expand its offering portfolio by establishing an open platform. Redbaby’s robust supply chain management and loyal customer base could enable the company to enhance its revenue stream. Suning Appliance Co., Ltd. : Threats Increase in Counterfeit Products The company faces a threat from counterfeit appliances offered by some unorganized retailers. According to The International Anti-Counterfeiting Coalition (IACC) about 5%-7% of the world trade is in counterfeit goods. Furthermore, since 1982, the global trade in illegitimate goods has increased from $5.5 billion to about $600 billion annually at present. According to surveys conducted by IACC among its members, China is believed to be the single largest source of counterfeit products from categories including electrical and electronic appliances, pharmaceuticals, computer peripherals, auto parts and other expensive items. With a strong presence of counterfeit product manufacturers in China, the company’s market share and revenues are under a constant threat. Intense Competition in Tier-1 Chinese Cities The company faces stiff competition in first-tier Chinese cities like Shanghai and Beijing. It competes with domestic department stores, hypermarkets, discount stores and independent stores. In addition, there is an increasing competition from foreign retailers. Foreign investment in Chinese retail sector started in 1992 when the country first opened the sector for foreign investors. Later, after the country entered into the World Trade Organization, in 2001, it saw foreign retailers flocking to expand their presence in the country. Most of the world’s largest retailers opened their stores in China, more so in first-tier cities like Shanghai and Beijing. With this, the competition intensified. Some of the company’s key foreign competitors include Carrefour, Vanguard, Wal-mart and Metro. With global retail giants expanding their presence in China, the company’s market share may be under threat. Furthermore, in order to retain its business, the company may have to increase marketing and promotional expenses, which can adversely affect the profitability. Shortage of Talented Manpower Retailers, such as Suning, are facing a shortage of talented manpower and this may hinder their expansion plans. With an influx of global retail giants into China and due to rapid expansion of local retailers, there is a stiff competition to hire from a limited talent pool of the country. In addition, training and development of the personnel is also getting difficult due to the drastic growth of the retail sector. In countries like China, where exposure to modern retailing concepts is limited, acquiring and retaining talented managerial staff is a competitive advantage. In order to be a competitive employer, the company may have to increase its salary expenditure, which can adversely affect its profits. Furthermore, in the event of not finding suitable staff, the company may have to slowdown its expansion drive. Appendix Contact Us We hope that the data and analysis in this brief will help you make informed and imaginative business decisions. If you have further requirements/feedback please contact us at: [email protected] For further information on MarketLine and our range of business information services please visit www.marketline.com Disclaimer Financial Deals Database: For M&A, private equity, IPO and private placement, our database focuses on transactions where deal value is more than or equal to $5 million. For venture investment and partnership, we capture all deals. Note: All values are mentioned in US$m About MarketLine In an information-rich world, finding facts you can rely upon isn’t always easy. MarketLine is the solution. At MarketLine, we deliver accurate, up-to-date information on 300 industries and 150 countries as well as detailed profiles of over 30,000 companies. By taking the chore out of business research, MarketLine gives you more time to focus on what really matters. Profiling all major companies, industries and geographies, MarketLine is one of the most prolific publishers of business information today. Our content is produced by an internal team of analysts, drawing on primary and secondary research and prepared under an established methodology that’s been tried and tested over 10 years. MarketLine is a wholly owned subsidiary of Progressive Digital Media. .