360buy fires first salvo in price war
Home appliance retailer promises zero gross profit on big-ticket items in next three years. Rival Suning says it will go lower as Gome pledges 'cheapest ever'
Competition in the mainland's home appliance industry is heating up as major retailers Suning Appliance, Gome Electrical Appliances and e-commerce player 360buy wage a new round in their price war.
"Today, I've made a decision. We will make zero gross profit selling big-size home appliances over the next three years," said 360buy's chairman and chief executive Liu Qiangdong on his weibo microblogging account on Tuesday.
Firing the first salvo in the price war, he said 360buy would cut prices of television sets, refrigerators, washing machines and air conditioners from yesterday morning, making sure they would be cheaper than what was being offered by Suning and Gome's bricks-and-mortar shops and websites.
Suning and Gome, the two largest home appliance retailers in the nation, fired right back.
While Suning.com came out with a guarantee that its prices would be lower than those of 360buy, Gome's website promised to offer "the cheapest price in history" for home appliances.
Smaller online retailers like Dangdang and 51buy also joined in, pledging to adjust their prices.
The high-profile price competition generated a lot of interest, with many consumers waiting by their computers from yesterday morning expecting to see bargains.
Some were disappointed, however, when either they could not get onto the websites during the day or the items they were looking for were already out of stock.
Around 1.30pm yesterday, 360buy said its sales of big home appliances for the half day had reached 200 million yuan (HK$244.87 million). Suning also said it had achieved its "sales target" for the day.
Suning and Gome had mixed fortunes in the stock market yesterday. Gome shares fell nearly 7 per cent to close at 67 HK cents yesterday as investors worried the price war would further erode the company's bottom line. The company issued a profit warning last month.
Suning shares dropped 5.2 per cent in the morning in Shanghai trading but rebounded after it announced its second-largest shareholder, Suning Appliance Group, planned to increase its stake in the company by up to one billion yuan over the next three months. The firm closed up 10 per cent at 6.47 yuan.
"This round of the price war will be a turning point for the home appliance retailing industry," said Zuo Yingjie, a market expert who runs Beijing-based online shop All3C.com.
"360buy started the war because it knows Suning and Gome's weakness very well. The two traditional retailers have higher costs running their bricks-and-mortar shops although the operating efficiency of these shops is lower than online stores."
Wei Xiaopo, an analyst of CLSA Asia-Pacific Markets, said Suning and Gome, which are listed, are able to raise funds from the capital market to support their price adjustments, but 360buy is relying on private-equity funds and venture capital to sustain the competition. "Unlike listed companies, 360buy, which started the price war, focuses more on its top-line growth rather than earning ability. How long this price war will last will depend on how much money it can get to burn," Wei said.
Before declaring the 360buy strategy, Liu met its key equity investors to seek their opinions. "One shareholder told us, 'We have nothing but money. You go ahead and kill them all'," Liu said on his weibo account.