Suning joins open platform e-commerce
Recent launches of third-party retailing platforms by Suning and Jingdong represent a growing trend towards a hybrid business model by Chinese e-commerce firms.
An interesting transformation is taking place in China's e-commerce world, as traditional retailer Suning (Shenzhen: 002024) becomes the latest major player to launch an open platform where independent merchants can sell their wares. Most of China's top e-commerce firms started out mimicking a traditional retailing model, which saw them purchase goods from wholesalers and sell them directly to consumers via their online stores. The notable exception was industry leader Alibaba, which didn't sell merchandise directly but instead operated online "malls" where third-party merchants could set up shops. But now a growing number of companies are moving to a hybrid model, offering goods both directly to consumers but also operating platforms where independent merchants can set up shops.
Suning becomes the latest e-commerce firm to join the hybrid business model with the official launch of its open platform this week, complementing its existing online store and also its older chain of brick-and-mortar shops. It joins other major e-commerce firms to make similar moves over the last year, including Jingdong, China's second largest player, and Dangdang (NYSE: DANG), one of the country's first major e-commerce firms. Such platforms offer consumers more choice, but they also potentially could lead to internal competition between site operators and their individual merchants.
Launch of the platform is just the latest move by Suning to try and create a broader, unified retailing strategy that encompasses both its real-world and online stores. The company last year rolled out a new chain of general merchandise stores, called Suning Expo, which were upgraded from its original electronics stores. It has also spent the last few months rolling out a unified pricing policy between goods on its online site and real-world stores.
In my view, Suning seems to have the most comprehensive strategy among China's major e-commerce firms, offering consumers the widest range of choices. I also like its decision to exclude smaller merchants from its open platform, as such merchants are more difficult to control and can often become a source of consumer complaints due to quality and reliability issues. For all of those reasons, I would say Suning is laying a very solid foundation to challenge the more limited options from many of its rivals.
All of this looks like a big convergence play to me as China's e-commerce firms look for the best business model to compete. In my view Suning's latest move looks smart, and could give it an advantage over rivals by merging its real-world stores with a hybrid e-commerce model. Jingdong's move into the hybrid business also looks well-conceived, potentially allowing both companies to make a serious challenge to Alibaba in the next few years.
Bottom line: Recent launches of third-party retailing platforms by Suning and Jingdong represent a growing trend towards a hybrid business model by Chinese e-commerce firms.
