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Price war launches battle for customers in China
Publication Date : 16-08-2012
A cut-throat price war has broken out between major e-commerce companies in China.
The initial battle was between two major companies, Suning Appliance and Jingdong Mall. But as hostilities erupted, other companies joined the fray.
Suning Appliance, a major electronics and appliances retailer, reduced prices sharply yesterday.
Meanwhile executives at rival Jingdong Mall held a strategy meeting yesterday, slashed prices and canceled vacations.
Suning and Jingdong "declared war" against each other earlier this week but only now are prices really falling.
But the price war now involves most major e-commerce players in China, such as Gome, another electronics and appliances retailer, and the New York Stock Exchange-listed E-Commerce China Dangdang Inc and 51buy.com, a subsidiary of Tencent Holdings.
Of the main online commerce sites, only Alibaba Group's Tmall.com has, so far, stayed away from the price war.
Prices have been slashed, at least according to advertisements.
"Losses in the short term are inevitable," said Liu Qiangdong, chairman of Jingdong Mall, also known as Beijing Jingdong Century Trading Co.
"As I've said, no matter how much money we need, our investors will say 'yes'," he declared, dismissing rumours that Jingdong is running out of working capital. He even boasted that the company still has more than US$1 billion in cash.
Liu wrote on his micro blog that the company was willing to endure a "zero margin" for three years. He pledged that large home appliances on its website would be cheaper than those sold by either Suning or Gome.
By 7 p.m. yesterday, Gome's e-commerce website offered 462 items with the "cheapest" prices, or items cheaper than those of rivals, according to Etao.com, a search engine for online shopping.
Qiu Lin, an Internet stock analyst at Guosen Securities in Hong Kong, said that in the long run, Suning has more firepower than Jingdong due to its fundraising capability and because brick-and-mortar stores usually show a higher profit margin.
The gross profit margin of Suning's e-commerce website went down from 7 per cent in the first quarter this year to 4 per cent in the second quarter, while the company as a whole reported a profit margin of more than 10 per cent.
"But home appliances are not like clothes, and consumers don't buy repeatedly. So sales may be affected in the fourth quarter if consumer demand has been satisfied with the price wars," Qiu said.
But stocks, in that time-honoured phrase, are apparently in short supply.
Wang Zikui, just married, said she wanted to buy appliances for her new apartment and went on Jingdong's website. She selected what she thought were goods at bargain prices but was told that they were sold out.
Dong Juan, in Shanghai, said she had a similar experience and was becoming mistrustful of various websites.
"They don't keep enough stock. They just want to promote their own names."
Jingdong's Liu said the company will set up 10 home appliance warehouses this year and 25 more in 2013.
He expected the company's total online sales to reach 63 billion yuan ($9.8 billion) this year, from 30.9 billion yuan last year.
Suning's online platform has maintained robust growth since the first half of this year, and claims annual revenue of 20 billion yuan.
US$1 = 6.3 Chinese yuan