The debt-laden retailer Suning, once a leader in home appliances, has been bailed out by a group of investors including Alibaba and Xiaomi.
An empty Suning store in Foshan, Guangzhou, July 4, 2020. Photo from CFP
By LIN Beichen
Troubled electronics retailer Suning has secured an 8.8-billion-yuan (US$1.4 billion) bail-out from a government fund in exchange for 17 percent of the company. A group of investors including Alibaba, Xiaomi, and home appliance giant Midea have also put money into the rescue.
The deal will even out the ownership structure of Suning. Previously, CEO ZHANG Jindong owned 50 percent of the company. His share will be cut to 20 percent, on par with that of Alibaba, which bought a similar share of Suning in 2015. Alibaba might now be the de facto biggest shareholder of the restructured company through its stake in the government fund.
Deep in debt, Suning has been frantically seeking help. Earlier this year, it decided to sell 23 percent of its shares to the Shenzhen government but the deal fell through. In the end, Jiangsu province came to the rescue. On July 6, Suning shares went limit up after a two-week hiatus in trading pending the restructuring announcement.
Founded in 1990, Suning is one of the oldest home appliance retailers in China. The company has come a long way since its pre-e-commerce days. The company gained the upper hand over GOME when its main competitor’s boss was thrown into jail in 2008. Around the, it was the absolute leader in home appliance retail.
In 2010, Suning went online and expanded its brick-and-mortar network. Zhang expected Suning to become an “Amazon-Walmart” hybrid, dominating the entire retail market. His vision is very far cry from today’s reality. His words are representative of the managerial incompetence that was rife in the company at the time. Suning quickly became a mess of distribution channels and pricing systems.
Meanwhile, the humble seller of fridges and hairdryers found itself in the arena with the ferocious beasts of e-commerce, such as Alibaba and JD. Suning was pulverized. It managed to defend its leading position in the home appliance market. Suning held 24 percent versus JD.com’s 17 percent last year. Zhang’s hopes of 50-percent annual growth seem almost silly today. Suning dabbled in group buying and online groceries and failed twice.
Nor did Suning appear to understand the basics of e-commerce. As late as last year, it was still touting “everything 10 percent cheaper than JD.com,” oblivious to the fact that price is no longer the be-all and end-all of retail.
Profits declined. Online prices are low. Suning has much higher costs than its rivals. In 2013, profit dropped 86 percent while sales remained flat. It was only to get worse from there. Pinduoduo snatched a big chunk of Suning’s market. Suning has never been back in the top three since.
To find new growth, Suning went on a buying spree. The company spent over 40 billion yuan on a hodgepodge of businesses including department stores, live streaming, and deliveries. Suning owns 70 percent of the Italian soccer club Inter Milan. Spending on core business did not slow either. In 2018, over 8,000 new stores opened as part of an initiative to build a “galaxy” of mega malls. Suning was very definitely in the red.
Suning's online sales improved to 10 billion yuan in 2018. But the company lost it all on dead ducks. Convenience stores that were supposed to guide the online customers to brick-and-mortar shops alone lost 300 million yuan in six months.
Debt piled up. New businesses absorbed all the money the company threw at them. Old businesses gathered rust and dust. In December last year, with 10 billion yuan of bonds about to expire, Suning sold out to Taobao to avoid catastrophe and called it “normal business cooperation.”
Financials are grim. Losses last year were close to 4 billion yuan. A recent estimate put losses for H1 at around 3 billion yuan, forcing Suning to slim down. It has shut down several struggling businesses, including the Jiangsu FC it had sponsored for more than five years. The soccer team which was crowned the champion of China's top soccer league, disbanded in March.
Zhang wants to refocus on retail. This seems like an unusually sound decision. Despite poor performance in other sectors, Yiguo did not perform badly last year. A moderate profit in Q1 was quickly restored to a loss in Q2 this year.
The market still has confidence in Suning. Despite not leading to a deal, the bail-out talks with Shenzhen opened up resources in the Greater Bay Area. The new agreement with Jiangsu should provide both money and momentum.
But Alibaba casts a giant shadow. Zhang Jindong, dreaming at the helm for 30 years, is perhaps the principal obstacle to Suning’s renewed success. Alibaba, a voracious giant, has never been noted for corporate sentimentality.