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Suning bets big on rural expansion

By Ding Qingfen (China Daily)
Updated: 2009-03-24 07:56

Suning Appliance Co, China's second largest electrical appliances retailer by sales, is planning to expand into the rural market at an aggressive pace in a bid to gain an upper hand over archrival Gome. This will be done through leveraging the government's rebate program for household electric appliances, Suning's president Sun Weimin told China Daily.

Related readings:  Suning to open 220 stores in 2010  Suning's net profit up 48% in 2008  Suning Appliance on expansion spree

"Suning will open at least 1,000 stores in the third- and fourth-tier cities within five years," Sun said.

"A small number of these stores will be directly owned by Suning, and the rest will see investments by others interested in running our brand of stores."

Late last year, the company, which has 812 stores nationwide, announced it would open 200 stores this year. Gome, which owns 1,300 stores in the country, said there would be no change in the number of its stores this year. According to Suning's 2008 financial report, 134 stores out of the 812 are located in third- and fourth-tier cities.

The company is also thinking of opening stores tailored to the specific needs of consumers in small towns and remote rural regions, Sun said.

Compared to a traditional Suning store, which has a floor area of around 4,500 sq m, "the county store is smaller in size, at around 2,000 sq m," Sun explained. Suning opened its first rural store in 2002, in Changshu, Jiangsu province.

The company is betting on the appliance rebate program to help enhance its brand awareness and sales. As an active player in the program, the company has won all the bids intended to promote the eight categories of household appliances in 14 regions. Suning plans to invest another 50 million yuan to subsidize stores in those regions that have not been included in the program.

Compared with urban areas, the rural electric appliances market has bigger potential.

One-third of rural families have an annual income of over 20,000 yuan, with those earning an annual income ranging from 5,000 to 20,000 yuan accounting for 40 percent of the total, the latest Rural Household Appliances Consumption survey conducted by Suning and a Beijing-based research company has revealed.

Work on the survey was initiated last December, and is based on research among 15,000 rural residents from the 10 provinces where the electric appliance rebate program was initiated in late 2007.

According to the report, the four traditional electric appliances categories that enjoy the highest penetration ratio in rural areas are televisions, refrigerators, washing machines and kitchen appliances since these were usually bought three to five years ago, and have become outdated or dysfunctional.

Hi-tech categories like flat screen televisions, air conditioners, computers and other digital appliances, which are still new to rural consumers, are the new targets for purchases. "The survey is a positive signal and will help us to better develop the market," said Sun.

He said Suning's biggest concern right now was how to provide economical and practical appliances through partnerships with suppliers and how to improve the logistics so that rural consumers get what they want faster.