Chinese white goods shift retail strategy

28 August 2013

HONG KONG: Chinese manufacturers of white goods are turning to ecommerce and logistics as they seek to control their expansion into the country's interior where future growth is expected to come from.

Faced with high labour and operational costs, Chinese appliance manufacturers also have to contend with numerous discounts offered by distributors, which reduces profit margins for all concerned.

In a bid to cut out these middle-men, manufacturers have begun to establish their own networks with ecommerce providing the advantage of not having to open physical outlets or share profits with retailers.

It is expected that online purchases of home appliances in China will almost double over the next two years to 257.54bn yuan, or $42.06bn.

Haier, the Qingdao-based consumer giant, is leading the way, having joined forces with Global Logistics Properties of Singapore to expand its distribution and logistics network, especially in the less developed cities.

Other Chinese manufacturers, such as GD Midea Holding Co and Hisense Kelon Electrical Holdings, are also expected to follow suit in a domestic market that Euromonitor estimates will grow by about 20% in the next two years to $105bn.

However, some foreign competitors have also begun to concentrate more on ecommerce to secure profits in the world's largest home appliance market.

US-based Home Depot Inc, the world's largest home improvement chain, has already announced plans to close all seven of its large stories in order to focus on ecommerce and speciality stores.

The development is expected to hit retailers, such as GOME Electrical Appliances and Suning Commerce Group, which is responding by expanding into banking and online financial services.

Linus Yip, chief strategist at First Shanghai Securities, summed up the trend by suggesting it is mostly about "survival" in a highly competitive market.

Data sourced from Reuters; additional content by Warc staff