Suning's Transformation Pains: Net Profit Plunged 96%

In March 31st, Suning's share price jumped to a low level, and then fell sharply after a short period of up to the lowest point this year. In the past weekend, Suning cloud business released its 2013 earnings report, data show that its revenue grew by only 7.05% over the same period, while net profit fell by 95.84% during the same period. Net profit attributable to shareholders of listed companies also declined by 86.11% over the same period.

Financial reports show that the sharp decline in performance stems from the decline in gross margin and the increase in the cost rate. Last year, Suning's gross margin was 15.41%, down from 18.01% in 2012. Financial reports explained that the company increased the expansion of the Internet business. Under the current market environment, price competition is more intense, drainage promotion activities are frequent, and 3C products with lower gross margins are relatively large, and the gross profit margin of Internet business is at a low level. At the same time, since the launch of the online and offline parity strategy in June last year, it has also brought down the gross margin level to a certain extent.

This means that Suning is suffering from the low Maori pressure brought by the online price war, and the strategy of the same price is exacerbated and the gross profit of the line will be lowered simultaneously. Obviously, all the spearheads are directed at Suning's main business provider, suning.com. According to its earnings report, most of the time in 2013, suning.com still undertook the loss of online business.

"One body two wings", "O2O", "open platform" and "comprehensive electricity supplier" were Su Ning last year. Strategic transformation In order to achieve this goal, Suning has adjusted its organizational structure many times, made efforts to open up the platform, entered the Internet banking, implemented online and offline pricing strategies, expanded online categories to mother and baby, cosmetics, daily necessities, department stores, books, etc.

　　 Challenges of category expansion

Suning Yun's 2013 financial report shows that in 2013, the company gradually stripped the original suning.com (excluding Nanjing) acquisition business and integrated it into the Suning cloud sales company (formerly under the line business), and Jiangsu Suning Agel Ecommerce Ltd (suning.com) business in addition to the storage area in Nanjing for the whole country's shipping sales, mainly to the online Internet trading platform, the profit mode is to collect trading commissions and other services revenue on the open platform.

Obviously, suning.com is trying to transform itself from a proprietary platform to a Tmall based channel platform. Lu Zhenwang, an e-commerce analyst, told the twenty-first Century economic news reporter that suning.com hopes to use the open platform to enrich the commodity category and tear away the simple 3C appliance label, becoming an integrated electricity supplier.

He believes that, according to the development of Jingdong's proprietary business and fast and easy development, it is difficult for suning.com to make profits by selling 3C products simply. Only by becoming a comprehensive electronic business platform, with the flow and the formation of ecology, can we achieve more profit models, including commission, promotion and Internet finance, big data and so on.

Su Ningyunshang Financial Report It shows that last year, with the help of its mature supply chain system such as its red children and colorful purchase, suning.com also arranged mother and baby, cosmetics category, and also involved in commodities, books, general merchandise and other categories.

But Lu Zhenwang said, from the present point of view, suning.com still has many difficulties in category expansion. First, Suning's supply chain advantage lies in 3C appliances, which has no advantages in commodities, books and other categories, and suning.com appears to be decentralized and unfocused in the process of category expansion.

Suning.com seems to be making the same mistake as Dangdang. The latter has been involved in many categories when transforming to the comprehensive electric business, but it did not improve until last year when it focused on the clearance mode of clothing category. Lu Zhenwang said that if suning.com does not focus on certain categories and make its own characteristics, transformation will be very difficult.

An insider who declined to be named explained the difficulty of suning.com platform strategy on the other hand. He said that suning.com's category expansion attempts to take the shortcut of the platform, but without traffic, the platform can not be done. This is the reason why only Tmall and Jingdong can do so at present.

He said that only by advertising drainage, and user experience can not keep up with, once the advertising dropped, the company's growth will stagnate or even decline. In the fourth quarter of last year, suning.com's revenue fell year-on-year, according to its disclosure. According to statistics, whether Baidu index or Alexa traffic website statistics, suning.com's traffic fluctuation is much higher than Tmall and Jingdong. "Such an unstable flow state is not many third party businesses dare to invest heavily in the above."

The user experience referred to by the above refers to suning.com's small logistics. As a former traditional household appliance retailer, large piece logistics is the advantage of suning.com. But in the process of transformation to the comprehensive electric business, its small item logistics is being prepared, and it is far from mature. According to its financial report, last year, it started or completed the layout of logistics bases in dozens of cities.

　　 Imagination and execution

Suning.com's transformation is too urgent. On the one hand, it is pure line category expansion. On the other hand, it needs to solve the integration problem between online and offline, that is, the so-called O2O, while the latter obviously only focuses on 3C appliance category.

Last year, Suning implemented the strategy of online and offline parity to solve the problem of "left and right sides". But in the 2013 earnings report, this strategy has become an important reason for the decline in gross margins. The reason is very simple. Every household appliance manufacturer takes the online as the main battlefield and the price war as the main method to seize the users. Therefore, suning.com will directly or indirectly reduce the price, thereby lowering its selling price and gross profit under the line.

Those people said that this policy was originally a decision to kill one hundred of the enemy, and it was a one thousand loss decision. Suning's explanation is that the company believes that although such a strategy will affect the company's performance in the short term, it is better to break the price barrier as soon as possible rather than maintain unsustainable profits in the old business mode, and actively promote O2O integration and establish a new profit model.

A grass-roots employee of suning.com has published an article saying that although the company has set up a headquarters for commodity operation to achieve unified procurement on line and online, it has incorporated online sales into the performance appraisal of large differentiated companies. However, the major companies still do not have the same view on line and line. Although procurement and price have been unified, operation is still separate at headquarters level, and the branch does not have the power to use the resources under the line for online services.

　　 Suning The O2O mode has imagination, and the problem seems to be more on the executive level. In February this year, Mr. Zhang's internal speech raised dissatisfaction with the team's executive ability. Up to the beginning of this year, sunning once again carried out the restructuring of the organization, and integrated the operation headquarters of the chain platform and the headquarters of the electronic commerce into a "operation headquarters" to solve this problem step by step.

About O2O, according to the reporter, although the Suning line store is already being rebuilt, there is still a gap from the Internet based stores. In the future, it will speed up the hardware construction of the direct selling area, WiFi coverage and other aspects, and it will further improve the flow direction of the employees.

In the implementation of Suning's cloud business strategy, we should take more blooms and go hand in hand. But for the electricity supplier, this practice is bound to lead to disjointed part of the system in a short time, resulting in the inefficiency of the whole system. In the future, suning.com will be an electronic business website. People interviewed by reporters can not describe it accurately.