Suning.com has been established for 30 years, earlier than Alibaba and Pinduoduo in the e-commerce field. However, in the fierce market competition, it wants to be younger.

In 1990, Suning.com opened its first air-conditioned franchise store on Nanjing Ninghai Road. Suning.com went public in 2004, when the company name was also called "Suning Appliance". In 2013, Suning.com issued an announcement saying that based on the business form of online and offline multi-channel integration, full-category operation, and open platform services, the company name was changed to "Suning Yunshang". In 2018, "Suning Yunshang" was changed to "Suning.com".

As an old player in the home appliance retail market, Suning.com still holds a considerable market share. According to the "China Household Appliances Market Report 2019" released by the China Electronics Information Industry Development Research Institute, Suning.com has a channel share of 18.09% in the China's household appliance market, ranking second.

Source: "2019 China Household Appliances Market Report"

On the basis of stabilizing the basic market of the home appliance market, Suning.com has moved from home appliances to a full-category products in recent years, and has explored full-scale retail. And its business boundaries have continued to expand, such as O2O, smart retail, social e-commerce, and the sinking markets and so on.

On the evening of April 17, Suning.com released its 2019 annual performance report. The financial report shows that Suning.com's annual revenue was 269.229 billion yuan, a year-on-year increase of 9.91%. Its net profit attributable to shareholders of listed companies for the whole year was 9.843 billion yuan, a year-on-year decrease of 26.15%. And the deducted non-net profit attributable to shareholders of listed companies was -5.711 billion yuan, a year-on-year decrease of 1488.82%.

In this earnings report with revenue growth and profit pressure, it is the reality and future of Suning.com's continuous expansion in new fields.

From 3C products, home appliances to all categories

In terms of revenue trends, Suning.com is still on the growth track, but the growth rate in 2019 has dropped significantly from 30.3% in 2018, which is the first slowdown in growth in recent years.

Suning.com's revenue and growth trend

In terms of revenue composition, retail business, services and other businesses are the main business of Suning.com, with retail business revenue of 253.66 billion yuan, a year-on-year increase of 9.02%, accounting for more than 90% of total revenue.

Revenue from services and other projects was 9.95 billion yuan, a year-on-year increase of 17.89%. This revenue mainly came from Suning.com logistics, Suning.com's online platform commission and advertising services, and financial services.

Regarding the retail industry in particular, the revenue from Suning.com basic products such as communications products, refrigerators, washing machines, and air-conditioning products showed negative growth to varying degrees. The financial report explained that in 2019, the overall growth rate of consumption fell, and the growth rate of household appliances and audio-visual equipment in units above designated size fell by 3.3% year-on-year, while the growth rate of communications equipment only increased by 1.4%, and the growth rate continued to slow.

In contrast, Suning.com's revenue from daily necessities grew rapidly, and related goods achieved 45.57 billion yuan in revenue throughout the year, an increase of 115.44% year-on-year, and the proportion of total revenue increased significantly from 8.64% in 2018 to 16.93 %.

Suning.com's daily necessities include household goods, maternal and child, beauty, department stores and supermarkets, fresh food, etc. The growth of related merchandise revenue is closely related to Suning.com's actions last year.

Last year, Suning.com acquired 37 Wanda department stores; it completed an 80% stake in Carrefour China. The financial report shows that as of December 31, 2019, Suning.com had 209 Carrefour supermarket stores and 2 Carrefour convenience stores. The number of stores in the first-line market accounted for 82.4%.

After acquiring shares in Wanda department store and Carrefour China, Suning.com has formed a network of channels in the FMCG category including online Suning supermarkets, offline Carrefour supermarkets, Su Xiansheng supermarkets, Suning Xiaodian and so on. It builds a FMCG contract fulfillment model based on the integration of Suning Xiaodian and Carrefour storehouses, which can promote the sales of FMCG categories.

Expansion in the FMCG category is a part of Suning.com's expansion strategy in recent years. It hopes to achieve the goal of full-scenario, full-category, and full-customer group coverage. As of December 31, 2019, the number of Suning.com's self-operated stores reached 3,630, with a store area of 8,182,200 square meters. And the number of its retail cloud franchise stores reached 4,586.

The expansion does drive Suning.com's merchandise sales, but it also lays a lot of hidden dangers.

Earnings worries under the full-scenario strategy

In terms of profitability, Suning.com's net profit attributable to shareholders of listed companies in 2019 was 9.843 billion yuan, a year-on-year decrease of 26.15%, and a net interest rate of 3.7%. The financial report explained that in 2018, the company sold some Alibaba shares, resulting in a substantial increase in net profit that year.

Suning.com's profitability and growth trend

Suning.com's net profits attributable to shareholders of listed companies have been positive in recent years. It is not easy to maintain such results, but the problem is that these profits is not from daily operations, and the important source is investment income. After deducting non-recurring gains and losses, Suning.com's net profit attributable to shareholders of listed companies are all negative, and this value has greatly expanded in 2019 compared with previous years.

Behind the situation is Suning.com's ingenious capital operation.

At the end of June 2019, Suning.com completed the equity transfer to Suning Xiaodian, which increased the company's annual net profit with 3.57 billion yuan; in September, Suning Financial Services completed the C round of financing, which increased the company's net profit with 9.885 billion yuan.

It can be seen that these two transactions contributed nearly 14 billion yuan in net profit to Suning.com. At the same time, Suning Xiaodian and Suning Financial Services are no longer included in the company's consolidated statements, and the tax-free chain store business LAOX is the same, which has completed capital increase and share expansion.

Suning Xiaodian are an important layout of Suning.com in the new retail format. In 2018, the number of Suning Xiaodian exceeded 4,000. At the end of June 2019, the number of Suning Xiaodian increased to 5,410. At the same time of rapid expansion, the problem of loss is also very prominent. The financial report shows that the net loss of Suning Xiaodian's equity from the beginning of the year to the sale date was 2.213 billion yuan.

It is worth noting that the Suning Smart Life, a subsidiary of Suning.com Chairman Zhang Jindong's son Zhang Kangyang, is the transaction target of Suning Xiaodian's equity. 

A similar situation also appears in the LAOX business. In 2009, Suning.com (once called "Suning Appliance") bought a 28.36% stake in Japan LAOX Corporation for 57.55 million yuan, and then it increased its shareholding to 41.85% through three capital investments. After its shareholding, Suning.com transformed LAOX from a retailer into a tax-free chain store.

However, LAOX's performance is not optimistic. From 2013 to 2018, its net profit was -230 million yuan, 50 million yuan, 440 million yuan, -150 million yuan, 0.1 billion yuan, and -116 million yuan, respectively. Like Suning.com's loss-making Suning Xiaodian, LAOX is no longer included in Suning.com's report.

Considering Suning.com's continued expansion, its net loss after deduction is not surprising. Suning.com continues to promote new business, trying to tell a story of an omni-channel, all-category retailer. At present, there are still many obstacles in achieving this ambitious goal. How to balance expansion and profitability is the first problem.

Suning.com's difficulty in balancing expansion and profitability stems from fierce external competition.

Although it is the eldest brother of the industry, its rivals are Alibaba and JD.com, who grew up in the Internet wave, and now the upstart Pinduoduo is also entering their own territory.

On April 19th, Pinduoduo announced that it will subscribe for US $ 200 million of convertible bonds issued by Gome, and the two parties will reach a comprehensive strategic cooperative relationship. Pinduoduo hopes to attract high-quality users and drive the unit price of customers through Gome. For Gome, "Pingduoduo, which is used by 500 million people," means considerable traffic.

Gome is Suning.com's old rival, and the competition ended with Suning.com's success. Today, Gome has completed its standing in the top three e-commerce players. For Suning.com, which is caught in profit worries, the fight is reigniting.

This is an article from WeChat official accounts Deep Insights(ID: deep_insights), written by Hong Jian, translated by Chris Yuan.