Suning to expand logistics and distribution

Customers shop for appliances at a Suning Appliance Co store in Beijing. Suning, China's biggest electronics retailer by sales, plans to continue its expansion across China over the next few years by establishing more logistics bases. [Photo / Bloomberg]

The move is an attempt to raise funds for a nationwide expansion of logistics bases, which the company believes is a top priority for its long-term development.

"Our target is to establish 60 logistics bases within the next five years, and issuing new shares will provide us with financial support for the expansion plan," Sun Weimin, vice-president of Suning, told China Daily.

Sun didn't give a time frame for the issuance of the new shares.

The retailer issued stock options, convertible into 84.69 million shares, as an incentive to its senior management in August this year. The issue represents 1.21 percent of the company's stock if fully converted.

Suning now operates four distribution centers in Beijing, Nanjing, Shenyang, and Hangzhou, and the construction of further bases in Jinan, Qingdao, and Zhengzhou is under way.

Establishing the distribution centers will cost Suning at least 12 billion yuan ($1.81 billion), as each comprehensive logistic base needs an investment of 200 million yuan, according to Tang Jiarui, an analyst at Everbright Securities.

"Suning's challenge comes from a shortage of distribution services at present. So we will initially improve our logistics system to sustain our long-term store-opening plan," Sun said.

The Nanjing-based retailer posted a profit of 2.83 billion yuan for the first nine months of this year, a 43.6 percent increase year-on-year.

Suning's rival Gome Electrical Appliances Holding Ltd said its profit rose 49.2 percent to 1.44 billion yuan for the first three quarters.

Suning overtook Gome to become China's biggest electronics retailer by sales in 2008, according to data compiled by Bloomberg.

Gome now has 1,255 stores, including 400 privately owned by founder Huang Guangyu, and the company plans to open 700 more by 2014.

Foreign companies have also started to expand their market presence in China's electronics retail industry.

The European electronics retailer Media-Saturn, and Foxconn Technology Group, the world's largest contract manufacturer of electronics, opened the first electronic outlet of their joint venture in Shanghai on Oct 17, aiming to shatter the dominance of the local giants.

Media-Saturn said the company will open 10 stores in Shanghai over the next two years, and will later ramp up its presence in China by opening more than 100 outlets throughout the country.