Online retailers extend price war to high street

The ongoing price wrestle between Chinese online retailing giants has spread from the virtual world as the country's home-appliance retailers continue to struggle to survive amid sluggish market conditions.

After offering massive discounts on its online shopping portal, Suning Appliance, the country's top retailer in terms of sales in 2011, has announced the dropping of prices of major home appliances in its stores in Beijing to the same levels as those online.

Meanwhile, Gome Electrical Appliances also promised rewards to consumers if they find prices in Gome's offline stores higher than items sold by rivaling e-commerce giant 360buy Jingdong Mall.

But it remained questionable to what extent the traditional retailers can withstand the price war, which started on Wednesday morning, as both online and offline home appliance retailers are suffering pressure from sluggish sales in a gloomy market.

A report jointly released by international auditing firm Deloitte and the China Chain Store and Franchise Association (CCSFA) on Friday showed that Chinese chain retail stores saw sluggish or even declining sales growth from the second half of 2011 due to rising costs and fierce competition.

"For home-appliance retailers, this is a hard time in which they have to widen the gap between competitors in the market," said Long Yongxiong, consumption and transportation industry joint leader of Deloitte China.

Traditional retailers were particularly hurt by cost increases, as they require higher labor and operational costs. In 2011, domestic retailers' wages went up by an average of 26 percent and their rents by an average of 10 percent, according to the CCSFA.

Meanwhile, they face a rising threat from B2C giants like 360buy, which generally offer lower prices as online retailers enjoy relatively low rent and labor costs than traditional retailers.

According to a survey by popular news portal Sina.com, almost 80 percent of nearly 40,000 respondents believed that offline stores will be affected but not replaced by online shops, and 16 percent thought rising e-commerce will wipe out traditional stores.

Though both Suning and Gome set up their own online shopping sites to catch up with the switch to the Internet, Suning.com only took up 3.7 percent of China's B2C market in the first half od 2012, while Jingdong Mall grabbed a far larger share of 20.5 percent, according to the China E-Commerce Research Center (CECRC).

China has the world's largest number of Internet users, including 210 million online shoppers.

However, despite explosive growth in sales, B2C stores have not yet started to make profit, and e-commerce development has merely been driven by investment, a previous CECRC report said.

The 360buy Jingdong Mall, which had successfully gained a consumer base for its low prices, suffered a loss of 1.3 billion yuan in 2011, with its gross profit margin as low as 5.5 percent.

Long said the current price battle is just one chapter in an unfolding story, as B2C retailers hope to firstly eliminate opponents here and then consider raising profit margin.

Lu Renbo, vice secretary-general of the China Electronics Chamber of Commerce, said the future trend in retailing would be continued growth of e-commerce, while traditional stores will witness a change in function.

Traditional retailers will put more emphasis on consumer experience and introduce more products other than home appliances, he said.

But this change will only be seen in the long term, he added.