Questions raised over stores' price war

Many wonder if it's all a stunt and whether reductions are genuine

Xu Yunmei was never an online shopper. She distrusted Internet transactions and believed in "what you see is what you get".

But as massive online price campaigns started to dominate the office conversation, she was persuaded to make her first online purchase using a co-worker's e-bank services and it didn't feel so bad.

"It's easier than I thought. As price reductions are frequently in the headlines these days, I thought I should just swim with the tide," said Xu, 37, a civil servant in Shanghai.

A Bain & Co study verified the high growth potential in sales of home appliances online. It suggested many non-e-commerce shoppers expect to make their first online purchase in 2012 and the first category on their minds is electronics and appliances.

On Aug 14, a micro blog by Liu Qiangdong, the charismatic president of Beijing Jingdong Century Trading Co, which runs online retailer Jingdong Mall, accelerated the trend by starting what may be the largest price war targeting major home appliances.

"We are striving to maintain zero gross margins for three years and undercut our rivals by 10 percent," the blog read, heralding its launch.

It's been two weeks since major home appliances chains, whether the digital arm of brick-and-mortar shops or traditional e-commerce stores, pledged to outdo one another on pricing.

But it remains to be seen whether the blitz will stoke an industry reshuffle in the rapid growing yet embryonic sector.

The size of China's overall e-commerce market will expand dramatically through 2013, growing at a compound annual rate of 48 percent to hit 1.5 trillion yuan, according to forecasts by Bain.

This growth will be fueled by an expected increase of more than 60 percent in the e-commerce customer base and a projected 40 percent or more surge in customer spending. That is why many e-vendors are eager to grab a share in the explosive market.

Apart from sparking the latest round of discounting, Jingdong Mall made an unusual move by recruiting 5,000 agents to check prices at rival outlets of Suning Appliance Co and Gome Electrical Appliances Holding Ltd. The company pays a 3,000 yuan ($471) monthly salary and gives out tailor-made outfits.

But the competitors have not been ambivalent about their attitudes. On the same day, Suning stated that all of its items are already priced lower than those on 360buy.com. Gome also announced all of its online items would be priced 5 percent lower than those of Jingdong.

There's a reason for Liu's bellicosity. One week before the "war" broke out, Suning, the top electronics vendor by sales, initiated a so-called "Beijing Strategy" aiming to unify prices of its online and offline products.

The move was widely perceived by industry insiders as a targeted general offensive on its long-time rival Beijing-based Jingdong Mall.

According to a company document e-mailed to China Daily, it aims to achieve sales revenue of 100 million yuan by 2013, topping the market share in the capital city.

The tactic will be later extended from Beijing to Shanghai, Guangzhou, Shenzhen, Chongqing and other major Chinese cities, according to Sun Weimin, vice-president of Suning.

Meanwhile, Jingdong has also felt the pinch of Suning's online platform, which has gained huge momentum since its establishment in 2010.

Min Juanqing, executive deputy director of Suning's marketing department, said the online store has maintained an impressive 70 percent month-on-month growth since the first half of this year and aims to drive up annual revenue to 20 billion yuan.

According to research firm Analysys International, while it accounted for a mere 3.4 percent in overall business-to-customer online transactions in the second quarter, compared with Jingdong's 15.5 percent, its pace of growth is worth noting.