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Questions raised over stores' price war

Updated: 2012-08-27 09:06
By He Wei in Shanghai (China Daily)

Perhaps that is what propelled more players to engage in the price war, including New York Stock Exchange-listed e-commerce China Dangdang Inc and Tencent Holdings Ltd's 51buy.com.

Price wars are generally a good thing for customers but an abuse of dominance by one or more parties or collusion regarding prices does not indicate healthy competition, according to Veronica Lockyer, a Shanghai-based counsel specializing in anti-trust cases at law firm Orrick, Herrington & Sutcliffe LLP.

"There have been many allegations that the companies involved in the price war first raised prices before lowering them or that they have not lowered prices or at least not to the extent they have claimed," she said.

Shoppers have also realized the ongoing price-cutting competition by the e-retailers is just another gambit in the battle for supremacy.

An unscientific poll on Sina Corp's popular micro blog service Weibo showed that nearly 4,000 respondents dismissed the price war as hype and only a little more than 400 responders believed the price fight was for real.

Some even questioned whether it's more of a show for investors.

Jingdong's strategy may have derived from its initial public offering attempt, which it delayed this year citing market turbulence.

Jingdong's Liu has emphasized the role of investors in a rather dramatic way.

"As I've said, no matter how much money we need, our investors will say 'yes'," Liu declared, dismissing rumors that the company is running out of working capital. He even boasted that Jingdong still has more than 8.7 billion yuan in cash.

Meanwhile, Suning recently announced it would issue as much as 8 billion yuan of corporate bonds to replenish its working capital and adjust its debt liabilities.

The money will be allocated to execute a 10-year development plan to open 2,000 outlets across China and significantly elevate online sales.

In general, to endure a three-year zero margin "is unlikely to be sustainable" in the long run, Lockyer said.

"However, online giants such as 360buy.com may be better able to withstand this price war than traditional bricks-and-mortar retailers who are more recent entrants to the online market."

But Qiu Lin, a researcher at Guosen Securities in Hong Kong, believes Suning has more firepower than Jingdong due to its fundraising capabilities and also because brick-and-mortar stores usually show a higher profit margin.

The gross profit margin of Suning's e-commerce website went down from 7 percent in the first quarter this year to 4 percent in the second quarter, while the company as a whole reported a profit margin of more than 10 percent.

 
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