Chilling out

As the chairman of one of China's largest home appliance retailer, Zhang Jindong keeps a low profile. He rarely gives interviews, maybe one or two a year at most. And even during these interviews, he avoids any questions related to his personal life.

In fact, "low profile" is often the first two words colleagues of Zhang use when asked to describe his personality.

Yet his company, Suning Appliance Co Ltd, which has grown into a major player in China's retail market from a 200-square-meter large air conditioner store in Nanjing, capital of east China's Jiangsu province, is famous for being bold.

It opens new stores in China at a swift pace - around 200 stores per year, fast even by the standard of China's rapidly growing economy. It has even set a record of opening more than 20 stores in a single day.

The company is equally famous for some of Zhang's bold in-house slogans. Suning employees can still recall some of the sayings during the days when the development was particularly rapid in 2000 and 2001. "We need to run a marathon like we're running a 100 meters race", Zhang would tell his staff, and "if we run fast enough, even a stone can fly in the sky."

With sales revenue of 9 million yuan in 2007, up 40 percent year-on-year, and over 700 stores throughout the country, Suning was listed as the second largest home appliance seller in China, next only to Gome, which has over 1,000 stores.

Zhang, 45, began his business with a small air conditioning store in Nanjing, his hometown, in 1990, after he left a position with a State-owned enterprise.

In a book about the development of Suning, Zhang told the writer that he quit his job with a simple aim: to earn more money. He said when he graduated from a college in Nanjing in 1984, he could earn a fixed income in his first job: 55.8 yuan per month. But China's reform and opening up had begun, and private enterprises in the eastern region of the country in particular were starting to pick up their development and Zhang decided to strike out on his own, like many people at the time.

After being shocked by the price of 100 yuan for a cup of coffee during a trip to Shanghai, Zhang decided to open a coffee house in Nanjing. And that's why, for the first time in his life, he purchased two Chunlan brand air conditioners. Chunlan, based in Jiangsu province, was most famous air conditioner brand in China at that time.

Zhang wanted to get a bargain for the air conditioners and through a friend he became acquainted with a Chunlan sales manager. Back then, air conditioners in China were still rare, and for most families one is still a luxury. However, the demand was increasing fast and with the help with his air conditioner sales connection, and after opening the coffee house he later opened the first store in Nanjing devoted solely to air conditioners.

A year later, Zhang was pleasantly surprised that he had made a profit of over 1 million yuan from a 20 million yuan turnover.

But compared to large State-owned department stores, Zhang's shop was still too small. So he worked hard to think of a business model that could make Suning stand out. When competing with other retailers and wholesalers, he found that these companies were busy selling air conditioners during the summer but had no other business during the other months.

He designed a way of cooperating with manufacturers. He purchased air conditioners in the winter when prices were lower and put them in storage to sell in the summer. Through this he was able to offer them at a lower price to customers, which put him at a competitive advantage.

Zhang later recalled that this was risky because if the demand during summer months fell, he would lose money. But he was lucky that Nanjing, famous for its broiling summers, never disappointed him. His method also enabled him to build good relations with the manufacturers because the money he offered during winter also helped them with their cash flow when the market and weather was cool.

In addition, the real estate sector in China boomed and demands for air conditioners surged in the early 1990s, though too many companies started manufacturing air conditioners and supply quickly outpaced demand. The output of air conditioners in 1993 reached 2.92 million a year, up from 240,000 in 1992.

By 1996, with a turnover of 1.5 billion yuan, Suning had become the largest air conditioner distributor in China, with offices throughout the country.

However, as the manufacturing business became increasingly competitive, air-conditioner makers in late 1990s decided to sell their products on their own. They hired national distributors themselves, and that put companies like Suning in a tough position.

It made Zhang think about changing his business model once again, and became the turning point for Suning. He found that the wholesale profit margin is much lower than retail so he decided to focus solely on the retail business, which would put him in closer touch with consumers. In addition, he realized that relying on a single product, air conditioners, would put him at a disadvantage when bargaining with home appliance manufacturers.

So Suning started selling other appliances including TVs and refrigerators and the company transformed its business model smoothly and managed to survive when many of its competitors went bankrupt.

Suning also gained fame as a "price crusader". Before opening each store, the company advertised on local media offering the lowest prices possible, something that was so successful that a Suning opening also turned in to a test of the local police force's ability to control crowds.

In fact, one evening after a store opening the employees collected several basketfuls of shoes lost in the crowd rush during the day.

But Suning did not sacrifice its quality as it expanded fast and initiated low prices. Zhang always emphasized "sunny service" in the ads.

At one point when new stores were opening at a frantic pace, he didn't have maintenance workers to repair air conditioners. When customers began complaining, he cut the sales period short in order to make sure all the units sold were working properly.

The attention to customers also made Suning one of the earliest retailers in China to use an online customer service system to better deal with complaints.

With these efforts, Suning managed to grow into one of the major home appliance sellers in the country. Zhang estimated that the sales would be around 90 billion yuan this year. However, the market remains competitive. Foreign retail giants like Best Buy have entered the market. And mergers and acquisitions are frequent in the competitive business, as Suning's major competitor, Gome, purchased the third largest home appliance retailer, Dazhong last year.

Zhang says he prefers to expand Suning on its own, and his goal is to build the best chain store brand in China. "Developing in the largest retailing market in the world, our final goal is to build the Wal-Mart of China," he says.

(China Daily 08/11/2008 page12)