» Biz Commentary
Suning aims to woo young mothers
REDBABY, the independent online retailer acquired by Suning Appliance Co, is expected to help expand what's on offer at Suning's Yigou online shopping unit and make inroads for Suning in the infant-and-mother product segment.
Suning announced earlier this week that it was paying US$66 million to acquire eight-year-old Redbaby, which has about 4 million subscribers.
Suning Vice President Sun Weimin said the acquisition will give the company a more experienced business team and should attract more women to the site.
Suning, one of the biggest privately owned bricks-and-mortar electrical appliance retailers in China, is trying to expanding into online selling. Sun said the company will continue to look for mergers and acquisitions to advance that transition.
"The Redbaby acquisition could allow Suning to quickly grow its presence in non-consumer electronics categories, but the two companies could take a relatively long time to integrate their resources and management teams," said Chen Shousong, an analyst with research firm Analysys International.
Redbaby, together with affiliate Binggou.com that sells cosmetics and personal care products, will retain their independent operations after completion of the acquisition. Meanwhile, Redbaby also operates an online community for discussions related to child health and maternal issues and products.
A recent report by Internet consultancy iResearch Inc said China's online sales of infant-oriented products this year are expected to increase 86 percent from a year earlier to 61 billion yuan (US$9.7 billion). That's been helped by a mini-boom in births in recent years.
Online selling was initially pretty limited to standard products like books and consumer electronics.
Household appliances became popular online only recently, while personal care and beauty products still comprise a small portion of transaction volumes.
Suning has also been upgrading its product mix in its off-line stores in major cities to include books, some grocery products, home furnishings and other higher-margin merchandise.
The transition came as the expiry of a series of government subsidies on certain domestic appliances created slump in Suning's core business.
The company has been eager to embrace online selling to help fill profit gaps, but it's a highly competitive realm to be entering against giant, established rivals like 360Buy and Taobao Mall.
Yigou has predicted its sales could reach 20 billion yuan this year, but Suning's half-year earnings report showed revenue at the unit in the first six months was only 5.3 billion yuan.
Fall-back position: introduce new products and acquire other online sites with specialty sales areas.
Mother and infant products offered on Redbaby will be gradually linked to Yigou's existing platform, and they will also be available in Suning's off-line outlets by the end of this year.
The strategy is not without risks. Redbaby's own performance has been less than sterling. According to earlier media reports, sales at the website were about 1.5 billion yuan in 2011, unchanged from 2010 but lower than the 2 billion yuan earned in 2009.
Zhang Yanan, a researcher with venture capital investment research firm Zero2ipo, said Suning's success in gaining a foothold among young mothers online still depends on how well the two companies integrate their resources and internal management systems.
Initially, at least, Redbaby patrons won't necessarily be linked to Yigou's product lines.
Lu Zhenwang, an independent e-commerce analyst in Shanghai, estimated the integration of the two companies could take at least half a year.