Core views

Incident Overview

On June 13, Suning Tesco issued an announcement stating that based on confidence in the company's future development and recognition of the company's value, some of the company's directors, senior management and core business executives plan to increase their holdings of the company's shares through centralized bidding transactions from June 13, 2024 to September 11, 2024. The total amount of shares to be increased is not less than 5 million yuan.

On May 30, Suning Tesco issued an announcement stating that the company will cooperate with CITIC Financial Jiangsu Branch. CITIC Financial Jiangsu Branch will provide Suningga e-commerce with operating and development capital of no more than RMB 480 million through the trust plan set up by CITIC Trust Co., Ltd., and that the financing funds will mainly be used to support the development of the company and retail cloud business. Furthermore, based on the development prospects of the company's retail cloud business sinking into the market, CITIC Financial Jiangsu Branch stated that in the future, it will consider converting part of the debt into shares according to the valuations determined by each party in due course, taking into account the development situation of Suningga e-commerce companies.

The increase in management holdings shows confidence in the company's development

The current management plan to increase its shareholding, and the 31-member executive team, including President Ren Jun, sent a positive signal from management about the company's continued future development.

According to the “2023 Top 100 Chinese Chains” issued by the China Chain Management Association, Suning Tesco's sales rank third among chain companies, and the store size is at the top. According to the quarterly report data, by the end of the first quarter, the total number of Suning Tesco retail cloud franchise stores reached 10,756, and the franchise network continued to expand.

In 2023, the sales scale of Suning Tesco's home appliance business increased by about 11.9% year-on-year, achieving steady development faster than the industry. In the first quarter of this year, Suning Tesco's revenue was 12.579 billion yuan, net profit was drastically reduced, net cash flow from operating activities was 1,407 billion yuan, and capital operation efficiency continued to improve. In the first quarter of 2024, the company continued to strengthen the promotion of customized products and optimize the product sales structure. In the first quarter, the share of omni-channel exclusive product sales reached 29%, and gross margin improved year on year. At the same time, the company's strict cost investment continued to promote various cost controls to improve floor efficiency and labor efficiency. The company's total expenses decreased 21.59% year on year in the first quarter, and the company's operating fundamentals gradually improved.

Looking back at events such as the previous management plan to increase its holdings and the introduction of strategic investors, it can be seen that based on the company's store size, brand advantages, and operation management capabilities, management and investors are confident in the company's future development.

On April 30, 2020, the company issued an announcement stating that the company's 2 directors, 6 senior management personnel and 60 core cadres plan to increase their shareholding by no less than 50 million yuan at a price not higher than 11.00 yuan/share from April 30, 2020 to October 29, 2020.

In the 2021 stock reform, Suning Tesco introduced Jiangsu Province, Nanjing Municipal Government, and industrial investors as strategic shareholders. Among them, Jiangsu Xinxin Retail Innovation Fund (limited partnership) partners include Jiangsu Communications Holdings Co., Ltd., Jiangsu Guoxin Group Co., Ltd., Jiangsu Agricultural Reclamation Group Co., Ltd., and Jiangsu High Investment Property Management Co., Ltd. Partners of Jiangsu Xinxin Retail Innovation Fund Phase II (Limited Partnership) include Nanjing Xinxing Retail Development Fund (limited partnership), Hangzhou Alimom Software Service Co., Ltd., Huatai Securities (Shanghai) Asset Management Co., Ltd., Midea Group Co., Ltd., TCL Industrial Holdings Co., Ltd., Chongqing Haier Home Appliance Sales Co., Ltd., Xiaomi Technology (Wuhan) Co., Ltd., etc., with strong shareholder strength to protect the steady development of Suning Tesco. According to the announcement, the prices of the Jiangsu Xinxin Retail Innovation Fund (limited partnership) and the Jiangsu Xinxin Retail Innovation Fund Phase II (limited partnership) were 6.12 yuan/share and 5.59 yuan/share respectively through agreements.

Retail Cloud has completed a new round of strategic investment of 480 million dollars to help develop the sinking market. This strategic investment will support the company's sinking market Suningga e-commerce to better promote the rapid development of retail cloud-enabled businesses, help optimize the existing supply chain, upgrade retail enablement platforms, improve franchisee operating efficiency, promote the transformation of Suning e-commerce from B-side sales system to C-side Suning e-commerce operation capacity, and achieve high-quality growth.

There is plenty of potential for the development of home appliances in the third-tier markets and below. In terms of population size, third-tier cities and below cover about 70% of China's population. In terms of consumption capacity, under the joint impetus of policy and infrastructure development, residents' income levels and consumption structure have gradually increased. In 2023, the per capita disposable income of rural residents reached 26,900 yuan, an increase of 7.7% over the previous year. The growth rate was 2.6 percentage points higher than that of urban residents.

According to Aowei Cloud Network (AVC) sinking market monitoring data, the sales situation of the sinking channel continued to improve in 2023, and sales increased 7.3 percentage points year over year. Although the development decelerated compared to the previous two years, it is still ahead of the 3.6 percentage point year-on-year increase in the home appliance industry as a whole. As the growth rate of the sinking channel slows down, the sinking market is also beginning to face a shift from deep distribution to efficient retail to improve quality and efficiency.

The Suning Tesco store network covers various user consumption scenarios such as core business districts, community business districts, supermarkets, and some shopping malls, as well as a wide range of declining markets in China. Through the development of online and offline, urban and rural, self-operated and franchise channels, Suning Tesco has formed a full-scenario consumer service capability for consumer users, and has built a digital service network integrating online and offline.

The construction of a full-scenario retail channel helps the company obtain continuous, stable, and low-cost traffic, and can also provide brands and open platform merchants with more comprehensive and cost-effective services.

In 2023, in terms of network expansion, key cities of Suning Tesco accelerated the expansion of super stores, and the county was deeply involved in the layout of flagship stores and standard stores; in terms of category expansion, the home appliance category was the main track to accelerate the layout of the new home circuit. In 2023, the retail cloud opened 2,686 new stores throughout the year. By the end of 2023, the total number of Suning Tesco retail cloud franchisees reached 10,729, and the store scale was growing rapidly. In the tertiary and fourth-tier markets, the company has 322 and 28 home appliance 3C home and lifestyle specialty stores, respectively, with store areas of 61.73 and 47,900 square meters respectively.

In 2023, Suning Tesco will focus on opening big stores and opening good stores, giving full play to the scenario-based service experience of offline stores and the convenient advantages of one-stop shopping, giving full play to the operational advantages of localized management for deep community drainage, and continuously improving store management capabilities. The offline retail sales revenue of the company's 3C Home Appliance Store Comparable Stores (comparable stores refer to stores opened on or before January 1, 2022, excluding stores in Hong Kong) increased 4.94% year-on-year.

Driven by a new round of “trade-in” policies, the company's “trade-in” orders grew rapidly. Looking back from 2009 to 2012, the country successively introduced three policies to expand domestic demand: “Go to the Countryside for Home Appliances,” “Trade in Home Appliances,” and “Energy Conservation and Welfare Projects.” The three policies to expand domestic demand have accumulated financial subsidies of hundreds of billion yuan, driving consumption over trillion yuan. Among them, according to data from the Ministry of Commerce, by the end of December 2012, the “Home Appliances to the Countryside” policy had driven the country to sell 298 million units of home appliances to the countryside, achieving sales of 70.4 billion yuan. According to data released by the Ministry of Commerce on December 31, 2011, the national appliance trade-in sold a total of 92.48 million units of new appliances in five categories, driving direct consumption of more than 342 billion yuan. A new round of “trade-in” is expected to stimulate further growth in the home appliance industry.

According to Aowei Cloud Network (AVC) consumer research data, future demand in the home appliance industry is mainly driven by four sources, namely new home renovation users (15.2%), bad to new users (17.1%), stock housing buy/refurbished users (25.8%), and trade-in users (41.9%). Overall, the biggest driving force in the future market will still come from trade-in users and existing home renovation users.

Since the State Council implemented the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In” at the beginning of March this year, 27 regions have introduced plans to formulate targeted subsidy policies based on actual local conditions to stimulate consumption of household appliances in the form of trade-in subsidies and vouchers. According to monitoring data from the All-China Business Information Center, retail sales of the country's 50 key large retail enterprises (mainly department stores) fell 4.4% year-on-year in May 2024, and the decline was 5.3 percentage points narrower than the previous month. Looking at major product categories, the household appliances category achieved a relatively rapid increase in retail sales in May, driven by a large-scale “trade-in” policy, with a growth rate of 18.6%.

In March of this year, Suning Tesco took the lead in responding to the country's new “trade-in” policy. The company and more than 30 home appliance manufacturers, including Midea, Haier, Hisense, Bosch, Samsung, TCL, Skyworth, Panasonic, and the boss, signed the “Joint Notice on Trade-In Action”. During this period, when participating in home appliance trade-in activities, consumers can enjoy a 10% discount. The maximum subsidy of 5,000 yuan can also be used in combination with other promotions and government subsidies. According to data released by the company, from June 8 to 10, Suning Tesco's “trade-in” order volume increased by 135%, high-end color TV sales of 10,000 yuan or more increased 126% year-on-year, and sales of green energy-saving air conditioners increased 98%.

Suning Tesco's “Big Store Strategy” is being accelerated, and offline channels are completely transformed to high-end and scenario-based

China's electronics market has entered an era of K-type consumer differentiation, that is, consumers buy as needed and rationally rank. At the upper end of K-type, high-end and high-quality users continue to upgrade their consumption, while at the lower end of K-type, high-quality and cost-effective products are also growing steadily. From the channel side, offline traditional retail stores are the best place to experience high-end and integrated scenarios, and are undergoing a comprehensive transformation towards high-end and scenario-based experiences.

According to Aowei Cloud Network (AVC) monitoring data, as people's living standards improve, user preferences show high-end and quality, and the retail sales contribution of high-end products in China's electronics market is expanding year by year. For example, in the refrigerator category, high-end products accounted for 39.6% of retail sales, up 2.9% year on year; in the dishwasher category, high-end products accounted for 49.6% of retail sales, up 10.4% year on year.

Earlier, the “2024 China Home Appliance Retail and Innovation White Paper” published by Aowei Cloud Network pointed out that users' requirements for scene experience are getting higher and higher. This demand is reflected in a set of home appliance usage requirements centered around a certain usage scenario. Currently, the industry is also continuously implementing the transformation from selling individual appliances to sales scenario solutions. Typical solutions include but are not limited to cleaning centers, washing centers, cooking centers, entertainment centers, air management centers, and whole-house water centers.

According to research data from Aowei Cloud Network, users' acceptance of home appliance package purchases continues to increase, and at the same time, the presentation of the home scene is highly helpful to consumers in purchasing home appliances. For example, for users who need to buy home appliances, 81.4% of them say they know they buy home appliances through package shopping. At the same time, they are quite interested in how to buy home appliances. Among them, 47.4% of users said they were very interested, while 44.4% of users said they were very interested. 36.5% of consumers bought home appliances after experiencing the home scenario. At the same time, a significant percentage of users said that the home scene purchasing method was very helpful to them in purchasing home appliances.

Since the second quarter, Suning Tesco's “Big Store Guide” has accelerated and launched the newly upgraded Suning Tesco Max Store and Suning Tesco Pro Store. Compared with ordinary electronics stores, major stores have upgraded the store scene, product structure and service experience, providing users with one-stop home buying services such as trendy digital, whole house intelligence, central integration, whole home customization, partial renovation, and soft home decoration. From “May 1st” to 618, Suning Tesco successively opened nearly 40 major stores in core cities across the country. Among them, 21 new Suning Tesco Max and Pro stores have been rebuilt in 17 cities including Chongqing, Chengdu, Hefei, Xi'an, Shenzhen, Huai'an, Nantong, Tianjin, Wuhan, Kunming, Shenyang, Tongliao, Shanghai, Ningbo, Nanjing, Beijing, and Guangzhou, with a total operating area of over 300,000 square meters.

According to public information, Suning Tesco will open the first Suning Tesco Max store in Lujiazui in July, with a volume of over 10,000 square meters. The first Suning Tesco Super Experience Store in Shanghai is a super experience store integrating various functions such as shopping, entertainment, and parent-child. It is equipped with an exclusive parking lot, tens of thousands of SKUs in all categories. Each brand showroom will be built according to high-end image store standards, adding an experience area and model room scene area. In order to meet the needs of users for a “one-stop home purchase” such as personalized product matching and multi-style home design, the new store added a Suning Fun Zone of over 1,000 square meters, expanding home appliance front-end and related categories such as cabinet customization, furniture, etc., to create a 1:1 full-scale model room, so that what users see is what they get. At the same time, the Super Experience Store has greatly expanded the operating area of the 3C zone, and joined the top 100 domestic and international brands to create a starting position for new, explosive, and trendy 3C products. Relying on these major core stores, Suning Tesco is expected to promote trade-in and leverage new types of consumption.

Risk warning

Home appliance retail channels are scattered, consumer confidence recovery falls short of expectations, corporate transformation and adjustment results fall short of expectations, etc.