Image source: @VisualChina
From home appliances to "difficult brothers and brothers", Gome and Suning have been on the cusp of public opinion for a long time, and now, they have a new action at the same time - open joining.
At the end of February, news came out that Gome Retail's Dazhong Electric and Gome Electric Appliances were accelerating their store closures, of which the proportion of Beijing Dazhong Electric Appliance stores closed and cancelled had reached 60%. Relevant people from Gome confirmed that the business model of physical stores will shift from self-operation to retaining some self-operated and franchise-based.
Previously, at the manufacturer communication meeting, Li Juntao, senior vice president of Gome Appliances, said that it would continue to streamline self-operated physical stores and retain more than 300 main self-operated stores; At the same time, the franchise business will be fully opened, and the store target is planned to expand from the existing 2,407 stores to more than 3,200 stores.
On February 21, Suning.com announced that it will expand partner stores in various commercial centers in the primary and secondary markets this year, including venture capitalists, home appliance retailers, home building materials dealers, property landlords, etc., and the first batch plans to open 500.
Earlier, Suning proposed at the New Year deployment meeting to accelerate the upgrading of retail service providers, "the company's development model is no longer limited to self-operation", offline retail should form a "four-ring layout" from self-operated retail, forced franchise, weak franchise to social operation, and make the marginal efficiency of self-operated retail.
It can be seen that the former rivals now regard the development of the franchise model as one of the strategic priorities in 2023.
Regarding the franchise model, the industry has always been full of controversy, and there is even a chain of disdain that "direct management looks down on joining". However, in recent years, the market of franchise chains has undergone great changes, especially during the epidemic, under the background of financing disconnection and financial difficulties, many brands have begun to embrace the franchise model, or for expansion, or breakthroughs, there are also transformation survivors.
As far as Gome and Suning are concerned, although liberalizing the franchise is a good low-cost business move, it remains to be seen whether it can open up the situation so that it will have a positive impact on their predicament.
From phased sinking to full market joining
For the franchise model, Gome and Suning are no strangers.
As early as the 90s of the 20th century, in the early stage of the company's chain development, in order to quickly establish a brand network and influence, Suning opened franchises in some areas, and Gome "almost every month two directly operated stores and one franchised store are born in a certain city".
As of December 2001, Gome has 49 directly operated stores and 33 franchised stores in 12 cities; By December 2007, Suning had signed 19 franchised enterprises and opened 120 franchised stores in some areas.
However, with the expansion of the total market, single-store sales have declined, especially for franchised stores, and the profit contribution rate has a large gap with that of directly operated stores, and there is a problem that is difficult to manage uniformly. It is said that Gome canceled its franchised stores by 2004, and Suning also spent nearly 300 million yuan to acquire all franchised stores at the end of 2007.
After just over a year, the policy of home appliances going to the countryside was born. Taking advantage of this shareholder wind, the two companies have turned to the uncultivated rural market to seize the opportunity, and the franchise model has been picked up again.
Sun Weimin, then president of Suning, revealed that Suning has developed a total of 4,500 special sales outlets for home appliances in three batches nationwide except Tibet, and intends to select some stores to "transition and upgrade" to Suning franchised stores. He Yangqing, vice president of Gome, also said that it will vigorously develop franchised stores in places that Gome's logistics, distribution and sales networks cannot cover.
However, the real full penetration of the sinking market will not be until after 2017, with the saturation of the demand for home appliances in first- and second-tier cities, both companies are pinning their hopes on lower-tier cities for more growth.
Suning directly launched the "retail cloud" business, integrating internal and external brands, supply chain, logistics, finance, services and other resources to small and medium-sized merchants in counties and towns, and these merchants as the investors of the overall store construction bear the cost of store rent, personnel, decoration and prototype, and are responsible for daily operations. By the end of 2022, Suning Retail Cloud has opened more than 12,000 stores nationwide.
Gome uses the "partner" model to promote "new retail stores" in the third-tier to sixth-tier markets, which is also different from the simple brand output in the past, but prefers to select home appliance stores with top sales rankings in blank counties or towns, export supply chain, logistics chain, management chain, and unified management with directly operated stores. By the end of 2021, Gome had 2,763 new retail stores, accounting for more than 65%.
Now, the two have once again mentioned the franchise model, and the biggest change is the expansion of the scope, that is, from joining in lower-tier cities to joining in the whole market. Especially for primary and secondary cities, Gome allows franchisees to participate in operations as investors, self-sourcing supply chains, and supplying other franchised stores and self-operated stores through sharing and co-construction; Suning will expand partner stores, with the first batch of 500 planned to open.
Behind this, the market environment and the company's situation have changed.
Delayed by "transformation", the main business of home appliances is in a quagmire
Since 2022, Gome has encountered an unprecedented crisis, from the thunderstorm of cooperation with Midea and Whirlpool in the first half of the year, to the layoffs of wages in the second half of the year, the departure of high-level executives, the contraction of business, and the "bankruptcy", and even founder Huang Guangyu lost his controlling stake in the company.
At present, although many bankruptcy applications of Gome Electric have been rejected, its problems such as arrears of payment to suppliers and non-delivery have not improved, and there is still a debt gap of up to 58.567 billion yuan (as of June 30, 2022), of which 50.068 billion yuan is current liabilities, bank loans and other borrowings that need to be repaid within one year are up to 22.902 billion yuan, and the total overdue loans are about 6.89 billion yuan (as of February 3, 2023).
Suning's life is also not good, after selling state-owned assets, the performance continues to lose money, the stock is officially "capped", the supplier filed for bankruptcy liquidation, and the "young owner" Zhang Kangyang was chased by CCB Global Debt Collection... As of the end of the third quarter of 2022, its short-term liabilities totaled RMB55,153 million, including RMB30,378 million in short-term borrowings, RMB12,179 million in notes payable and RMB12,596 million in non-current liabilities due within one year.
And the reason why they have come this far is "not a day's cold".
As early as the beginning of the 20th century, Gome and Suning failed to seize the rise of e-commerce. Although the former launched an online mall in October 2002, it did not take it as its main business, and the company fell into infighting after Huang Guangyu was imprisoned, and did not make any achievements; Although the latter established a B2C department in 2005 and officially launched an e-commerce platform in 2009, it still puts the main battlefield offline, and the proportion of online scale is extremely small.
Until JD.com launched a "price war" for home appliances in 2012, Suning hurriedly responded, "If the price is higher than JD.com, adjust the price at any time", Gome was more "temporary", and Gome Online was launched three months later. And this war is also expected to end with JD.com's comprehensive overtake of the "United States and the Soviet Union".
Not only online, just when Jingdong home appliances began to lay out offline in 2016, Suning is investing heavily in side businesses, such as the acquisition of mother and baby e-commerce red children, video player PPTV, the formation of Jiangsu Suning football team, the acquisition of Nubia mobile phones, the acquisition of Inter Milan Club, Tiantian Express, Wanda Department Store stores, Carrefour shares, not only burned money in vain, but also ignored the main business of home appliances.
Gome is also the same, after the return of Huang Guangyu in 2021, it changed its name to "True Happiness", expanded the category to the field of home improvement, home furnishing and FMCG, and entered the field of home improvement and home furnishing on a large scale, launching the "Dress Up Home APP" and BIM intelligent decoration platform, which were finally stopped.
The three-year epidemic accelerated the fall of the "United States and the Soviet Union". The data shows that from 2020 to 2022, Suning continued to lose money, of which a huge loss of 43.265 billion yuan in 2021, equivalent to the total net profit of the previous ten years; from 2020 to 2021, Gome's net loss was 6.994 billion yuan and 4.402 billion yuan, respectively, and the loss in 2022 is expected to expand by 35% to 65% year-on-year.
How much can the two be saved by letting go of the franchise?
There is still a lot of uncertainty about making money
In fact, opening up franchise is only one of Gome and Suning's self-help measures, in order to reduce operating costs, the first and most direct actions they take are strategic contraction and layoff stores.
The data shows that Suning has withdrawn and closed stores for many consecutive years, of which 3C home and life professional stores decreased by 226 in 2020, 373 in 2021, and 329 in the first three quarters of 2022.
In terms of Gome, in the first half of 2022, its brands closed 562 stores, a net decrease of 370, of which Gome Electric Appliances decreased by 326, Yongle 25, Dazhong Electric 12, and Beestar 7, and is still and will continue to streamline self-operated stores.
Blindly closing stores inevitably exacerbates the decline in performance and shrinking market share, which is also the reason for the opening of franchises. "This model can transfer operating costs and risks to franchisees while maintaining the brand's market presence and a certain scale of retail scale, which is one of the more realistic low-cost measures for continuing operations."
However, Major General Ding, chief analyst of GKURC Sankei Think Tank, believes that in terms of the current operating conditions of the two companies, it is necessary to give a greater return on investment to attract franchisees to join. Regarding the joining details, Titanium Media App sent inquiries to Suning and Gome respectively, but as of press time, no reply has been received.
What's more, both the physical sales channel and the appliance industry seem to have been sluggish lately. According to the National Bureau of Statistics and Shanghai Securities, offline retail sales of consumer goods fell by 7.3% year-on-year in December 2022 and 3.81% for the whole year; Retail sales of home appliances fell 13.1% year-on-year in December 2022 and 3.9% for the full year.
Home appliance industry analyst Liang Zhenpeng also mentioned that Gome and Suning have been left far behind by their opponents. According to the "2021 China Home Appliance Market Report", JD.com ranked first with a share of 32.5%; Suning.com in second place with 16.3%; Tmall's share was 14.8%, ranking third; Gome Electric is only 5%. At the same time, new e-commerce companies such as Douyin are also eyeing the tiger, and it is reported that the number of Douyin e-commerce brands entering in 2021 increased by 230%.
"In this case, whether it is to open up franchise or open up direct operation, there is great uncertainty in the store to make money."
It is worth noting that in addition to offline stores, Gome and Suning have also updated their online strategic play, among which, Gome will increase the live broadcast track, including opening up foreign platforms, establishing new media account matrices, and introducing external talents; Suning will settle in places with large traffic and increase the open cooperation of Maoning and Yicaiyun. However, there are all challenges at the level of traffic, content and products, and there is still a long way to go.
(This article was first published on Titanium Media App, author|Liu Mengmeng)
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