SHANGHAI -- One of China's biggest retailers, Suning.com, had long staked its success through the pursuit of scale, with the group expanding into supermarkets and convenience stores, and by forming a partnership with the country's leading e-commerce company, Alibaba Group Holding.
That strategy has hit a wall recent years, forcing Suning to shut down a good portioned of its famed home appliance stores. Now, the company finds itself beating back chatter that it is edging toward business failure.
Media outlets speculated this month that Suning would fall into default with its creditors. Suning responded to the claims on Dec. 8, calling the reports "unsubstantiated and malicious rumors."
Backing up its position, Suning announced on Dec. 10 that it would redeem seven corporate bonds, worth a total of 2 billion yuan ($300 million), on Jan.11 before their deadlines.
But on the same day, it was revealed that the Suning founder's family had received 1 billion yuan worth of financing from Alibaba. All shares of the holding company, Suning Holdings Group, were put up as collateral.
Suning Chairman Zhang Jindong called an internal company meeting on Sunday to address the media fallout.
"Lately, mistaken press reports and rumors have affected operations," Zhang reportedly told employees. "It's important that you do not be misled by outside voices."
The Zhang family essentially controls the entire stake in Suning Holdings Group, which in turn owns shares in Suning.com and other core group companies. Suning shares listed in Shenzhen's stock exchange have been pummeled in recent weeks.
"There is a growing sense of concern over whether Suning's finances have suffered significantly," said a market source.
Suning started out in 1990 as a small, 200 square-meter air conditioner store in Nanjing, China. It has since grown to one of the biggest retailers in China.
The Suning name gained international recognition in 2016 when it bought Inter Milan, one of Italy's historic top-flight soccer clubs. Zhang pledged to create future success for the century-old team, part of his bold gambit to raise the company's brand awareness.
About two years ago, Zhang stood proud and aired his vast ambitions. "2019 will be a key year for Suning," said Zhang at the time. "We'll expand our business to all sorts of retail spaces."
In February 2019, Suning acquired a department store business that belonged to Wanda Group, multinational conglomerate based in Beijing. That same year in June, Suning took over French supermarket group Carrefour's Chinese operations.
But the landscape has shifted since then in a way that has upended Suning's strategy of scale. Consumers have drastically pivoted to online shopping as opposed to brick-and-mortar stores, with the coronavirus outbreak being one contributing factor.
Nearly 60% of Suning.com' s revenue comes from digital sales, but the dismal performances at physical locations have cannibalized earnings. The company barely managed to eke out a net profit of 540 million yuan in the first three quarters of the year, down 95% from a year earlier.
Although Suning's digital sales grew 18% during this period, overall revenue dropped 10%. This shows that the company's physical appliance stores and supermarkets have dragged down earnings.
Suning may have anticipated much larger growth from internet sales. The company sold a roughly 20% stake to Alibaba in 2015 as part of a capital partnership. The pair agreed to collaborate on a wide range of areas, including customer service and logistics.
The results of the deal were decidedly mixed. Although Suning was able to absorb Alibaba's know-how in the e-commerce business, no other obvious results have emerged.
"Outside of internet shopping, Suning took an independent course in expanded its operation," said a source. Since Alibaba only purchased a 20% stake, it was in a poor position to stick its nose closely in Suning's affairs.
Suning is not sitting by idly in response to the setbacks. In the home appliance store segment, the company decided to shut down approximately 2,800 outlets between the beginning of 2019 and September this year. It was a drastic move considering the large number of older customers who associate Suning with appliances.
Suning has not completely given up on expansion. Just this year, the company added 2,400 small franchise stores that sell appliances, daily goods and other products to its network. It has also been expanding its convenience store chain, which launched fully in 2018, by thousands of locations a year.
Many Chinese retailers have focused on merging online operations to their physical stores in recent years. Suning, too, had initially enjoyed success online through its partnership with Alibaba, which it aimed to leverage into a brick-and-mortar expansion.
It is not uncommon for Chinese companies to open new stores to expand market share before the existing ones are established. "The approach is great when it's successful, but when it isn't, it can make problems snowball," said a source at a rival retailer.
A Suning convenience store in Shanghai, with few customers and disheveled shelves, appeared to embody the company's recent woes. "I see fewer products here that I like compared with other convenience stores," a shopper said.
