Midea is not a big fan of e-commerce. When it comes to sales, the Chinese electrical appliance maker is as traditional as it gets.
So, what’s behind its decision to partner with Suning Commerce which is widely known for its wholehearted embrace of the internet? It’s a long line of numbers and changing consumer habits dictated by an increasingly connected marketplace.
In one of the most significant deals in the emerging online-to-offline (O2O) sector, Midea will tap Suning’s physical stores and online platform to sell its products.
The strategy is smartly dubbed “Three Years 60 Billion Yuan”, which simply means that in three years, Midea expects to sell 60 billion yuan (US$9.8 billion) worth of products through Suning.
Name it, Suning will sell it online — rice cookers, microwaves, refrigerators and a whole host of white goods. Suning will set up a dedicated online sales zone for these products.
To put the deal in perspective, take one of Midea’s flagship products — the free-standing hybrid solar air-conditioner. More than 3.25 million units will need to be sold in the next three years in order to reach the target. The hybrid air-conditioner is selling for about 18,500 yuan.
Midea has been trying to improve its online sales channels. This year, it has made the initiative a top priority, sources told National Business Daily.
Besides Suning Commerce, Midea is planning to work with other e-commerce operators. It already supplies retailers on Alibaba’s Tmall.
Part of the plan is to introduce lower-priced sub-brands such as the Easy Cooker which it launched last year.
Easy Cooker is sold exclusively by another e-commerce player, JD.com, and by most accounts, it’s doing quite well.
With more than 10,000 retail outlets across the country, is Midea in direct competition with Suning?
Zhang Yanbin, director of consulting firm AVC Research, doesn’t think so. Midea’s outlets are mainly in lower-tier cities while Suning’s are in major cities which means they actually complement each other.
An industry insider, Liang Zhenpeng, said Suning’s online and offline businesses are integrated, meaning prices are uniform, regardless of whether the product is bought online or from a brick-and-mortar outlet.
Midea is only coming to grips with two very different sales channels at the same time but it’s learning fast. Perhaps not as fast as consumer tastes and habits are evolving in online shopping but enough to keep pace with the market.
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