The rough times in China’s ecommerce sector was a major theme of my reporting from the country in the last two months. Well, those rough times have now become crazy times.
The bloody price wars that have characterized the fight for market share among China’s Amazon and eBay equivalents have officially reached insanity velocity. Richard Liu, the founder and CEO of the Walmart-backed 360buy, has taken to Sina Weibo late at night on Tuesday to announce a radical discount binge.
“Tonight, once again I made the decision to sell big home appliances at 360buy at zero gross margins for the next three years,” Liu said, according to a translation provided by Offbeat China. And let us interrupt that tweet right now to say: three years! That’s a hell of a long time for a startup to make no money at all on any purchase of a washing machine.
“Within these three years,” Liu continued, “any employee found to sell at marked-up prices will be fired. Starting from today, 360buy promises to sell big home appliance at prices at least 10 percent lower than that of Gome or Suning [the leading home appliance retailers in China].”
But hold on, this thing is just getting started. Twenty minutes later, Liu went on to say that 360buy will recruit 5,000 people for no lower than RMB3,000 ($470) per month – a substantial sum in China – to infiltrate Gome and Suning stores to check prices. If any of these spies find a price on an appliance that is less than 10 percent more expensive than 360buy’s prices, the etailer will instantly lower its prices, or hand out coupons. 360buy, Liu said, would offer “10 percent lower prices guaranteed”.
The first thing that springs to my mind is, “How can they afford this?”. 360buy, currently the second biggest online retailer in China, behind Alibaba, is already operating on slender margins while adding a costly delivery services fleet to its operations and planning a network of fulfillment warehouses in various centers across the country. The company apparently backed off a planned IPO after bankers low-balled its valuation, and it is said to be in the process of raising a new round of funding.
360buy’s supporters say that the company is in no rush to go public and that it has enough cash in the bank to carry on business as usual without even having to raise a round. With its Weibo posturing, 360buy must believe its pockets go very, very deep. One would hope so.
Within minutes of Liu’s first post, Gome responded via its official Weibo account that it would undercut any 360buy price by 5 percent. “No bullshit. Starting from 9am tomorrow, all products at Gome electronics and appliance stores will be 5 percent cheaper than those at 360buy.”
Not to be outdone, Suning jumped in on the action. “Everything on Suning Ease Buy, including but not limited to home appliances, is cheaper than 360buy. If any netizen pays more at Suning than at 360buy, we will adjust prices immediately and reimburse the customer twice the amount of the price difference. Starting 9 am tomorrow, Suning will initiate the biggest sale in history.”
Stop for a moment to consider the enormity of this instant Weibo war. These are three retail giants duking it out, with apparently spontaneous decisions on business matters that will materially affect their longterm health, or even existence. Could this ever happen on Twitter in the US? Can you imagine a scenario in which, say, Amazon tweets that it will undercut any price offered by Best Buy by 10 percent, and then, five minutes later, Best Buy turns around to say, actually, we’ll go 5 percent lower than whatever Amazon puts up?
This intense, real-time price war illustrates the unique nature of China’s market, in which online businesses are willing to take a win-at-all-costs approach to prevail in a huge and fast-growing market that harbors such immense opportunity because of the lack of a fully developed retail infrastructure. The fight will be bloody, but the prize is huge. In the cauldron of executive decision making, these companies have to adapt at tweet-speed to even have a hope of survival, let alone the market dominance that their investors apparently insist on.
It’s great news for consumers, who are about to enjoy record low prices, but these wars are clearly not sustainable in even the medium term. Liu’s promise to take zero margin on home appliances for three years means he is committing the company to huge losses in at least that sector for a crucial period of its development, at a time when 360buy has already fallen short of its commitment to investors at least once.
At least until last night, he was not backing down. Minutes after Suning’s response to the challenge, Liu pulled the pin on another grenade. “Starting 9 am tomorrow, all big home appliances at 360buy will be sold at cheaper prices than those from Suning, both online and offline. There will be no bottom line. If Suning dares to sell at 1 yuan, then 360buy will surely sell at 0 yuan. To those who plan to buy big home appliances, you will lose money if you don’t follow 360buy.”
If you’re in China, it’s time to go shopping. And if you’re anywhere else, it’s time pull out the popcorn. No one does drama better than the Chinese. But keep in mind, this isn’t fiction, and someone is going to get hurt.
[Thanks to Offbeat China for translations and links]