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Suning likely to snap up 30% of Laox

By Ding Qingfen (China Daily)
Updated: 2009-06-23 08:01

Suning's long-term goal is to go overseas, company chairman Zhang Jindong said. [CFP]

To buy or not to buy - that is a question Suning, China's second largest consumer electronics retailer by store number, has to answer soon. And the one who has evoked that question is its struggling Japanese counterpart, Laox.

The financial crisis has severely affected the world's retail industry. Last November, Circuit City, the second largest household appliance retailer in the US, went into bankruptcy protection. In June, Germany's retail giant Arcandor, which owns the department store chain Karstadt, declared bankruptcy.

Laox, one of the Top 10 retailers in Japan, may not be luckier than its global counterparts. Amid the stagnant economic situation, the 80-year-old company, which has witnessed losses for eight consecutives years, reported another big drop in profit in 2008. As the nation's economy is still in trouble, the company is finding it hard to improve business even after it closed a slew of under-performing stores since late 2008.

That is why it turned to Suning for help. Japanese media said late last week that Laox was in talks to sell a stake of around 30 percent to Suning, which will make the latter Laox's principal shareholder with board representation.

The Nikkei Economic Daily reported Laox would issue roughly 1.5 billion yen ($15.59 million) in shares, representing a more than 50 percent stake to a Japanese firm acting as a go-between, from whom Suning will take the 30 percent share.

Although it did not confirm the news, Suning made an announcement later saying Laox did propose possible cooperation between the two, but that it had been in touch with Laox. However, "there is no binding legal document that has been signed," it said.

Chinese media quoted Han Feng, from the Securities Department of Suning, as saying that a "share sale" was a possible solution.

The Japanese media report had mentioned that the announcement would be made "as early as this week".

For Laox, the deal, if finalized, would be the last straw before its business got worse.

Related readings:  Suning bets big on rural expansion  Suning to open Hong Kong stores  Suning to open 220 stores in 2010  Consumer: Suning looks to dethrone Gome

From late last year, the company has rolled out a series of measures to increase profits, including closing more than 40 under-performing stores, cutting about 40 percent of its staff and sharply reducing salaries.

The report said Laox would likely revitalize stores by using the funds raised from the share sale.

"The deal would offer Suning some clue about how to expand overseas, especially on developing the Japanese market at a comparatively cheaper price," said Wu Meiyu, retail analyst from Guosen Securities.

Zhang Jindong, chairman of Suning, recently said the company's long-term target was to go overseas, but any move will be predicated on the full understanding of the target market.

The company said recently that it would take the first step towards an overseas strategy this year, a year ahead of its original plan, by opening around 10 stores during the second half in Hong Kong, a market that is similar to the Chinese mainland.

Experts said the Asia-Pacific region would be given top priority when it comes to expanding abroad thanks to the geographic similarity. Japan was a smart choice thanks to its market size, they said.

Despite the continuous slide in business, Laox is a major consumer electronics retailer in Japan and has a history of business operations since 1930, 60 years longer than Suning's. By 2008, Laox had 75 stores around Japan.

"The Japanese market is highly competitive, which makes it much harder for any foreign consumer electronics retailers to survive there without help. For Suning, Laox could be such a help," Wu said.

The deal could also help Suning sharpen its competitive edge back home, in pricing polices and customer services, she added.

Although the company has outperformed Gome, its archrival that has 1,300 stores nationwide, in profitability and sales per store, there is much room for it to improve, she added.

The deal price would be "reasonable" amid the economic recession. In the 2008 financial year ending March, Laox posted sales worth 2.89 billion yuan ($422.96 million) and its net assets were 322 million yuan. It is estimated that the deal, if finalized, will cost Suning merely 60 million yuan.

Suning's share was up 1.38 percent yesterday, at 16.2 yuan.