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Online retailers declare cut-throat price war

(Xinhua)

09:09, August 16, 2012

BEIJING, Aug. 15 (Xinhua) -- Chinese retail giants on Wednesday started offering massive tit-for-tat discounts to jostle for a bigger share in the e-commerce market, in the sector's latest cut-throat battle for buyers and survival.

Liu Qiangdong, chairman and founder of 360buy.com, China's second-largest online retailer by sales, announced Tuesday that his company will sell all major electric home appliances at cheaper prices than his rivals Gome and Suning from Wednesday.

"Our home appliances will be priced 10 percent lower than those of Gome and Sunning," Liu wrote in a post on Twitter-like Sina Weibo, while promising faster delivery services.

In an obvious publicity stunt, Liu announced that his company will hire and station 5,000 price observers, all with tailored uniforms, at the outlets of Suning and Gome to ensure that its commodities achieve the required 10-percent price differential.

Shortly afterwards, Li Bin, vice executive of Suning.com, threw down the gauntlets by promising, also in a Weibo post, that all items sold by Suning will be cheaper than those on 360buy.com.

The messages immediately landed like a torpedo in China's massive social media platform as curious netizens stayed in front of computers to closely track follow-ups in the price war. Both entries have been retweeted more than 100,000 times.

Earlier on Wednesday morning, Jingdong Mall opened a "price war channel" on its website with the page covered in vibrant red. Dazzling "free" logos on commodities are posted in the center of the home page of Suning.com, while Gome is directly countering the challenge by headlining on its website "All commodities 5 pct cheaper than Jingdong!"

The latest hot competition came as China's major e-commerce players continue to try to eliminate the competition and prove to investors that they will be the only survivor left in the field.

Suning and Gome ranked as China's top two retailers in terms of sales in 2011, according to the China General Chamber of Commerce.

But with the emergence of the e-platform offered by Jingdong, the two traditional dominating forces are facing increasing pressures and trying to catch up by building their own websites, while the money-burning Jingdong had mulled ways to attract more off-line buyers to its website.

Due to investment in e-commerce, Suning's net profits dropped nearly 30 percent in the first half of the year.

Meanwhile, Jingdong Mall, which had successfully gained a consumer base for its low prices, suffered a loss of 1.3 billion yuan in 2011 with its gross profit margin as low as 5.5 percent.

With the three giants all aiming big, a fight seems inevitable.

"You will soon be knocked out of the retail market if you do not have a sizable consumer base," said Sun Weimin, vice board chairman of Suning.

However, some have warned of the dangers of prioritizing pricing alone to attract customers.

According to a report from China e-Business Research Center, lack of innovation has mired Chinese online retailers in repeated cost-driven price wars.

"The price war will serve as a trump card in the initial stage of expansion, but the model of sacrificing reasonable profits in the long run is not a sustainable model," warned Shi An, founder of Gootime Technology, a service provider in the IT industry.

He said e-commerce companies should aim to strengthen their offering by improving the user experience on their website as well as their services.

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