Slowdown sparks rebirth for Suning Suning, China's second-largest electrical appliance retailer by sales, has a shop on almost every high street in the country, making it one of the most famous homegrown brands. Now the company wants to turn itself into something much bigger: a cross between a Chinese Walmart and an Asian Amazon. Walk into Suning's new superstore in Shanghai and it is clear the transformation has already begun. The first thing you see is not refrigerators or DVD players, but cosmetics. The company scrambled to open the store in September to take advantage of China's peak appliance shopping season, the week-long national-day holiday that began at the start of this month. The Shanghai store is one of 20 Suning Expo stores in the country, aimed at transforming Suning from a high street appliance shop to an online and offline peddler of everything from rice cookers to babies" nappies and books. The company plans to open 400 of these Expo stores over the next three years, the largest of which will be 18,000 sq m. Last month, Suning bought an online baby product retailer, Redbaby, for $66m, one of a string of planned acquisitions and alliances aimed at diversifying away from the fiercely competitive electrical appliance sector into more profitable areas. Redbaby will help the company attract female shoppers - its current customer base is heavily male - and expand into the high-growth baby goods sector, the company said. Suning has been hit hard by the mainland economic slowdown. Appliance sales have slumped because of the end of government subsidies and a slowdown in new home sales, which were the primary drivers of electricals revenue in recent years. First-half net profits at Suning fell 29 per cent year on year, to Rmb1.75bn ($278m), while the company's share price has dropped more than 30 per cent in the past 12 months. "Suning is running into the same problems as Best Buy [the US-based electricals retailer which closed its own-branded stores in China last year]," says Shaun Rein, of China Market Research in Shanghai. Shoppers can find the same products cheaper online. Sun Weimin, Suning vice-president, says the rapidly increasing popularity of ecommerce, coupled with "problems with the business model of being an offline chain store giant" and too rapid expansion in the past have forced the company to adopt a new strategy for the decade to come. The goal will be to build Suning into "something like a combination between Walmart and Amazon," he says, with the aim of "blending online and offline." Torsten Stocker, a partner at Monitor Group, the management consulting firm, says: "Their current (business) model is slowly running out of steam." Competition in the electric appliance sector reached price-war proportions earlier this year when online retailer Jingdong Mall, formerly known as 360 Buy, offered to cut its gross margin on appliances to 0. Suning and Gome, the market leaders, in turn offered to match or undercut their online rival's prices. But China's National Development and Reform Commission (NDRC) competition watchdog found in a preliminary investigation that all three retailers were guilty of either raising prices before the sale, so they could offer steep discounts, or telling consumers items were sold out even though they had stock in their warehouses. The retailers could face fines. The recent price war underlines the fact that the appliance sector has reached a turning point in terms of operating modes and profitability, retail analysts say. "If you are sitting in Suning's position, you have to do something," says Richard McKenzie, director of OC&C strategy consultants. You have a cost base that is higher than your competitors but you cannot sell at the same price as your competitors. But it's not an easy thing just to say you are going to sell more stuff and persuade consumers to buy it. As well as opening bricks and mortar superstores, Suning is dramatically expanding its presence online. It has bought online brands that have nothing to do with electronics and is trying to strike deals with partners, such as the online clothing retailer Vancl. If that was not enough, it is building a 238m high skyscraper in the remote Chinese city on Panjin. Analysts warn it is a lot to handle. "I'm not clear on how this will all hang together," Mr Stocker says. At the new Shanghai superstore, meanwhile, customers will find a shop that looks and feels more like the old Suning appliance shop than a new Chinese Walmart - even if it does have cosmetics in the foyer. The transformation may take time, but Suning is convinced there is no alternative. With additional reporting by Yan Zhang