Two Chinese appliance and electronics retailers, regarded by some as the country's answers to Best Buy Co Inc , are racing to beef up their e-commerce arms and tap the booming but highly competitive online retail market.

Although relative latecomers to the game, analysts say the moves by Suning Appliance Co Ltd <002024.SZ> and GOME Electrical Appliances Holdings Ltd <0493.HK> are still timely. The companies can capitalize on e-commerce to broaden their customer bases at a time when appliance demand has been damped by a slowdown in China's housing market, they said.

The benefits are clear: lower cost distribution across the geographically huge market without the need to open new physical retail outlets.

The time is definitely right and arguably it is late for the retailers to get into e-commerce, given that many consumers have established online shopping habits, said Dale Preston, managing director of Nielsen's Greater China Retail Measurement.

E-commerce is booming in China. Forrester Research forecasts business-to-commerce or B2C sales to triple to $159 billion in 2015 from $49 billion last year, and e-commerce's share of retail sales to more than double to 5 percent in 3-5 years.

Suning and GOME, which is nearly 10 percent owned by private equity firm Bain Capital, got into e-commerce about a year ago.

Web sales accounted for a mere fraction of their total sales of about $20 billion last year -- just under a quarter of overall appliance and electronics retail sales in China. But domestic media and analysts say the companies hope e-commerce will produce half of their sales by the end of the decade.


Analysts said solid e-commerce strategies would help the companies tap China's long-term urbanization story and maintain double-digit sales and earnings growth for a few more years. And despite strong price competition from legions of domestic online retail startups, analysts see a good chance they will succeed.

With advantages from existing infrastructures and economies of scale, they can leverage their vast networks of stores, warehouses and suppliers, and their bargaining power and distribution management expertise.

Neither company needs to invest as much as other online retailers, like Jingdong Mall and e-commerce firm China Dangdang Inc , because they already have some of the human and logistical resources and branding needed for e-commerce.

Jingdong, which operates -- China's second-largest business-to-consumer website after Alibaba Group's Taobao Mall -- has spent heavily building up its logistics infrastructure and teams in recent years. Jingdong plans an overseas IPO next year, aiming to raise $4-5 billion.

Like books, home appliances such as washing machines and refrigerators are suited to online sales as customers do not necessarily need to visit a physical store and touch or try the products before deciding to buy.

GOME would easily capitalize on the advantages of e-commerce and outperform our peers in the e-commerce industry, a company spokesman boasted.

GOME, a $4.4 billion listed company controlled by jailed founder Huang Guangyu, launched e-commerce operations in 2010 when it acquired consumer website COO8. This year it launched an online shopping mall.

Analysts project GOME will generate e-commerce sales of up to 3 billion yuan ($471 million) this year, accounting for 5 percent of total sales. The percentage could reach 10 in 2013, GOME executives said. It plans to build more last-mile distribution centers -- warehouses much smaller than its 131 regional distribution centers.

Suning's online platform Yigou, which sells everything from appliances to books, has become the third-largest B2C website in China, recording sales of 4.1 billion yuan in the first three quarters of this year.

With a market value of about $10 billion, Suning has just signed an agreement with International Business Machines Corp to build a multi-billion e-commerce platform supported by cloud technology.

It is a long-term investment. Logistics, after-sales services and their refund policy are a vital part in developing the e-commerce business, said Conita Hung, head of equity research at Delta Asia Financial Group.


But analysts say near-term growth prospects for Suning and GOME are less rosy. China's current housing cycle has peaked and incentive policies for appliance buyers, launched by Beijing as part of a stimulus package to ward off the 2008 global economic crisis, are expiring.

Shares of GOME and Suning have fallen sharply in recent months as property prices eased, and transactions have shrunk following two years of government efforts to cool the market.

GOME last week posted 12.8 percent earnings growth for the third quarter, slowing from 30 percent in the first half.

GOME and Suning have passed their golden growth period, said Wu Da, fund manager at Beijing-based Changsheng Fund Management, a joint venture with DBS Asset Management. The next stage of development is to focus on improving efficiency and cutting costs. E-commerce is a way to achieve that.

As online sales grow, analysts say the rivals will optimize networks, shut inefficient or poorly located stores and open new ones, just as Best Buy has been doing on a global basis.

Best Buy also has said it will boost its Web presence, shrink larger stores and open smaller ones in an effort to win back market share from the likes of Inc and Wal-Mart Stores Inc . Best Buy plans to double its $2 billion online business within three to five years, saying the online channel is our greatest growth opportunity.

Suning has said it aims to boost store numbers by 400 to more than 1,700 by the end of the year. GOME had opened 1,041 stores as of the end of September, and said it would try to buy almost 500 stores owned by founder Huang.

On a recent bright Sunday morning, a GOME store in the southern boom city of Guangzhou was nearly deserted but for a small number of sales clerks wearing colorful party hats to celebrate the company's 25th anniversary.

Business is not good these days. It has something to do with the real estate market, said one salesman, who gave his surname as Chen.

E-commerce also may be to blame, cannibalizing some sales from their own bricks-and-mortar stores. ($1 = 6.3643 yuan)

(Editing by Chris Lewis and Brian Rhoads)