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China's Smartphone Maker Coolpad Dives Deep Into E-Commerce

This article is more than 9 years old.

“Go online or go home” seems to be the ethos of retail in China these days. Even at the risk of having a lower profit margin, Chinese smartphone maker Coolpad is determined to charge ahead in the e-commerce battle.

Forty to sixty percent of its sales will come through e-commerce channels within two to three years, said CFO Jiang Chao of the Shenzhen-based company at a press conference on Thursday. In the first half of 2014, Coolpad sold three million smartphones online, accounting for 13% of the period’s total sales volume.

“Moving into e-commerce is not simply a change in sales channel. It is part of a revolution of future business model,” explained Chairman Guo Deying of the rationale for going all out on e-commerce. “We need to face the customers directly. We expect gross margins of hardware to continue to lower, [therefore] we hope to have an interactive relationship with our customers to grow our customer base. This business model is consistent with the broader trend.”

Guo Deying, Chairman of Shenzhen-based smartphone maker Coolpad Group.

Coolpad, China's third largest smartphone brand by market share according to research firm IDC, currently sells most of its devices through the "big three” Chinese mobile carriers. Online sales have recorded profit margins lower than the company’s average of 10-12% for 3G phones and 14-16% for its 4G phones. Higher marketing and advertising expenses for the online channels are partly to blame. But Guo says lower hardware costs and Coolpad's fast-growing wireless internet business will help make up for the difference.

From clothing to food to home appliances, e-commerce is proving to be an ever-more powerful distribution channel in China, where the likes of Alibaba, JD.com and Vipshop formulate a thriving ecosystem. Mobile phones are not an exception to this trend — Online sales amounted to 42 million units last year; among those 23 million were domestic brands, according to iResearch. Xiaomi, which ranks after Lenovo as China’s No.2 smart-phone maker, runs its own e-commerce platform and counted 70% of its sales from online channels in 2013.

Playing catch-up, Coolpad began testing the waters late last year. It signed a $1.6 billion sales agreement with China’s second largest e-commerce platform JD.com in March. Two months later, Coolpad launched its first online “festival," where one million smart-phones in its “Big God” series sold out – at heavily discounted prices. The company will also explore e-commerce channels overseas, as it sketches out major expansion plans in Southeast Asia, Europe and North America.

Coolpad Group, formerly China Wireless Technologies, was founded by Guo Deying in 1993 and went public in Hong Kong a decade later. The company’s revenue surged 54.8% year-on-year in the first half of 2014, and net profit grew 94%.

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