Suning Appliances yesterday inked a strategic agreement with Hewlett-Packard (HP) for direct computer purchases from the world's leading computer manufacturer.

The move will help the retailer become less reliant on sales agents and also improve profitability.

The agreement follows Suning forging similar deals with other major PC makers like Dell and Lenovo, and with consumer electronic manufacturers like Haier and Whirlpool.

More such deals are in the offing in the consumer electronic retailing industry, said analysts.

For over a decade, Suning had been purchasing computers from the sales agents appointed by HP, which led to higher costs. The new deal will "improve corporate profitability," said Sun Weimin, president, Suning Appliances.

Under the agreement, Suning plans to sell HP computers worth 1.5 billion yuan this year, and increase it to over 5 billion yuan over the next three years. Compared with traditional household appliances such as television and refrigerator, the computer business still remains largely untapped due to the low penetration rate.

Suning is one of the largest computer retailers in China. Since 2007, it has witnessed triple-digit growth in computer sales, said Sun.

HP accounts for more than 20 percent of the retailer's sales and is one of its largest clients.

Last year, Suning's computer sales reached 5 billion yuan. This year, the company has set a target of 7 billion yuan, which means HP will account for 21 percent of the total, almost the same as before.

Since late last year when the financial crisis has slowed down the growth of Chinese consumer electronic market, retailers began to heavily focus on developing the 3C sector business (consumer appliances, computers and communication products) due to its huge market potential, and computers are among the most important in the sector, ranking second after mobile phones by sales volume.

In 2008, the 3C sector contributed to 40 percent of Suning's sales, over one third of which came from computers.

The company said it plans to expand sales of 3C products including computers this year, widen its network and also boost sales per store.

Suning had 850 stores in 2008, and plans to set up another 200 this year.

HP is the second largest computer maker in China by sales volume, next to Lenovo. In the first quarter, the market share of HP PCs in China grew by 36.1 percent.

Through its cooperation with Suning, HP will get first-hand information about consumer demand from Suning, which in turn will join HP in research and development, design, marketing, sales and after services.

"It's a milestone step for HP China," said Zhang Yonghong, vice-president, HP IPG.

Gome, Suning's archrival, has not joined hands with computer makers for direct purchases although the company is also thinking on these lines.

Huang Zhigang, retail analyst from Everbright Securities, said direct purchase will become more popular and Suning's move is likely to be emulated by competitors.

In July, Gome signed a purchasing agreement with Candy, a major washing machine maker from Italy.

(China Daily July 29, 2009)