#177 2001 · Gree Electric (Dong Mingzhu) · Home appliancescostly-signal
Gree made its own distributors part-owners so retail giants couldn't squeeze them without squeezing itself
the problem
Big-box retail chains were using scale to force appliance makers into price wars
background
By the early 2000s, Chinese appliance manufacturers sold mostly through a handful of dominant national retail chains — Gome and Suning chief among them — whose bargaining power let them dictate pricing, delay payment, and run promotions that ate manufacturer margins. Fighting back meant either accepting the squeeze, trying to build parallel retail from scratch, or hoping a competitor blinked first in the resulting price wars; none of it changed the underlying leverage imbalance.
Gree, led on the sales side by Dong Mingzhu, restructured its own distribution instead of fighting the big retailers directly. Starting with a pilot in Hubei in 1997 and standardized nationally by 2002, Gree co-founded regional sales companies with its major distributors and took a direct equity stake in each — turning distributors from customers Gree had to win deal by deal into part-owners whose returns depended on Gree's pricing discipline holding across the whole region.
the move
Rather than negotiate harder with Gome and Suning, the retail chains that dominated Chinese appliance sales and could play manufacturers off each other on price, Gree — under sales chief Dong Mingzhu — turned its regional distributors into shareholders. Starting with a 1997 pilot in Hubei and standardized nationally by 2002, Gree took direct equity stakes in jointly owned regional sales companies, so a distributor's profit and Gree's profit came off the same balance sheet.
the payoff
In 2004, when a Chengdu Gome store unilaterally slashed Gree air-conditioner prices in defiance of Gree's pricing policy, Dong Mingzhu pulled all Gree products from Gome stores nationwide within the day rather than let one retailer set the market — a stance Gree could afford precisely because its equity-aligned distributor network gave it a channel Gome didn't control. Gree stayed out of Gome for roughly three years and went on to become the world's largest air-conditioner maker by revenue.
what came after
The equity-aligned distributor network gave Gree a channel the big retail chains didn't control, which it used decisively in 2004 by walking away from Gome nationwide rather than accept an unauthorized price cut — a confrontation few appliance makers dependent on Gome could have survived, and one credited with helping Gree grow into the world's largest air-conditioner manufacturer by revenue.
references
- [1]In Depth: How the Queen of Gree Won, AgainCaixin Global, 2019caixinglobal.com
- [2]Gree Electric: Dodging Pitfalls on the Road to TransformationEqualOcean, 2020equalocean.com