New strategy to overtake rivals
Appliance company's president Chen Xiao says the group plans to boost its market share by 20 per cent and consolidate its leading position
Were there any notable changes in the industry in 2007? Any key challenges? Gome Electrical Appliances Holding believes that the consolidation of China's household electrical appliances sector has been completed. To further solidify the group's leading position, the management has set out a new development plan: by 2011, the market share of the group, together with its parent company, will grow to more than 20 per cent and the group will overtake its rivals in key areas.
The specific strategy involves 'seven number ones and one leadership', which refers to 'being the number one in scale, profit, regional market share, the operation quality of individual stores and efficiency by area, customers' satisfaction level, the advanced nature of management tools and logistic support, and being the leader in terms of store format and number'.
Gome is confident that the market prospects remain optimistic, and the economic development of China will continue to fuel demand for electrical appliances and consumer electronic products.
What were the major challenges for management in 2007? The year saw Gome continuing to enhance its competitiveness and maintain high-speed growth. As at the end of last year, the group raked in sales revenue of 42.48 billion yuan (HK$47.39 billion), up 71.77 per cent from the previous year. Excluding the non-operating loss/gain arising from fair value adjustment on the derivative component of convertible bonds, exchange difference, the fair value adjustment on investment properties, the group's profit attributable to equity shareholders reached 1.88 billion yuan, representing a year-on-year increase of 155.8 per cent. All the business plans set out at the beginning of the year were realised successfully. As a result, the group has been able to maintain its edge and stay at the forefront of China's household appliance sector.
Competition in China's household appliance sector was in full swing so the group adhered to the dual strategy of running its own stores and seeking acquisition opportunities.
The group achieved satisfactory single-store growth in sales revenue and in the adjusted profit margin by establishing flagship stores, launching the '100-store project', and improving competitiveness of stores in weak markets and second-tier markets.
The group also came up with the notion of 'improving services to boost competitiveness'.
What did management do to ensure shareholder expectations were met? The group's profit attributable to equity shareholders of 1.88 billion yuan was a significant increase over 736 million yuan for 2006.
Earnings per share, after adjustments, increased by 73.53 per cent from 34 fen in 2006 to 59 fen in 2007. During the reporting period, 232 stores were qualified for same-store comparison. Comparable store sales increased by 3.11 per cent, showing the group's policy of enhancing individual store operation quality has paid off. The total number of stores reached 726. The overall synergy created by the merger with China Paradise continued to emerge, improving the cost structure.
What are the plans in 2008? Any plans to expand and make new hires? Gome plans to open 120 stores, among them 30 flagship stores. The group will also expand its telecommunications business, with plans to open about 200 outlets through the dual strategy that involves opening its own stores and acquiring telecoms retail chains. The stores will be in vibrant commercial areas or areas specialising in telecoms products, each with an average size of about 200 square metres.
Shops that do not have a competitive edge will be closed and flagship stores will be developed to be at the forefront of the market. The group will seek to develop strategic alliances with property developers, department stores and supermarkets. The group will make more efforts to bring down or transfer rental, seek cross-industry collaboration to share resources, increase the use of store areas and lessen the pressure of rent increases on profit.
Any changes of strategy in 2008? Gome's primary objective is to focus on improving the operation quality through differentiation and customer-focused strategies.
The group will strive to enhance brand building, network coverage, human resource development and information systems.
Were there any investments made last year? Have they paid off this year in terms of sales? On the merger of Gome and China Paradise, the now larger group has achieved a leading position in most mainland cities in market share. As a result of economies of scale brought by the merger, operating costs have dropped.
Gome successfully obtained full control over Dazhong ... giving the group absolute advantage in
Beijing. That will also further consolidate the group's leading position in Tianjin.
The group also successfully acquired Shaanxi CellStar Telecommunications (Shaanxi CellStar), the biggest telecoms retail chain in Shaanxi.
The group will be able to carry out smooth business integration in a short time. The benefits of the integration are expected to emerge this year.