Newspaper row causes a plunge in Gome shares
Shares in Gome Electrical Appliances dropped by as much as 4 per cent yesterday after a mainland newspaper reported former chairman Chen Xiao as saying the company had accounting loopholes and its stock has no prospects.
Gome issued a statement to the Hong Kong Stock Exchange yesterday saying it would not tolerate Chen's behaviour as expressed in the article and vowed to take appropriate steps to protect the company's interests.
Chen, who resigned from Gome in March, was quoted on Tuesday by 21st Century Business Herald, a Guangzhou-based newspaper, as saying he plans to sell all of his Gome stake because the 'golden days' of big electrical appliance chain stores were coming to an end.
He also said in the article there are 'grey areas' in the company's management system and suppliers are often required to pay high payments to place their products in Gome stores.
The share price of Gome fell as much as 4.2 per cent yesterday, closing at HK$2.72, down 3.2 per cent.
But Chen issued a statement hours after the publication of the story, denying he participated in formal interviews with the newspaper.
'The article is only based on parts of a casual talk (between the reporter and me). It's (the reporter's) personal understanding which lacks common sense. It's not what I originally meant and does not represent my views or opinions,' said Chen. The reporter has also made an apology for publishing the article without Chen's consent.
Last year, Chen and jailed Gome founder Wong Kwong-yu were locked in a boardroom battle for control of the company.
Although a shareholders' meeting in September voted down Wong's proposal to oust Chen, he still decided to resign early this year.
Liu Buchen, an expert on the mainland home appliance industry, said: 'Retailing giants in this industry have seen very high growth rate over the past 10 years. This will be hard to continue in future.
'The reality they have to face is that all the first-tier cities are already too crowded while the purchasing power in second and third-tier cities is still weak.
'But I think Mr Chen is a bit over pessimistic. I believe chain stores will still remain a mainstream sales channel in the next few years while online shopping and shops directly run by manufactures will be growing fast.'