Gome targets second-tier cities for expansion

PUBLISHED : Tuesday, 30 August, 2011, 12:00am
UPDATED : Friday, 08 May, 2015, 9:12am


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Gome Electrical Appliances Holdings, the mainland's second-largest electronics retailer, will add 260 stores to its network this year as it opens more shops to meet demand.

During the first half, the listed electronics retailer opened 131 stores and closed 19 stores on the mainland, representing a net increase of 112 stores against last year's 100 stores. Gome's total number of stores stood at 938 in the middle of this year from 826 at the end of last year.

Gome plans to have 1,600 stores on the mainland by 2014, chairman Zhang Dazhong said. 'We are confident of at least 15 per cent growth in sales every year until 2014. We are bullish on our second-half prospects,' he said.

This year, 60 per cent of Gome's new stores will be in second- and third-tier cities, said Gome president Wang Junzhou.

'In the first-tier cities, there will be downward pressure on sales. In the second- and third-tier cities, there will be fast growth, so we will have good growth prospects.'

These areas have been little affected by the central government's policy moves to control property markets, leaving residents with more money to spend.

CCB International forecast that Gome's turnover will rise 25.7 per cent to 64 billion yuan (HK$77.9 billion) for the year.

In results for the six months to June 30 released yesterday, revenue rose 19.8 per cent to 29.81 billion yuan. Net profit climbed 30.1 per cent to 1.25 billion yuan, reflecting improved profit margins. Gross profit margin rose to a record 18.3 per cent in the first half from 16.5 per cent a year ago.

'In three years, we hope to raise our gross margin to 22 or 23 per cent. We exceeded our sales target during the first and second quarters,' said Gome acting chief financial officer Fang Wei.

Capital expenditure will be one billion yuan to 1.5 billion yuan this year, said Fang.

Gome's founder Wong Kwong-yu is serving a 14-year jail sentence on the mainland for bribery and insider trading. His strategy for the company had involved aggressive expansion.

However, under former chairman Chen Xiao, the pace of growth slowed last year. He resigned on March 9 after a management tussle. Zhang, the founder of Beijing Dazhong Electrical Appliances, replaced Chen.

Zhang sold his stores to Gome in 2007 and is seen as Wong's ally. From his prison cell, Wong had urged the company board to oust Chen.

Wong was critical of the slow expansion and the loss of Gome's status as the top electrical retailer on the mainland to Suning.

Gome's same-store sales increased 7.4 per cent year on year in the first half, a slower growth rate than the 18.3 per cent recorded in the second half of last year.

Gome's share price rose 3.96 per cent to HK$3.41 yesterday. The company will pay an interim dividend of 2.7 HK cents per share.