E-commerce sales seen picking up at loss-making Gome Electrical

PUBLISHED : Saturday, 01 September, 2012, 12:00am
UPDATED : Saturday, 01 September, 2012, 3:05am


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Gome Electrical Appliances, the second-largest home appliances chain on the mainland, expects its loss-making e-commerce business to turn a profit within the next two years - after posting an interim loss of 502 million yuan (HK$614.07 million) for the six months ended June.

The Beijing-based company reported yesterday that sales fell 22 per cent to 23.1 billion yuan.

The fall in revenues, combined with rising costs for rent and labour, tipped the retailer into the red for the reporting period, compared with a net profit of 1.25 billion yuan a year earlier.

However, Gome said trading conditions were improving. On a same-store basis, sales declines narrowed to 18.7 per cent in the second quarter from 34 per cent in the first quarter, and the July and August figures were better than results from the first half of the year.

E-commerce, which contributed 8.2 per cent in total sales revenue, recorded a loss of more than 260 million yuan, about half of the company's total loss during the period.

Gome has been engaged in an internet price war with its major competitors - Nanjing-based Suning Appliance and 360buy.com the largest business-to-consumer online operator on the mainland.

Wang Junzhou, chief executive of Gome, said the e-commerce business was still in an initial stage and faced relatively low profit margins but high promotion costs.

"But as an operator of both online and offline shops, we have an edge compared to pure online retailers in terms of sharing our resources in sourcing, logistics, aftersale services and information technology platforms in all our retailing channels," Wang said.

"We believe the performance of our online shop will continue improving in the rest of the year."

The industry suffered a setback in the first half of this year as the central government ended a number of schemes to subsidise consumer purchases of home appliances.

Suning, the largest appliance retailer on the mainland, said on Thursday that its sales in the first half grew nearly 7 per cent to 47.2 billion yuan, while net profit dropped 29 per cent to 1.75 billion yuan.

Gome shares rose 1.5 per cent to 67 HK cents yesterday, before the result announcement.