Appliance retailer Gome reveals three-year plan

Appliance retailer to expand in second-tier cities and diversify its web commerce, but critics fear three-year strategy comes too late

PUBLISHED : Thursday, 27 December, 2012, 12:00am
UPDATED : Friday, 08 May, 2015, 9:12am

Is electrical appliance retailer Gome merely following its rivals or will its new internet-driven strategy truly jolt it out of the doldrums?

China's second-largest home appliance chain operator has rolled out a three-year strategy to increase its presence in lower-tier cities and expand into online food and cosmetics sales.

Yet some analysts doubt how much the new strategy would help the loss-making retailer.

The Beijing-based company is making major strategic changes over the next three years to catch up with its rivals, such as Suning Appliance and online shopping portal 360buy.

Wang Junzhou, president of the company, said Gome plans to open 200 stores next year in second-tier cities and adopt new models to work with suppliers.

E-commerce business will be placed on the same footing as bricks-and-mortar shops and the product mix will be expanded from home appliances to baby-and-mother items, cosmetics, food and beverage as well as healthcare products.

Wang added that Gome's 1,000-plus street stores will also expand their product mix, in the mould of online shops, in future.

He said he expects the e-commerce business to return to profit next year and contribute up to 30 per cent of the company's total sales in three years. Wang said the strategy was approved by Gome's founder and jailed billionaire Wong Kwong-yu.

Gome's revised playbook is similar to that of Suning. The largest home appliance retailer in the country said in March that it will combine the business models of Wal-Mart and Amazon to build online and offline sales platforms in China.

"This is not only a match to see who runs faster, but also to see who runs longer," said Wang in a media briefing in Beijing this week.

The past year has been a tough one for Gome, which is struggling amid intense market competition and a sluggish consumption environment.

The company posted a net loss of 687 million yuan (HK$846 million) in the first nine months of this year and sales plunged 18 per cent to 36 billion yuan.

Liu Buchen an independent analyst on the home appliance sector, said part of Gome's new strategy is the same as the one the company's former chairman Chen Xiao proposed in 2010.

Chen left Gome last March following a boardroom battle with founder Wong. Wong's friend and business partner Zhang Dazhong has since replaced Chen as the chairman.

"Chen Xiao said the same thing, about developing the e-commerce business, two years ago. Now the management has decided to move in that direction but it's a bit late compared with other rivals," Liu said.

In addition, Liu said, the company is unlikely to make profit in the e-commerce business in the immediate term because every player in this sector is trying to increase its market share by selling low-priced products.

"The market is still at a stage of investing," Liu added.

Another industry expert Zhang Ying said the home appliance market has languished this year but the online market is growing fast, adding that Gome has a good chance of taking a leading position online thanks to its relatively strong brand power and widespread logistics network.