Gome looks to e-commerce after posting loss in first nine months

Mainland's No 2 home appliances seller posts reversal of fortunes in first nine months

PUBLISHED : Tuesday, 20 November, 2012, 12:00am
UPDATED : Friday, 08 May, 2015, 9:12am

Gome Electrical Appliances, China's second-largest seller of home appliances, is betting on e-commerce to reverse declining sales after reporting a loss in the first nine months.

The Beijing-based retail chain posted a net loss of 687 million yuan (HK$846 million), compared with a profit of 1.79 billion yuan for the same period a year earlier, it said in a filing with the Hong Kong stock exchange.

Revenue dropped 18 per cent to 36 billion yuan for the period, while consolidated profit margin fell nearly 3 percentage points to 15.88 per cent.

Despite the falling revenue and profit, mainland media reported that Gome had budgeted 400 million yuan to advertise its e-commerce business on CCTV, the country's largest television station, making it one of the biggest spenders on television advertising for the next year.

The company warned of a net loss last month, attributing it to rising rental and employment costs, its loss-making e-commerce business and weak consumer sentiment.

Zhang Dazhong, chairman of the company, said business had improved in the third quarter thanks to cost control measures and store network optimisation.

"Since June this year … the decline in the industry's sales has gradually eased," he said. "With the macroeconomic recovery, rebound in consumption, economic stimulus policies taking effect and increasing supply of social housing, the home appliance business has emerged from the most challenging period."

However, some analysts say Gome will not be able to manage a turnaround in the next year.

"The worst is not over yet," said Felix Kwok, an analyst at Core Pacific-Yamaichi Securities.

He said the "home appliances to rural areas" scheme, a nationwide government policy to subsidise rural consumers' purchases of televisions, washing machines and fridges, will come to an end in most areas next month.

The market softened quickly after the government stopped offering subsidies in December last year to encourage consumers to dump old electrical appliances and buy new ones.

Competition in the industry has become cutthroat, especially in e-commerce. Gome had to offer deep discounts in the face of intense price wars waged by rival Suning Appliance and other online shopping outlets such as 360buy and Amazon.