Gome to shut more shops to stem losses

Appliance retailer reports lower gross profit margin for the year, plans to get back on track with better product mix and in-store experience

PUBLISHED : Tuesday, 26 March, 2013, 12:00am
UPDATED : Friday, 08 May, 2015, 9:12am

Gome Electrical Appliances, the second-largest home appliance retailer in the country, plans to close more stores to boost profit margins after reporting a narrower-than-estimated loss last year.

The Beijing-based retailer said in a filing yesterday that the net loss for the year to December was 597 million yuan (HK$746 million), compared to a net profit of 1.84 billion yuan in 2011.

Meanwhile, sales revenue fell 20 per cent to 47.9 billion yuan.

The company warned of a loss in a statement to the Hong Kong stock exchange on January 28.

Wang Junzhou, Gome's president, was quoted by Bloomberg as saying that the worst time for the company was over.

"This year we will see the results of changing our product mix and our cost-control measures coming further through," he said.

According to the statement, comparable store sales shrank as much as 25 per cent year on year. The gross profit margin dropped 1.97 percentage points to 16.18 per cent.

The company said the decline in sales was mainly due to the suspension of government's stimulus measures in the sector and the slack consumption sentiment last year.

However, the business performance in the second half started to improve, Gome said, without disclosing further details.

During the period, the company cut the number of retail stores to 1,049 from 1,079, following the opening of 107 new stores and the closure of 137 underperforming outlets.

Looking ahead, the retailer aims to improve profitability by stepping up closure of underperforming stores, expanding product lines and improving store ambience.

Both Gome and its major rival, Nanjing-based Suning Appliance, have been investing heavily in e-commerce as part of a plan to shift from a traditional appliance seller into a comprehensive retailer in both online and offline channels. Earlier this year, Suning announced it would spend billions of yuan to build up a nationwide logistics network, which would be open to other retailers as well.

Gome also launched a online model last year and completed the integration of its two e-commerce platforms, Gome Online and

"The e-commerce industry is distorted by aggressive price wars and hostile competition … the group is committed to find a sustainable path towards profitability," the company said in the filing yesterday.

It said it planned to speed up the introduction of new product categories and tighten cost controls.

Shares of Gome dropped 2.3 per cent to HK$0.87 yesterday before announcement of the annual results.

Gome did not propose a final dividend for the period.