Gome expects earnings to improve

Mainland home appliance firm says integration of online and physical shops will boost margins

PUBLISHED : Tuesday, 11 June, 2013, 12:00am
UPDATED : Tuesday, 11 June, 2013, 3:25am

Gome Electrical Appliances expects a rebound in gross profit margin this year although its e-commerce business will remain a liability in the short term. With the company teaming up with Alibaba's consumer shopping site Tmall to boost internet sales, the second-largest home appliance retailer on the mainland is hopeful that its e-commerce business could break even by the end of the year.

"We will bring up the proportion of our highly profitable goods from 20 per cent to 30 per cent of overall sales," Gome's chief financial officer Victor Fang Wei said.

"With our earlier initiatives to integrate resources of our online and physical shops, we hope to bring our gross profit margin to 18 per cent. While it is likely to stay below the 2011 level, we should see an obvious rebound from last year."

The company's consolidated gross profit margin fell nearly 2 percentage points last year to 16.18 per cent.

Suning, a major competitor of Gome, launched a campaign last month to bring product prices at its retail shops down to the level of its online stores. But Fang said that was not feasible and Gome would not follow suit.

"If you look carefully, the so-called same pricing in fact applies to two different models of the same product, or, these products are forever out of stock," he said. "It is impossible to apply the same pricing on two entirely different sales platforms."

Fang said Gome still had room to lower product prices without resorting to such a strategy. The company had reduced costs since it began sharing logistics, after-sales and membership systems for its online and retail sectors this year.

While the company will add 10 to 20 retail outlets this year, Fang said the chain's total floor area would drop by about 50,000 square metres because the new stores were smaller than those that would be closed.

Gome, which pledged to develop a multichannel business model, said yesterday it was applying for one of the six new telecommunications licences the central government planned to offer this year.

Gome exited Hong Kong's retail market this year because of intense competition and high rents.