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Sandy Li

Gome chief has come far since selling TVs from a tiny shop

THE MAN DUBBED the 'price butcher' in the mainland home appliance market, Wong Kwong-yu, reckons his rivals would like nothing better than for him to retire.

With the 35-year-old entrepreneur extending his Gome home appliance chain to Hong Kong, local retailers may have a similar wish.

Mr Wong cheerily shrugs off suggestions that his business, which has 127 stores in 22 cities in China, including Beijing, Tianjin, Shenzhen, and four in Hong Kong, is a threat to anyone.

He started his 17-year journey to fame and fortune when he was just 18, selling colour televisions out of a 100 square metre store in Beijing,  having borrowed money from friends.

It grew into a company renowned for undercutting its competitors on a daily basis and employing shock tactics whenever it entered a new market.

One such move is the selling of rice cookers for as little as nine yuan - creating a buyer stampede. Gome set a record by selling 10 million yuan of goods on the first day of business at its Fushan store in Guangdong province in March.

Small wonder his competitors, big and small, domestic and foreign, fear him.

'If I don't create a storm in the market, others will. Price cutting is the fastest and most direct way to attract market attention,' said Mr Wong.  He said, however, that it was not easy being a market leader.

'Every day, we have to adjust 50 to 60 per cent of prices on more than 10,000 products to ensure our prices stay lowest,' he said.

Mr Wong has also been in the spotlight after  fund managers last Friday revealed that he was planning to cash in as much as $3.75 billion from selling down his stake in  main board-listed China Eagle Group,  a month after the company announced it was to pay 8.8 billion yuan for a 65 per cent stake in Gome Home Appliance.

The  businessman surprised the market by selling 65 per cent of Gome to China Eagle, his locally listed property company.

Analysts said the sky-high price of 8.8 billion yuan for the stake would have  been difficult to achieve if Mr Wong had opted for an initial public offering.

The deal puts Gome's value at 13.5 billion yuan, representing a price-earning (PE) ratio of about 49 times last year's earnings of 275 million yuan, against an average of 15 to 20 times  PE in an IPO. The transaction involves only 94 Gome outlets.

Such an acquisition, although perfectly legal, is a piece of tricky financial engineering. As well as shoring up the balance sheet, the one-off gain would  significantly boost  China Eagle's revenue.

Gome, according to fund managers, generated net profit of 190.97 million yuan on 5.25 billion yuan sales for the five months to May. China Eagle generated net profit of only $19.9 million for the year to March.

Mr Wong said the ultimate goal was to achieve listing status for Gome. 'It makes no difference to me whether it is through IPO or acquisition. I think only the media has concerns about the methods we used for the listing,' he said.

Rumours had been circulating in the market for more than a year that Gome would opt for an IPO to get a foothold in Hong Kong and these were  supported by hints  from Mr Wong.

'Why did I give up the IPO idea? The acquisition plan was only finalised in May when we secured approval from the Ministry of Commerce to sell shares overseas.'

Although it did not involve  a change in control at China Eagle, thus not contravening the Hong Kong stock exchange's ban on back-door listings, a new name  to reflect the company's future business was necessary:  Gome Electrical Appliances.

According to a source, China Eagle  appointed Somerley as an independent financial adviser for the deal after the company's share trading had been suspended on May 24.

Then, on June 8, the company announced the proposed acquisition  and arranged a special general meeting of shareholders, set for July 28, to seek approval.

The Gome acquisition, if it goes ahead, will have taken about two months, whereas  an IPO  could easily have taken eight to nine months to complete, said the source.

But  'the acquisition's legal procedures are more or less the same as an IPO', he said.

Mr Wong insisted the 8.8 billion yuan price tag was reasonable because Gome was enjoying strong growth.

More importantly, the deal would boost the market capitalisation of the company to more than $1.2 billion, from $400 million when the deal was announced a year ago.

Mr Wong's personal wealth will also increase. He will receive $243.5 million in new China Eagle shares and a two-tranche convertible note of $8.05 billion in exchange for his majority stake in Gome.

'I have no feeling about my wealth. In fact, I am enjoying a simple life, no fancy clothes or expensive watches. I am content watching TV and sleeping.'

Despite Gome being the mainland's largest home appliance chain,  Mr Wong said it had only 4 per cent of the market.

'China is still our No1 target as it has enormous potential for development. We are not in a hurry to expand overseas,' he said.

He smiled  as he considered his business strategy. 'More retailers are copying us, which makes things more exciting and challenging.'

Biography

Wong Kwong-yu, president and founder of the Gome Group 1987, has 17 years of experience in the retailing of electrical appliances and consumer electronic products. In 1993, he established the 'Gome' brand name and conceived its strategies for chain-store operation.

In 1998, he completed the Gome operation management manual,  a guideline for Gome's retail chain stores.

Mr Wong  has real estate business interests in the mainland and is also the chairman of China Eagle Group.



Rivals quake as 'price butcher' draws his knife