Gome Electrical Appliances Holding Ltd, China's largest
electronics chain store, posted a better-than-expected net profit
of 819 million yuan for 2006, up 64.3 percent from a year
earlier.
Analysts said the result is "remarkable" given cut-throat
competition in the country's consumer electronics market, triggered
by increased spending power.
Gome's rivals from home and abroad are embarking on aggressive
network expansions. No 2 electronics retailer Suning Appliance Co
Ltd is seeking more market share, while US competitor BestBuy set
up stores in Shanghai last year.
The Beijing-based chain's dramatic network expansion into
second- and third-tier cities, where domestic incomes and spending
power are lower than the urban levels, cost it 30 percent in sales
per square meter.
Its sales area went from 692,000 square meters in 2005 to 1.3
million square meters last year. But in contrast, its sales per
square meter slid to 18,170 yuan from 25,900 yuan.
Newly opened stores in second- and third-tier cities can take
longer to break even than outlets in bigger cities, and some are
short-lived. But this is a risk Gome is willing to take, because
smaller cities have greater market potential and penetrating those
areas is essential to its overall strategy, analysts said.
Chairman Huang Guangyu said the company will develop stores with
higher sales efficiency as its main measure to enhance regional
market share, bring in new operational models and increase
profitability.
Gome said that with its parent company it aimed to boost its
market share to over 20 percent by 2011 after its merger with
smaller rival China Paradise Electronics in a $680 million
deal.
It also plans to open 170 new stores this year, expanding into
15 new cities in China. Hong Kong-listed Gome said earlier that it
would raise funds for expansion and restructuring by bringing in a
strategic investor, launching an A-share listing or via a bond
issue.
(China Daily April 18, 2007)