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More mergers and acquisitions will take place in the home appliance retail sector following the chain Five Star's takeover move in April.
Jiangsu-based Five Star, the country's No.5 home appliance chain, bought Qingdao Yatai Appliance Co Ltd, a leading player in the local market which ranked 13th in the sector.
"More home appliance retailers will look for mergers and acquisitions to expand their businesses nationwide," said Lu Renbo, industry expert from the Development Research Centre of the State Council.
After more than 10 years of development, retailers that entered the market first have occupied the best commercial sites in major cities.
This business resource is "non-renewable," so buying existing stores is a good way for home appliance retailers to tap into a new market where the competition is already hot, Lu said.
Such acquisitions will help retailers grab a bigger share of the market in a short period.
Five Star acquired five outlets in Qingdao from Yatai. With the addition of a shop it plans to open itself, the retailer will overtake its main rivals Gome and Suning in terms of number of stores in Qingdao.
At present, Gome has four outlets and Suning has three in the coastal city.
Five Star will take over responsibility for Yatai's after-sales services and will put the firm's member customers on its books, which will boost its pool of loyal consumers.
Using Qingdao as a staging post, Five Star aims to expand business to the whole of Shandong Province.
The retailer had been considering entering the Shandong market since 2003, but could not find suitable opportunities, Wang Jianguo, CEO and chairman of Five Star, said after the acquisition.
The company aims to build a leading position in Shandong, with some 20 stores in the province and a sales volume of 1.5 billion yuan (US$181 million) by the end of this year, he said.
Wang Jianguo said the firm wants to reach a total of 80 stores and sales of 8 billion yuan (US$96.6 million) in the region in three years.
"Leading regional retail chains of middle size will be our top choice," said Five Star Vice-President Wang Jian.
Yongle, the No 4 home appliance retailer, recently bought Jiangning Shangyuan Appliance in Nanjing.
In December, 2003, the retailer expanded through acquiring Guangdong Dongze Appliance.
Gome is set to buy Black Swan Appliance in Northeast China's Heilongjiang Province. "The purchase is underway," said Sun Yibin, director of Gome's operating centre.
"Such moves are part of home appliance retailers' efforts to expand their business scale and make themselves more competitive," said Lu Renbo.
The retailers have all drawn up national expansion plans. Gome intends to open more than 1,000 stores by 2008. Suning will open 150 to 170 new stores this year and Five Star plans 120 new outlets in 2005.
Big players like Gome and Suning were listed on the stock market last year. Other outfits will seek a listing in the coming years. Yongle, having gained a strategic investment of US$50 million from the United States investment bank Morgan Stanley, is planning an overseas listing.
Mergers and acquisitions are likely to occur in major cities, while in the third and fourth-tier markets, retailers will still choose to open outlets by themselves, Lu predicted.
Gome will consider expansion through mergers in some regions, but it will continue focusing on opening stores by itself.
(China Daily May 26, 2005)
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