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Gome to pull plug on some stores

By Ding Qingfen (China Daily)
Updated: 2009-01-21 08:01

A pedestrian walks past a Gome store in Beijing. [Agencies]

Gome Electrical Appliances (Gome), China's largest consumer electronics retailer, said on Tuesday it will revise its business strategy to cope with the projected fall in demand for big-ticket items such as refrigerators, washing machines and air-conditioners.

"This year, we will keep the number of stores at 2008 level. We will close some stores at disadvantaged locations, and open almost the same amount of new larger ones," Gome spokesman He Yangqing told China Daily. "This year is about optimizing the chain in such areas as store layout, product mix and services," he added.

The priority of the new strategy is on increasing sales of higher-profit-margin electrical appliances at each outlet and strengthening service quality, rather than on network expansion. He said the change was a pure business decision and had nothing to do with the controversy surrounding Gome's former chairman Huang Guangyu and his wife, Du Juan, who are known to be assisting police in an investigation into alleged improper share trading.

The new strategy is also designed to sharpen the company's edge against its main rival, Suning Appliance, which has made known its ambition to overtake Gome as the top seller of electrical goods.

Related readings:  Huang resigns as Gome chairman  Suning looks to dethrone Gome  Gome chairman suspended from post  Gome removed from Hang Seng Indexes

Gome sprinted to the No 1 spot by aggressively expanding its sales network in the past few years through new openings and acquisitions of smaller chains. Before the troubles of its former chairman hit in 2008, the company had 1,300 stores, to Suning's 850.

That maddening pace is coming to an end. "It's about time for Gome to take a different approach than in the past," said Wu Meiping, analyst from Essence Securities.

Despite its scale, Gome actually trails Suning in sales per store, which some attribute to poor layout and disorderly display. For Gome, the ratio of renting fees to sales revenue per store is 4.1, but the figure is 3.0 for Suning, said Wu.

Apart from opening stores at good locations replacing old poorly performing ones, Gome will increase the stock of small electrical appliances, like water heaters and juice blenders, because they can offer higher profit margin, He said.

The small appliances' profit margins average at 20 to 30 percent. Small appliances currently account for 12 percent of Gome's total sales, He said.

He said Gome will be partnering with its suppliers to create a more comfortable and convenient purchasing environment by resetting product display and increasing service efficiency.