Gome, China's leading electronics retail chain, will focus on transforming some of its existing stores into more profitable mega stores rather than expanding the number of stores nationwide, a company executive said yesterday.

Gome goes in for mega stores push [CFP]

The move is part of the company's efforts at "strategic transformation" aimed at helping the firm shake off the ill-effects of a scandal involving its billionaire founder Huang Guangyu's alleged stock manipulation. Huang is under investigation for alleged economic fraud, and that has hit the firm hard.

Gome Vice-President He Yangqing said Gome plans to either renovate or set up at least five to six such mega stores in major cities, including Beijing and Shanghai.

Besides, the company intends to build such outlets in the second- and third-tier cities as well, He said.

The rest of Gome's stores would be converted into flagship and community stores that respectively sell 3C (computer, communications and consumer electronics) products and small household appliances, both of which are expected to result in higher profitability.

The firm is also planning to come up with a new logo soon, which is intended to minimize the negative impact of the scandal on the Gome brand.

Gome has been on a network expansion spree. By the end of 2008, Gome had 1,350 stores nationwide, more than nearest competitor Suning Appliances' 850 outlets.

But early this year, Gome announced that there would be no change in the number of its stores in 2009. Gome said it would close 100 unqualified stores while opening the same number of new stores.

"Expansion is coming to an end. The time is now ripe to focus on how to increase sales per store, and store redesign is the key," He said.

Gome has already completed the redesign of a Dazhong store under its management, which has become the largest by floor area and the biggest consumer electronics store in the country. Gome acquired Beijing-based rival Dazhong in 2007 for 3.6 billion yuan.

The renovated Dazhong store alone, covering 20,000 sq m, is expected to post annual sales of 2 billion yuan, double its previous sales number.

The transformation comes at a time when Gome is battling a slowing market and investors worried about the scandal involving Huang.

Suppliers are reportedly turning their backs on Gome and banks are unwilling to grant loans. Gome has been seeking strategic stake sales to repay debt and boost its cash flow after shares tumbled by 77 percent last year.

Gome controls 40 percent of the mainland electronics retail market but lags Suning Appliances in profitability, and sales per store.

Suning said it would open 200 stores this year, but company executives recently upgraded that number to 350, which expands its portfolio of stores to 1,200 by end-2009.

Suning also said it was renovating its stores in a bid to increase sales per store. It is also recruiting more employees, increasing the ratio of 3C and small appliances to achieve higher profits, and setting up 60 logistics centers in three years, the company said.

(China Daily April 22, 2009)