Tesco, Gome enter strategic cooperation
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China Daily, July 5, 2011
Tesco PLC, the world's third-largest grocery chain by sales, on Monday signed a strategic cooperative agreement with Gome Electrical Appliances Holdings Ltd.
The move signals a further step in the UK retailer's development of shopping malls and underlines its ambition in the Chinese market.
"We have great confidence in China and will invest 53 billion yuan ($8.2 billion) here, and 23 billion yuan will be from our own funds," said Philip Clark, chief executive officer of Tesco.
Remco Waller, chief executive officer of Tesco China Property Co, said that the company chose to work with Gome because they share similarities in operational philosophy, expansion strategy and brand background.
"We will take advantage of each other's advantages and make our shopping malls expand rapidly," said Waller.
According to Waller, Gome has a strong customer base and diversified product lines. In the future, Gome and its related companies will be welcome to open electrical appliance stores in Tesco's "Lifespace" shopping malls.
Wang Junzhou, the president of Gome, said that the significance of the cooperation with Tesco lies not only in entering its shopping malls, but also in gaining advanced operating experience from a leading global retailer.
Gome will give the "Lifespace" malls priorities in its business, including new product launches and promotions.
"The shopping mall is the trend of the retail industry, which will change the business pattern of Chinese cities," Wang said.
According to Wang, shopping malls are developing rapidly in China's second- and third-tier cities, and that's leading to decline in some traditional retail areas.
"Shopping malls can give customers one-stop service, and the ability to bring in good brands is key to their success," he added.
Tesco already runs five "Lifespace" malls - multistory outlets for its stores - in Qingdao, Qinghuangdao, Fushun, Anshan, and Fuzhou.
A typical "Lifespace" mall occupies between 40,000 and 60,000 square meters (containing almost 250 stores), of which 10,000 square meters is earmarked for a Tesco supermarket.
In addition to its six shopping malls, the UK-based retailer has opened 95 supermarkets and 12 convenience stores since it entered the Chinese market in 2004. Tesco began buying land to develop its own commercial property projects in 2008.
Gome has more than 1,500 stores domestically, with annual sales of about 150 billion yuan.
Tang Jiarui, a retail analyst at Everbright Securities Co Ltd, said the value-added potential in China's commercial property market is a major attraction for foreign retailers with an abundance of funds.
"Purchasing commercial property is a wise move for large retailers because they can profit from land appreciation and cut costs in the long term," Tang said.
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