China's biggest electronics retailer GOME Electrical Appliances Holding Ltd. announced Wednesday 42 percent growth of revenue to 17.96 billion yuan (US$2.24 billion) in 2005 thanks to the group's fast expansion.

 

In 2005, the group's gross profit rose by 35.7 percent to 1.65 billion yuan (US$205 million) and the board proposed a dividend of 4.3 HK cents per share.

 

The good performance was attributed to the fast expansion of the group's retailing network dominating the Chinese market, GOME Chairman Wang Kwong Yu said at a press conference here.

 

GOME opened 143 new retailing shops over the past year, pushing the total number of its outlets to 259 in 68 cities across China's mainland.

 

The large number of newly-opened branches, more than doubling the existing 116 outlets in 2004, is part of GOME's four-year expansion plan to solidify its dominance in China's electronics market.

 

However, not all the new outlets were able to achieve ideal sales results, especially those located in the second-tier cities with a relatively low income level.

 

The fast expansion pace therefore cut down GOME's profit margin in 2005.

 

Gross profit margin, profit margin before tax, net profit margin before and after minority interest all slide, varying from 0.43 percent to 1.60 percent.

 

Wang dismissed worries over the falling profit margin, saying that GOME's current priority concern was market share rather than profit margin.

 

He noted that more than half of the new outlets opened in 2005 were located in the second-tier cities and it's natural for them to report placid performance in the first year.

 

With the retailing network in place, however, the group will reap great profit over the long term from tapping the market potential of the second-tire and third-tire cities around China, said Wang.

 

Famous for its favorable prices, GOME is popular among consumers in big cities such Beijing and Shanghai, but more absent in the market of China's second-tire and third-tire cities.

 

Among China's 500 to 600 small towns with a population of around 200,000, GOME has outlets in only 100 of them.

 

Now enjoying a market share of 6 percent in the mainland market, the electronics retailer has an ambition to claim 30 percent to 40 percent of market share in the small cities in a few years.

 

Based on the concept, GOME planned to spend about 200 million yuan (US$24.91 million) in 2006 to open 120-150 new outlets around China.

 

"The aim is to speed up the expansion of GOME network and solidify our leading role in the electronics market," said Wang.

 

(Xinhua News Agency March 23, 2006)