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Household Appliance War to Intensify

The aggressive entry of China's top building material group into the cut-throat household appliance market is poised to intensify already fierce competition nationwide.

Before the opening of its first store, the newcomer, E-Home Chain Store Co, a newly founded subsidiary of China National Building Material Group Corporation (CNBM), boldly announced early November that it planned to open 100 stores in five years to cover most areas of the country.

By 2009, it will realize no less than 20 billion yuan (US$2.4 billion) in annual turnover, or 4 percent of the estimated 500 billion yuan (US$60.4 billion) annual sales of China's entire home appliance market, said Cao Jianglin, president of E-Home and deputy general manager of CNBM.

"We aim to build E-Home into China's largest, most excellent and most standardized home appliance retail chain brand with the biggest commercial value," Cao pledged in a business conference.

His optimism is greatly supported by the gigantic State-owned parent company CNBM. It's the first time State capital has been heavily invested in the home appliance retail market, which has been long dominated by private businesses.

As one of the some 200 large-scale groups under the direct administration of the State-owned Assets Supervision and Administration Commission of the State Council, CNBM possesses more than 20 billion yuan (US$2.4 billion) assets and controls or has shares in more than 200 companies. Its subsidiaries have taken controlling stakes in four listed companies and have stakes in another 11.

"We don't think it's reasonable capital distribution in the home appliance market when basically private funds play a leading role while state-owned businesses have very little influence. We're going to change it," Cao said.

Under the company's development strategy, E-Home will build a solid foundation in Shenzhen, where its national headquarters are located, and speedily radiate its influence to the entire Guangdong Province.

In three years it will form a golden triangle by building chain stores in south China, north China and east China.

Its first store, with a total floor area of nearly 10,000 square meters, is going to be opened in mid-December in North Huaqiang Road commercial center, the busiest commercial area of Shenzhen.

On the other side of the street stand outlets of Gome Home Appliances, China's largest home appliance retail chain, and Sundan, a strong Shenzhen-based player.

Another three E-Home stores, two in Shenzhen and one in the neighboring city of Dongguan, will open their doors by the end of January, 2005.

The first group of four is estimated to cost roughly 200 million yuan (US$24.2 billion), said a company source.

Next year will be critical for E-Home, as it develops the markets of Guangdong and bordering Fujian Province by setting up 15 to 20 new outlets. In 2006, another 15 stores will be opened in north China to meet the company's goal of surpassing 7 billion yuan (US$845.4 million) annual sales.

The company did not rule out the possibility of realizing the company's lofty goals through mergers and acquisitions, Cao noted.

E-Home's ambitious plan received a strong response from Gome. Reports said the market's leading player called on manufacturers to block the fast growth of E-Home.

"Every trick between the retailers and manufacturers could be felt since we are doing business with the same group of people," said Guo Tongkun, communication director of E-Home, when commenting on the reports.

"We are going to forge better relations with the manufacturers because retailers like us, with a strong financial background, will lower operational costs with a scientific management system, fast circulation and resource integration rather than squeezing manufacturers' profits," he told China Daily.

However, Gome Shenzhen condemned the reports as false speculation.

"We never asked manufacturers to do anything harmful to E-home," said a spokeswoman from Gome Shenzhen.

"We are not scared of competition and we believe every player can find an edge in the big market no matter if it's privately or State run," she stressed.

Well-known as a price killer, Beijing-based Gome has taken a considerable bite of the country's home appliance market by achieving 14.3 billion yuan (US$1.73 billion) revenue in 2003, a year-on-year increase of 159 percent, which is expected to rise to 26 billion yuan (US$3.14 billion) this year, said the company earlier this year.

In the Shenzhen market, where Gome entered at the end of 2002, about 50 percent of TV sets and 40 percent of air-conditioners were supplied by Gome in the first half of this year, the company quoted an independent market survey as saying.

Under its expansion strategy, Gome will have a total of 200 stores by the end of this year. It plans to open 5,000 video shops and 1,000 outlets for digital products within five years.

Surprisingly, local home appliance retailers are remaining tight-lipped on E-Home's expected high-profile debut.

"We have become accustomed to competition. Our decade-long operation taught us that head-on competition keeps us energetic and flexible to any business environment," Zheng Mingqiang, general manager of Mingkeda Home Appliances, one of the top three home-appliance retailing companies in Shenzhen, told China Daily.

Mingkeda has expanded from three outlets in Shenzhen to its current 13, of which five are in other Guangdong cities and Hong Kong, over the past three years in the face of mounting competition.

Sundan agreed with Mingkeda. As another strong local player, Sundan won market share with its consistently good service and high-end product mix.

"The most important thing is to develop your distinction amid competition and improve your services to satisfy the demands of your target customers," said a senior marketing manager of Sundan surnamed Chen.

Long Yongtu, secretary-general of the Bo'ao Forum for Asia, said the formation of a strong retailing company is good as it offers competition to foreign retailing giants.

Starting from December 11, China will further open its commercial sector to foreign investors under China's commitment to the World Trade Organization (WTO). The previous barriers to foreign investment, such as outlet locations, share distribution and outlet numbers, will be totally removed.

Lu Renbo, a researcher with the State Council's Development and Research Center, suggested E-Home concentrate efforts to develop second or third-tier markets rather than the fully competitive top-tier market.

"The competition is comparatively mild in these markets and the development potential remains strong," he said.

(China Daily December 8, 2004)

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