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GOME Eyes Lion's Share with Expansion

GOME Electrical Appliances Holding will spend up to 250 million yuan (US$30 million) this year to almost double the number of its stores on the mainland.

The Hong Kong-listed company and the mainland's largest home appliances retailer plans to add 130 new outlets to its 144-store network to increase its market share from the current 4-5 percent to 10-15 percent by 2008.

"The expansion is not impulsive because there are standardized criteria for the selection of the new locations," said GOME founder and chairman Wong Kwong Yu, ranked the second richest man in China by Forbes. The majority of the stores will be located in big cities such as Beijing, Tianjin and Shenzhen. The group is also eyeing 600 cities in the coastal belt that have a 500,000 plus population each.

"The expansion is a crucial strategy for us to have a better bargaining power while procuring from suppliers," Wong said.

He brushed aside market worries about increasing competition from foreign firms such as Wal-Mart. Foreign retailers can now open outlets without a local partner because the mainland lifted the restrictive clause at the end of last year in compliance with World Trade Organization norms.

"The entry of foreign firms is not a threat to the group at all," Wong said.

"The mainland market is unique and the group, as a local company, knows it better than its foreign competitors," he said.

Wong is upbeat about the prospect of the group increasing its sales 10 times, from 11.9 billion yuan (US$1.43 billion) last year to 120 billion yuan (US$14.5 billion) in 2008.

It will invest 200-250 million yuan (US$24 to 30 million), or at least 1.5 million yuan (US$180,000) on each store, funded by the company's internal capital, Chief Financial Officer Zhou Ya Fei said.

At the end of 2004, the group had cash and cash equivalent of HK$1.565 billion (US$200 million) and pledged deposits of HK$850 million (US$109 million). Twice between September and December, Wong's family sold the group's shares for a combined value of US$329 million.

The company's net profit rose to HK$548 million (US$70 million) for the nine months ended December 31, compared to HK$365 million (US$46.8 million) in 2003-04, after which it changed its financial year-end from March to December.

GOME's growth has been attributed mainly to the mainland's rapid economic progress and its continuous network expansion.

The board declared a dividend of HK$0.22 for the nine-month period, up from HK$0.16 in the 12-month period ended in March 2004.

GOME opened 58 new stores in 2004, making it operational in 25 cities, with a total usable area of 410,000 square metres.

GOME shares fell by 5 percent to close at HK$8.55 in Hong Kong before earnings were released Monday. But they had risen 35 percent, to HK$8.55 over the last three months.

(China Daily March 15, 2005)

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