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Gome Appliance Buys Rival Firm

By Gome Appliance, China's largest home appliance retailer, has taken over its rival, the Shenzhen-based E-home Chain Store, which only opened last year.

"The two sides signed a deal over the weekend," said Sun Yiding, director of Gome's operating centre.

Gome bought a 100 percent stake of E-home, valued at 20 million yuan (US$2.47 million), Sun said, but refused to reveal the full purchase price.

"It is a significant move for Gome's business expansion in South China," Sun added.

He said his company is speeding up development in the southern region, where it has over 60 outlets.

E-home's stores complement the existing Gome outlets, Sun said.

Established by the China National Building Material Group Corp (CNBM) and other investors in July last year, E-home has 10 stores in Shenzhen, Guangzhou and other cities in Guangdong Province.

Preparations for another 10 more outlets in medium-sized cities like Yangjiang, Maoming and Meizhou in the province are underway.

"This is in line with Gome's development strategy in the coming period," Sun said, adding that the E-home brand will be kept for existing stores. Whether new shops use the Gome brand or the E-home brand will depend on the company's development.

The buyout could be the start of a trend, experts said. "More big home appliance retailers will look for mergers and acquisitions for business expansion," said Lu Renbo, an industry expert from the Development Research Centre of the State Council.

After more than 10 years of development, retailers that entered the market first have the best commercial sites in their respective regions.

Buying existing stores and strong local brands is a good way for them to tap into a new market where the competition is already hot, Lu said.

Earlier this year, Gome bought the Black Swan Appliance, the top retailer in Harbin in Northeast China's Heilongjiang Province.

Last month, another home appliance retail chain, Yongle, acquired all the 3C (computer, communication and consumer products) stores on the Chinese mainland of Taiwan-based home-appliance maker Tsann Kuen.

Such mergers and acquisitions also indicate the growing competition in the sector.

Sources from the state-owned CNBM, which previously owned a 60 percent stake of E-home, said one of the reasons it sold the firm is that it is difficult to achieve its ambitious goals given such a competitive environment.

E-home opened its first store last November, it said it would open 100 stores in five years in China.

It had previously expected to realize no less than 20 billion yuan (US$2.47 billion) in annual turnover by 2009.

It also aimed to be the top three in the sector in two years.

"Gome will still focus on opening new stores in the future, but will also consider mergers and acquisitions in some regions," Sun told China Daily.

(China Daily August 2, 2005)

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