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Gome Plans to Expand Retail Chain
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Huang Guangyu, who topped the China Rich List last year, plans to expand his Gome electronics retail chain by more than 200 stores this year as he prepares for tougher competition from US rivals.


"Our company has grown to a stage where it can sustain high-speed growth," Huang said.


Huang founded the retailer and is chairman of Hong Kong-traded Gome Electrical Appliances Holdings Ltd, which owns two-thirds of the group's 420 stores.


A larger chain of stores would help Huang negotiate lower purchasing costs and cut prices.


Shares in Gome have fallen 26 percent in the past year on concern Wal-Mart Stores Inc and Best Buy Co will challenge the group's dominant 5 percent share of China's US$60 billion electronics retailing market.


"I doubt Gome can keep its No 1 position forever," said Edward Yu, chief executive of Beijing-based market researcher Analysys International Ltd. Foreign appliance chains may be able to "offer better prices and even better service," he said.


Huang said the group will spend more than 200 million yuan (US$24.8 million) to open about 200 stores, with 130 run by the listed company. He is seeking government approval for the parent, Gome Electrical Appliances Group, to sell all the stores it holds to the Hong Kong-listed company by the end of this year.


Shares in Gome closed at HK$5.35 in Hong Kong on Monday after dropping 2.7 percent. Its profit growth flagged last year because of discounts. Net income probably rose 6 percent to HK$486.9 million (US$62.8 million), after more than doubling in 2004, according to a survey of 12 analysts by Thomson Financial.


Huang, 36, was named China's richest man last October in the China Rich List, compiled by Shanghai-based researcher Rupert Hoogewerf, with a fortune of US$1.7 billion.


Huang said Hong Kong-based analysts are focusing too much on quarterly earnings. The group's goal is 120 billion yuan in sales by 2008, 10 times 2004 revenues, and a market share of between 10 and 15 percent, he said.


"China has an urban population of 600 million, and its economy has more potential for growth," Huang said. "In theory, we can have as many as 10,000 stores."


Gome has 2 billion yuan (US$248 million) cash on hand to fund expansion, Huang said. Last year, the company gained 40 stores by buying smaller rivals.


"We will not give up on opportunities for acquisitions when they present themselves," said Huang. "The key is to reduce competition in certain markets."


Huang will start a new appliance chain, Pengren, targeting richer consumers with better service and fancier stores.


The first store opened in the northern city of Shenyang earlier this month. Huang said he aims to try three or four more in cities such as Beijing and Tianjin before expanding further, Huang said.


Gome achieved leadership by minimizing costs and offering comprehensive after-sales service, said Paul French, an analyst at Shanghai-based market research firm Access Asia Ltd. Most of the 60,000 sales people working in Gome stores are paid by appliance makers such as South Korea's Samsung Electronics Co and China's Qingdao Haier Co, he said.


Huang said all the staff in Pengren stores will come from his own group and that products will be sold according to their product category rather than brands to allow easier comparison.


The model is similar to that offered by Best Buy, which plans to enter China this year. Wal-Mart has 53 stores in China that sell goods including appliances.


(China Daily January 25, 2006)


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