Gome Electrical Appliances Holding Ltd, China's largest electronics chain store, posted a better-than-expected net profit of 819 million yuan for 2006, up 64.3 percent from a year earlier.
Analysts said the result is "remarkable" given cut-throat competition in the country's consumer electronics market, triggered by increased spending power.
Gome's rivals from home and abroad are embarking on aggressive network expansions. No 2 electronics retailer Suning Appliance Co Ltd is seeking more market share, while US competitor BestBuy set up stores in Shanghai last year.
The Beijing-based chain's dramatic network expansion into second- and third-tier cities, where domestic incomes and spending power are lower than the urban levels, cost it 30 percent in sales per square meter.
Its sales area went from 692,000 square meters in 2005 to 1.3 million square meters last year. But in contrast, its sales per square meter slid to 18,170 yuan from 25,900 yuan.
Newly opened stores in second- and third-tier cities can take longer to break even than outlets in bigger cities, and some are short-lived. But this is a risk Gome is willing to take, because smaller cities have greater market potential and penetrating those areas is essential to its overall strategy, analysts said.
Chairman Huang Guangyu said the company will develop stores with higher sales efficiency as its main measure to enhance regional market share, bring in new operational models and increase profitability.
Gome said that with its parent company it aimed to boost its market share to over 20 percent by 2011 after its merger with smaller rival China Paradise Electronics in a $680 million deal.
It also plans to open 170 new stores this year, expanding into 15 new cities in China. Hong Kong-listed Gome said earlier that it would raise funds for expansion and restructuring by bringing in a strategic investor, launching an A-share listing or via a bond issue.
(China Daily April 18, 2007)