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Gome Electronic Appliances Holding Ltd's profit rose 22 percent in the first quarter of the year, thanks to its maturing sales network.

 

A massive and aggressive expansion in less wealthy cities last year made the mainland's largest home appliances retailer suffer a 5 percent drop in its profit. But it paid dividends when it recorded a profit of 153.69 million yuan (US$19.2 million) for the first three months of this year, against 126.3 million yuan (US$15.9 million) for the same period last year.

 

"The year 2005 was our seeding year, during which about 143 outlets were opened... now we expect to gather the rewards as the new stores see booming sales. Our chain network is getting sounder and more competitive," Gome Executive Director Du Juan said over the telephone yesterday.

 

The Beijing-based company plans to open 120 to 150 more stores and expects its net profit to rise by 0.5 percent this year. Gome runs 296 stores today, 33 more than last year.

 

Its first quarter same-store sales grew 0.68 percent, but sales per square meter dropped 28 percent because of its expansion into lower-income and sparsely populated second-tier cities.

 

Its revenue grew 67.8 percent, to reach 5.6 billion yuan (US$700 million), a year-on-year increase of 2.26 billion yuan (US$280 million).

 

The company's sales during the just concluded Labor Day Golden Week Holiday climbed to 4 billion yuan (US$500 million), against 1.8 billion yuan (US$22.5 million) in the same period last year.

 

"Our stores were open till midnight during the Labor Day holidays, and the spending ability of mainland consumers remained strong," Du said. The strong sales show the retail sector has not suffered because of the rising interest rate on the mainland.

 

In a bid to cool down the overheated mainland economy, the People's Bank of China tightened the credit policy just days before the Golden Week by raising the lending rate by 27 basis points to 5.85 percent.

 

Retail sales on the mainland grew 12.9 percent, to reach 6.7 trillion yuan last year.

 

In its annual result, announced in March, Gome said that its profit margin before tax had dropped 4.84 percent because of the expansion exercise.

 

The swim or sink situation in the mainland's hotly contested domestic appliance sector, Gome said, had prompted it to try and capture as much share of the market as possible.

 

Twenty-four stores, complete with digital products, both in first- and second-tier cities were closed down last year. The reason: the new ones are equally costly to run, even though they are less profitable than those in first-class cities.

 

(China Daily May 11, 2006)