In its second-largest acquisition, Amazon buys the company for $970 million.
Gome, China’s No. 2 consumer electronics retail chain, attributes its solid growth in profitability to the integration of its online platform with its bricks-and-mortar stores.
Like many Western retail chains, China’s No. 2 store-based consumer electronics and appliance retailer has concluded it’s better to jump on the e-commerce bandwagon than try to stop it.
Gome Electrical Appliances Holding Ltd. invested heavily in 2013 in tying together its online and offline stores, and says it’s paying off. In a financial forecast it filed last week with the Hong Kong Stock Exchange, Gome attributed its positive financial results last year in part to “the integration of Gome’s online platform into bricks-and-mortar stores.”
Gome said in the filing it expected its growth profit margin to exceed 18% in 2013 and for same-store sales to increase more than 12%. By contrast, its larger rival, Suning Appliance Co. Ltd., reported comparable-store growth of 8.9% in 2013.
“Gome’s online business is running on a fast track,” Mu Guixian, Gome senior vice president, tells Internet Retailer. Monthly unique visitors to the retailer’s e-commerce site, Gome.com.cn, more than doubled in 2013 to an average of 40.9 million from 17.5 million in 2012, according to web measurement firm comScore Inc. While the company has not reported its online sales, Mu says the retailer has taken several steps to make sure its e-commerce site is an ally, not an enemy, of the company’s more than 1,600 stores in more than 400 cities across China.
For example, inventory information is shared between the web site and stores so that consumers can order products online and pick them up in stores. Stores offer wireless connections to the Internet so that employees can place orders from online inventory when a shopper can’t find what she wants in the store. “If an online order is placed inside a bricks-and mortar store, the online and offline channel will share the profit from that order to avoid potential conflicts of interest,” Mu says.
In order to make its web site appealing, Gome in 2013 began presenting personalized product recommendations and advertisements, Mu says. It also created a single shopping cart a shopper can use online to buy from Gome and from the more than 10,000 outside merchants that sell on Gome’s e-commerce site. Those merchants account for about 20% of the value of goods sold on Gome.com.cn, Mu says.
While 80% of company sales still come from consumer electronics, Gome is expanding into new product categories online, including furniture and home improvement products. In 2013, Mu says, Gome added to its e-commerce site fast-moving consumer goods. These are typically low-cost items that consumers buy frequently, such as toiletries or paper towels. Mu says the hope is that those items would increase the frequency of consumers shopping the Gome site. “In 2014, Gome will introduce some new categories, such as jewelry and automobiles,” he adds.
Mu says Gome encourages customers in its stores to compare prices with online competitors. He says Gome’s large volume allows it to negotiate favorable terms with its suppliers. Gome recently announced a commitment to purchase at least 3 billion yuan ($495 million) worth of products in 2014 from Chinese manufacturer Haier Group in return for low prices on TVs, washing machines and air conditioners designed specifically for Gome.
Gome also plans to continue invest in mobile and social media initiatives, Mu says. Mobile devices accounted for 15% of Gome’s online sales last year, and Mu projects that will reach 50% by the end of 2014.