Zhang Dazhong got his original seed capital thanks to a tragic episode in his family history. His mother made the mistake of suggesting that Mao Zedong should exit politics. She was executed. Zhang and his six brothers were blacklisted. After Mao’s death, Zhang then received compensation of Rmb7,000. He used it to set up Chang’s Electric Shop in Beijing, to make audio amplifiers. By 1988 he controlled 90% of the city’s amplifier market.
Zhang opened a new store to sell a wider range of electrical products in Beijing in 1989, and called it Dazhong. He had grown the number of stores to 12 within a decade, and had 1,200 employees. By 2002, turnover had reached Rmb3 billion. Zhang’s next move was to begin opening stores elsewhere in the country, starting with Tianjin.
Zhang faced two big competitors: Gome and Suning. From a similar starting point they had expanded at a far more rapid pace. Both had listed on the stock market, allowing access to growth capital. Dazhong had grown much more slowly through reinvesting profits. Zhang’s quick-fix solution was to try to merge with Shanghai-based store Yongle, an M&A deal he initiated in 2006. He was outflanked by Gome which outbid him for the asset.
The three kingdoms battle
His manoeuvre having failed, Zhang retreated to his Beijing home market, where he continued to outsell Gome and Suning. His flagship CCTV Tower store, all 20,000 square metres of it, created retail records as the country’s busiest appliances store, selling the most items per minute. Both his rivals had started their own war for market share in the capital, and now recognised that Dazhong was the key to success. Zhang opened lines of communication to Suning, but didn’t rule out a deal with Gome either.
What a sellout
In late 2007, Gome swooped for Dazhong, paying Rmb3.65 billion; outbidding Suning, which offered Rmb3 billion. This amounted to three and a half years of Gome’s profits, and was viewed by the firm’s founder Huang Guangyu as transformational (Huang is currently in jail, see WiC36).
Zhang took his payout and established Dazhong Investment. There are rumours in the Chinese media that he may ally with Huang in the current struggle for control at Gome. He ranks 174 on the 2008 Hurun Rich List with a net worth of Rmb4 billion.
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