No one can accuse Gome, a leading retailer of consumer electronics, of being dull. The company has been in the headlines since its founder and majority shareholder Huang Guangyu was sentenced to 14 years in jail for bribery and insider trading (see WiCs 80 and 99). More recently it shocked investors again by announcing that it planned to enter into a joint venture with Beijing Eagle to develop a property business. The news sent Gome stock down 31%. A week later, it scrapped the idea.
Similarly it was with much fanfare that Gome announced a year ago that it planned to open as many as 100 sporting-goods hypermarkets across the country. Thus was born Gome Sports, the brainchild of Huang Xiuhong, sister of the jailed Gome founder.
Gome Electrical Appliances owned a 20% stake in Gome Sports; Huang Xiuhong owned the remaining 80%. Both entities were under the same parent company, Pengrun Investment Corp.
What do sports gear and electronics have in common? Not much, apparently, and the business media warned Gome that the move looked like a foolish step. “It’s a far-fetched idea to conduct business in both electrical appliances and sporting goods. The only credentials Gome Sports has is the parent company’s experience in operating a chain of retail stores,” one critic told the China Daily at the time.
But Huang Xiuhong believed she had a winning strategy. “Gome Sports will be managed and operated based on the sophisticated experience of Gome Electrical Appliances, and we aim to build another retail giant in the sporting goods sector under the Gome family,” she promised.
To get things started, Gome opened two 4,000-square-metre-plus stores in Beijing, selling sportswear and equipment. The aim was to open as many as 27 Gome Sports outlets by the end of last year, reaching Rmb1 billion ($158 million) in sales. But the goals were never reached. In fact, the company has quietly closed its last store in Beijing. Senior executives started handing in their resignations within a few months and the business has headed downhill since. The initial Rmb100 million in start up capital has now been written off and Gome Sports must pay off its debts.
At least Gome – as parent company – has limited exposure to the failure. But the sports division still denies that it’s giving up on sporting goods completely, saying it will move its ambitions online with a new e-commerce strategy.
The move hasn’t prompted much excitement from the company’s critics, most of whom see it as more of a face-saving announcement.
Others are too busy getting their “I told you so’s” out of the way on the original strategy.
Although Gome Sports seemed to boast real advantages in terms of its parent company’s infrastructure, bargaining power and distribution experience, sporting goods were never its area of expertise, says the Economic Observer. In electronic goods, retailers like Gome and Suning usually enjoy more bargaining power, admits Cao Jiwei, Gome’s brand management centre director (it helps that both retailers have serious clout: Gome has 938 stores, Suning has over 1,500). But most sportswear firms distribute their products through their own retail operations or via franchised outlets. In fact, sports brands – of which there are fewer major players than in the case of electronics brands – generally derive up to 70% of their revenue from their self-managed outlets, with the rest coming from sales in places like department stores, says China Business Times.
Although Gome is retreating from a bricks-and-mortar operation, sports goods retailer Decathlon is pressing ahead (see WiC70). In May, the French firm announced the opening of its 19th store in China. Decathlon sells mainly its own lower-cost private label products, instead of relying on branded goods.
Perhaps Suning will see an opportunity to consolidate its lead in electronic goods sales while Gome is distracted. Executives at Suning are also pursuing a relatively new internet model that hopes to see the company become an online department store too, offering everything from furniture to apparel. Electronic goods will account for just a third of its revenue in future, Suning predicts (see WiC130).
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