In the year 2008 Singles’ Day was merely an anti-Valentine’s Day celebration, commemorated by a cult following of college students and young professionals.
Back then Alibaba was better known as a business-to-business (B2B) marketplace, with less than Rmb3 billion ($424.25 million) in revenue, and Jack Ma’s name was nowhere to be seen on the various ‘rich lists’ ranking Chinese billionaires.
At that time Gome was China’s biggest retailer with more than 500 outlets. With a reputation as “the price butcher”, it demanded massive discounts from its suppliers, raking in almost Rmb50 billion in sales a year (or 16 times Alibaba’s revenues in 2008). Its founder Huang Guangyu was China’s richest man, based on Hurun’s annual ranking.
Regular WiC readers will be familiar with how things panned out for Gome’s founder, who was sentenced to a 12-year prison term for bribery and insider trading (see WiC36). He then became embroiled in a bitter boardroom battle (see WiC99) and although Huang and his wife kept a controlling shareholding in Gome, that seems to be one of the few things that hasn’t changed for the retailer since its highpoint in 2008.
A year later Alibaba launched the first of its Singles’ Day sales events – which have since evolved into the world’s biggest online shopping bonanza. In the period during which Huang was behind bars, domestic consumption has replaced exports in generating growth in the economy but a large chunk of those retail sales have moved from bricks-and-mortar shops operated by the likes of Gome to online marketplaces.
So when news emerged late last month that Huang had been released on parole, analysts converged on one question: could Huang restore Gome to its former glory?
In reaction to social media reports, Gome said in a stock exchange circular that Wong had been released on June 24 and his probation period would last until February 16 next year. The company disclosed nothing else about his future plans and no photo of an older Huang has been made available.
The internet will present Huang’s biggest challenge, China Business Journal has noted, pointing out that Gome has already proven unsuccessful in reinventing itself as an e-commerce force. Suning, its longtime rival, has done a better job of mixing its online and offline sales channels, making Rmb270 billion in revenue in 2019, compared with Gome’s Rmb59 billion during the same period.
In the home appliance market, Gome’s market share has dwindled to about 5.8%, or roughly a quarter of Suning’s share. In 2015, Suning also forged a strategic alliance with Alibaba by selling a 19.9% stake to the internet giant. “Gome’s biggest rival is no longer Suning. It has to compete with more formidable opponents such as Tmall,” Beijing News says.
Huang won’t be soldiering on alone. A couple of weeks prior to his release, Gome lined up its own strategic partners in JD.com (see WiC499) and Pinduoduo, two of Alibaba’s fiercest e-commerce rivals (see WiC493). Both deals are worth $200 million. But besides strengthening Gome’s financial position, the partnerships probably point to Huang’s determination to bounce back, even if it means taking on Alibaba.
Over the years media outlets have reported that the tarnished tycoon has spent much of his jail time studying the e-commerce sector. Investors seem to have high hopes that Huang has a plan too, pushing the company’s share price 73% higher since the beginning of this year.
Back when Huang was China’s richest man he explained his business success thus: “Once I set the direction, get a fair idea of what I want to do, and a 30% confidence in the undertaking, I’ll take it on, and go for it at full speed… I don’t sit around for another three months until the plan is drafted with perfect punctuation marks.”
Will this formula work once again now that Huang is a free man once more? Still only 51, redemption may yet be at hand…
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