After the market closed on August 28th, Gome Retail (00493.HK) released its performance report for the first half of 2017. During this period, the group's total GMV increased by 23% to RMB61.7 billion, with offline GMV reaching 41.2 billion and online GMV reaching 20.5 billion. Mobile GMV surged by 75% year-over-year, accounting for 74% of the online GMV. Gome's revenue during this period amounted to 38.07 billion yuan, a year-on-year increase of 7.8%, surpassing the 3.1% year-on-year growth rate of major large retail enterprises in China.
The report highlighted Gome's comprehensive gross profit margin of 17.8%, which is impressive considering the improvements made in store renovations and product mix optimization. The comparable growth rate in the second quarter stood at 8.5%, significantly outpacing industry averages. EBITDA grew by 59.1% year-on-year to RMB 672 million, and net profit attributable to shareholders reached RMB 122 million.
Wang Junzhou, Gome Retail's president, emphasized that the company's transformation strategy prioritizes sustainable growth without compromising profitability. By leveraging technologies like big data, AI, and IoT, Gome is transitioning from price wars to value-driven competition. This approach has allowed Gome to carve out a distinct path compared to its competitors.
In the second quarter, Gome reported a strong 8.5% growth in same-store sales, a figure that is nearly 3 percentage points higher than industry peers. Over the past few years, Gome has focused on enhancing its brick-and-mortar stores by creating immersive, high-frequency shopping experiences. For instance, they've introduced innovative concepts such as "home improvement + home appliances" and "entertainment + leisure" zones. A notable milestone was the establishment of the world's first professional VR theater, with plans to expand to 20 locations in key cities by the end of 2017.
Gome has also ventured into home improvement services, investing 356 million yuan in Love Space, an internet home improvement company. They have expanded their offerings to include home design packages, whole-house plumbing Solutions, central air conditioning, and full cabinetry in select locations like Beijing, Zhejiang, Chengdu, and Shanghai. These efforts aim to enhance customer engagement and brand loyalty. Gome anticipates collaborations with leading home improvement brands like Mud Commune and caramel decoration, with plans to open nearly 100 stores by the end of the year. This initiative is expected to contribute 2-3% to same-store growth in 2018.
One of Gome's standout achievements is its robust comprehensive gross margin, which has climbed back to a high level in recent years. This success stems from differentiated competition strategies, particularly through its supply chain model. Gome's comprehensive gross margin reached 17.8%, up 1.4 percentage points year-on-year, placing it approximately 3 percentage points above its peers. Industry experts attribute this success to Gome's ability to secure unique pricing advantages via price locks and collaborative product customization with manufacturers. Currently, 40% of Gome's products are differentiated offerings, while 56% of its merchandise generates higher gross profits, underscoring the importance of a well-structured product portfolio.
Looking ahead, Gome is accelerating its online transformation through social e-commerce services, integration, and market下沉. The company's mobile GMV surged by 75% year-on-year, with mobile transactions accounting for 74% of online GMV. On June 18th, GOME Plus saw a remarkable 378% year-on-year increase in trading volume, with cumulative merchandise rebates exceeding 1 million instances. Fang Mei, CEO of Gome Internet, noted that the post-e-commerce era is shifting toward social, content-driven models. Gome Internet began building a "business + social + sharing" ecosystem in 2015 and aims to create a unified platform integrating e-commerce, community engagement, and physical stores.
Gome is exploring innovative growth strategies in three critical areas: market下沉, post-sales services, and logistics. According to data from Ovid Cloud Network, the household appliance market in third- and fourth-tier cities reached 332.1 billion yuan in 2016, representing a growing share of the market. Gome plans to use counties as hubs, aiming to cover 80% of county-level cities within 2-3 years and establish 2,000 physical stores.
In terms of logistics, Gome's network already covers 95.5% of prefecture-level cities, 91% of prefecture-level districts, and 71% of townships. With ongoing developments in Xi’an, Shenyang, and Ningbo, Gome is expanding its self-built logistics warehouses to further strengthen its national network. The company plans to increase warehouse space by 1.96 million square meters.
Post-sales services remain a key focus for Gome. Building on its expertise in color TV installations, Gome is developing a tech-driven distribution system to integrate delivery and installation services. By the end of 2017, the company estimates shipping 500,000 TVs, scaling to 1 million units in 2018, along with 700,000 units each for air conditioners and washing machines. Leveraging IoT technology, Gome is positioning itself to tap into the trillion-yuan post-service market.
Wang Junzhou concluded that as the race progresses, the focus has shifted from price competition to value creation. By optimizing its supply chain, creating new shopping experiences, and strengthening its post-service capabilities, Gome is laying the groundwork for its new retail transformation. This strategic shift aims to deliver enhanced profitability and greater value to its stakeholders.
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