Gome swings to loss in H1 due to internal problems, weak market

Gome Electrical Appliances Holdings Ltd, one of China's largest home appliance retailers, reported this year its worst performance in the past eight years, due to a weak market as well as management problems in the company.

"Internal conflicts, inconsistent development strategies and repeated reshuffles in management are problems Gome must solve," Liu Buchen, an industry expert at Zhengzhou-based Jiachunqiu Media Institution, told the Global Times Sunday.

Gome adopted a rapid expansion strategy in 2011, and then decided to reverse it this year, Liu said.

Gome reported Friday a 500 million yuan ($78.8 million) loss for the first half of 2012, the first loss since its listing on the Hong Kong Stock Exchange in 2004. Analysts said the loss was caused by waning consumer sentiment amid a weak economy, impact of curbs on the property sector, huge e-commerce investment and costs of "price wars."

Gome spent some 300 to 400 million yuan more on advertising and promotions in the second quarter compared with the first quarter and paid over 100 million yuan to some underperforming outlets that were closed, Oriental Morning Post reported Sunday.

"Gome's rival Suning was also affected by the economic slowdown and invested heavily in e-commerce business, but unlike Gome, it realized a 6.69 percent year-on-year growth in revenue in the first half," Liu said.

And it is too early to say the toughest period for Gome is over. "Gome may reduce investment in its e-commerce business during the second half of the year, which is a traditional peak sales period and usually accounts for over 65 percent of the full-year sales," Liu said. "But as more price wars are expected to take place in the second half, retailers are also expected to see shrinking profits."

Gome said it registered a 242 percent year-on-year growth in e-commerce business over the past six months.

However, "as the sales revenue of Gome's e-commerce is not large, the growth rate does not mean it can challenge Suning or others in this segment," Chen Shousong, an analyst with Beijing-based consulting firm Analysys International, told the Global Times.