Business

Gome Electrical Appliances Holdings Ltd, China’s largest electronics retailer, has confirmed what was widely known to punters on the Hong Kong stock market – the company needs money and is looking for investors.

The Beijing-based company said in a stock exchange statement that it was in negotiations with a number of potential investors, but did not provide details. “No binding agreement has been entered into,” the statement said.

Of course, there has been more than one version of market talks about the company’s money raising plan. But all the rumors have focused on Bain Capital LLC, Kohlberg Kravis Roberts

China will from today provide a subsidy for energy efficient air conditioners of up to 850 yuan (US$125) per unit as part of its efforts to boost domestic consumption and to cut carbon dioxide pollution.

The subsidy for energy efficient products will last three years and be expanded to 10 categories, including refrigerators, flat panel televisions and electrical products, in the near future, according to a statement by the Ministry of Finance and the National Development and Reform Commission, the country’s top economic planner.

The move is expected to boost consumption of 400 billion yuan to 500 billion yuan per year on air conditioner sales and also reduce carbon dioxide emissions by 75 million tons each year as it saves 75 billion kilowatt-hours of electricity, the statement said.

The government has targeted boosting domestic consumption to help the economy offset the decline in exports, Xie Zhenhua, deputy director of the NDRC, said.

Eligible air conditioners can receive a subsidy of at least 300 yuan per unit. The subsidy will be given to producers to reduce the price of the air conditioners.

Executive vice president for marketing at Suning Appliance Co, Jin Ming, said the subsidy would help energy efficient air conditioners increase market share as their price will drop.

The market share of energy saving products will increase to more than 30 percent by 2012, as much as 20 percentage points higher than the market share now, according to the NDRC.

“Air-conditioner makers are expected to get as much as 4.8 billion yuan in subsidies in 2010,” Chen Weiyan, an analyst at United Securities Co, said.

“Leading players will benefit the most from it and increase their profit rate as the subsidy is given to producers directly,” Chen said.

(Shanghai Daily June 1, 2009)

Four months after China expanded its “home appliances to the countryside,” program nationwide, appliance manufacturers are seeing signs of hope as the subsidy program stirred up sales in the countryside and partly offset the impact of plunging exports.

China, the world’s largest producer and exporter of household electric appliances, is home to more than 120,000 household-appliance makers of various sizes. But since late last year, the industry, like the country’s other export-oriented sectors, slid into crisis amid slumping demand following the global economic downturn.

Figures from the Ministry of Commerce showed that China’s export of household appliances and electronic products last year were worth about US$72.5 billion, a year-on-year increase of 3 percent, much less than double-digit growth achieved in years before 2008.

For the color TV sets, the export dived from 20.3 percent year on year from the second quarter last year to merely 0.6 percent in the fourth quarter. In the first quarter of this year, China’s export value of color TV sets came to 1.67 billion U.S. dollars, declined by 18.4 percent at an annualized rate.

“Owing to falling overseas demand, China’s household appliance industry is facing very tough times,” said Mei Xinyu, a researcher at the Ministry of Finance (MOF). As one of China’s key industries– which employs a large number of workers, including migrant workers — it was imperative to help appliance manufacturers tide over the current difficulties, he said.

According to an industry report jointly released late last month by the National Bureau of Statistics and the Beijing-based Economic Daily, more than 1.4 million people work in China’s home appliances industry.

Under the strategy of boosting domestic demand to secure economic growth, China on Dec. 1 expanded the subsidy plan from the original three provinces to 12 provinces and provincial-level regions.

In December 2007, China launched the subsidy plan, called “home appliances to the countryside” plan, under which the government provided a 13-percent subsidy to farmers who buy designated brands of color TV sets, refrigerators and mobile phones in the three agricultural provinces of Shandong, Henan and Sichuan, as well as Qingdao City.

The subsidy program was nationally adopted as of Feb. 1. It was running alongside other campaigns, such as “automobiles to the countryside”, to boost domestic consumption at a time when foreign demand for China’s exports is slumping.

Nine kinds of household appliances are included in the expanded subsidy program — color TV sets, refrigerators or freezers, mobile phones, washing machines, computers, water heaters, air conditioners, microwave ovens and electro magnetic cookers.

Each rural household was allowed to purchase two items from each category and could claim the subsidies at their township government finance agencies in 15 working days.

The MOF said in March that the 2009 budget from the central government for this subsidy program was 20 billion yuan (2.93 billion U.S. dollars), which would help increase household appliances sales by more than 100 billion yuan.

Premier Wen Jiabao said during his inspection tour in January to China’s largest household appliance maker Haier that the subsidy program would last at least for five years. The policy could help boost household appliances sales by at least 500 billion yuan.

Industry analysts said the “home appliances to the countryside” campaign came after several years of rapid income growth among Chinese farmers. Many have the need to buy household appliances.

The scrapping of the 2,600-year-old agricultural tax in 2006, subsidies to farmers for purchasing better strains of seed and farm machines, and other government measures had been helping Chinese farmers raise their income. In 2008, the per capita net income of about 800 million rural residents surged by 8 percent to hit 4,761 yuan.

China had also stepped up efforts to build a better social security system for farmers. The New Rural Cooperative Medical Care System, introduced in 2003, has now covered part of the medical cost. The burden of school tuitions for rural kids also had been eased.

(Xinhua News Agency June 1, 2009)

China’s largest home appliances maker Haier announced Wednesday that it would take a 20 percent stake in New Zealand’s Fisher

Troubled electrical appliances retailer Gome is planning to raise capital through a share sale to counter alarming profit drops.

The company plans to sell 20 percent of the shares owned by its founder and former chairman Huang Guangyu, who is now in police custody, the National Business Daily yesterday quoted an insider of the company as saying.

The report said US private equity firm Kohlberg Kravis Roberts

China’s two biggest home appliance retailers, stung by declining sales as a decade of aggressive expansion succumbs to the economic slowdown, have a major foreign competitor nipping at their heels.

Gome Electrical Appliances Holding and Suning Appliance Co, which operate a combined 2,000 stores across China, have reined in expansion plans and reworked marketing strategies to improve profitability and compete against Best Buy Co, the biggest United States consumer electronics retailer.

“In the face of slower market growth this year, domestic retailers will be taking higher risks if they open new stores,” said Guo Yang, a senior analyst at Orient Securities Co. “They will be seeking bigger profit margins instead of the benefits of economies of scale.”

China’s home appliance and consumer electronics product market is expected to generate revenue of 792 billion yuan (US$116 billion) this year. Gome and Suning account for about an eighth of total sales.

Best Buy is seeking a bigger slice of the pie. It opened its first store in China in 2006 and, after a slow start, has carved out its niche and is seeking to replicate it across the country.

“Developing the China market is not about a race for expansion,” said Robert Willet, chief executive officer at Best Buy International. “We want to become the No. 1 choice for customers, which we believe can help raise our market share.”

Still, expansion is on the cards. Best Buy, which now operates six self-branded stores in China, completed the acquisition of Jiangsu Five Star Appliance Co earlier this year. Five Star has 170 stores, mainly in eastern China.

More stores to open

Willet announced last month that Best Buy would open up to 12 new stores this year, including some under the Five Star brand, and is forecasting the number may rise to several hundred in the next 10 years.

Gome and Suning have felt the sting of slower consumer spending among tougher economic times. Same-store sales at Suning declined 11.98 percent in the first quarter. Gome did not reveal its figures but BOC International (China) Ltd estimated same-store sales at Gome were flat in 2008. Both retailers have scaled back aggressive expansion plans in favor of focusing on improved profit margins.

Gome said its gross margin, as a proportion of revenue, was about 17 percent last year. Suning reported a similar ratio for the first quarter. By contrast, Best Buy’s margin in the fiscal fourth quarter ended February rose to 24.6 percent from 23.7 percent a year earlier.

Gome and Suning have adopted a strategy of focusing more heavily on higher-margin products and the prime segment of computers, consumer electronics and home appliances.

The retailers also are seeking to boost sales by sprucing up their shopping environments and providing enhanced after-sales service.

As part of this new thrust, Gome opened a new flagship store in Beijing last month. It covers 20,000 square meters and has four times more products on display than the average shop.

About 40 percent of the showroom is devoted to computers, consumer electronics and appliances, and the megastore also provides areas for product demonstrations.

“Domestic players with stores of similar layout, products and pricing are engaged in cut-throat competition,” said Chen Xiao, president of Gome. “So we are taking a page from foreign retailers and introducing higher-margin goods and our own brand products to set ourselves apart and increase our profitability.”

Gome’s strategy highlights a developing trend among Chinese retailers, said Lin Yang, an analyst with Dongxing Securities Co. Domestic retailers, who once opposed the entry of foreign competition in the market, are now trying to emulate overseas counterparts well versed in the art of separating a consumer from his money.

Different target market

Best Buy, the chief foreign-owned rival in China, entered the market with a different strategy from its domestic rivals. While they waged price wars for the bargain shopper, the US multinational company targeted its product line at middle to higher-end consumers.

Best Buy stocked its own brands, including Magnolia, Geek Squad and Insignia. It also offered extended warranties, at an additional cost of up to 20 percent of the product’s price, and provided large demo areas where consumers can see for themselves just how products work.

“I like shopping at Best Buy because I trust the products it sells and I can get better after-sales service,” said Rachel Xu, a white collar in a Shanghai multinational firm. “I don’t care if it costs me 10 percent more. What difference does 100 yuan make?”

Consumer electronics contributed 41 percent of Best Buy’s revenue in 2008 while traditional appliances accounted for only 6 percent. The remainder comprised home office products, entertainment and services.

A Suning spokesman said his company is starting to provide demo areas in its stores but that’s proven hard to do with some traditional home appliances such as air-conditioners, refrigerators and washing machines.

But the stores are having comparatively more success, he said, with demo zones for netbooks, which Suning is trying to promote among other higher profit margin products.

Gome said earlier that up to 100 poorly performing stores will be closed and a similar number of new stores will be opened to keep net outlets at 1,300.

The new megastore launched in Beijing will be expanded if a three-month trial period proves successful. The store attracted 500,000 customers in the first three days and had sales of more than 100 million yuan.

“It is the first time we’ve tried the new business model,” said He Yangqing, a Gome spokesman.

“We are aiming to attract more customers by providing a better shopping experience.”

Computer sales surge

Suning now devotes about 30 percent of its stores to consumer electronics and electrical appliances, positioning them near entrances to catch the attention of customers walking in.

The growth in computer sales alone has jumped 30 percent, the Suning spokesman said.

Suning is also renovating stores. It opened a new ultra-modern outlet in Wuxi, near Shanghai, last month. The lighting, product display, elevators and interior decoration will be used as a standard for other shops.

“Standardized stores play a key role in boosting customer satisfaction and lifting same-store sales,” said Zhang Jindong, chairman of Suning.

“These standards can also help domestic retailers go abroad and compete with international players such as Wal-Mart, IKEA and B

China is reducing prices for energy-efficient home appliances, the National Development and Reform Commission (NDRC) said in a statement Thursday.

Price cuts went into effect Thursday and will last three years. The program is sponsored by the NDRC and the Ministry of Finance.

Consumers will find prices lowered between 300 yuan to 850 yuan(US$44 to US$125) on energy-efficient air-conditioners, refrigerators, television sets, washing machines and motors.

Cost reductions are expected to generate 400 billion to 500 billion yuan of consumption demand and save 75 billion kwh of power. It could also have the environmental impact of cutting carbon dioxide emissions by 75 million tonnes annually, said Xie Zhenhua, NDRC vice minister.

Manufacturers of energy-efficient products are also eligible for subsidies although specifics were not released by the NDRC.

“Energy-efficient products now occupy only 5 percent to 15 percent of the domestic market share. After the implementation of the price cuts, their market share was expected to be raised to 30percent,” Xie said.

(Xinhua News Agency May 22, 2009)

Xue Juanjuan and her fiance have carefully prepared a long shopping list before stepping into an electronics chain in Shanghai, in the hope of racking up great deals via an appliance rebate program targeting rural residents such as them.

For the 22-year-old, who wants to buy some big-ticket items like a new refrigerator and an air conditioner for her new home in Jiading district an outlying area near Shanghai, about 20 km away before getting married in June, the government-backed appliance rebate scheme is her early wedding gift.

Just a few weeks ago, the municipal government of Shanghai launched the much talked-about subsidy program called “home appliances going to the countryside” close on the heels of 14 other cities and provinces around the country, which started the program last December.

The program in Shanghai, is expected to boost consumption among 1.74 million farmers and others living in the city’s 14 districts and counties, as well as to alleviate pressure on manufacturing firms.

“The program is expected to stimulate rural consumption of around 12 billion yuan this year in Shanghai by giving 13 percent discounts on 1,600 types of low-priced home appliances,” said Zhang Xinsheng, deputy director of Shanghai municipal commission of commerce (SMCC).

The designated products, which have been marked for the subsidy include color TVs, refrigerators, washing machines, mobile phones, computers and air conditioners, are capped at prices between 600 yuan and 3,500 yuan, and have been allocated to 370 sales outlets across the city.

According to the Ministry of Commerce’s estimation, approximately 10.4 billion yuan has been put in to the government-funded project in 2008.

The four-year scheme is expected to trigger rural consumption of 920 million yuan, stimulate the growth of retail sales of consumer goods by 2.5 percentage points in rural places, and reach sales of 480 million units for home appliances across the country in four years.

“The potential for rural consumption is huge, and will help offset the persistent export slump,” Zhang said.

Per capita net income for the country’s 721 million rural residents reached 4,761 yuan in 2008, up 8 percent from previous year, according to figures from China’s statistics bureau.

Yet their purchase of home appliances has lagged behind that of urban areas.

Sun Yiding, spokesman for Gome, the largest domestic electronics retailer, has said that due to the vast rural population, the demand for color TVs and refrigerators among rural residents may hit 100 million and 145 million units, respectively, within a decade.

“I had decided to hold cash until the crisis passed. But most product prices I’ve looked at in the store are within our budget. I plan to purchase a mobile phone which costs around 900 yuan for my daughter, if she can get a good score for college this year,” said a 40-something woman surnamed Cheng from Qingpu district, in the western suburbs of Shanghai.

But Cheng added that she can only afford a few products at a time, since the combined price of big-ticket items was too high.

“Thankfully, the scheme will last for four years. But it looks complicated to get the subsidy, isn’t it?” Cheng said.

So far, the average time to get the subsidy rebate after submitting applications has yet to come out, but complaints on lengthy procedures have mounted in other cities and provinces that had pilot programs.

Participating retailers and manufacturers, caution that products allocated to different cities should be varied in accordance with diverse demands and consumption power.

“The prices of products sold in Shanghai should have higher rates to meet the rigid demands of local people and their better living conditions,” said Xin Kexia, general manager of Gome’s Shanghai branch, suggesting that the price for color TVs, which are presently capped at 3,500 yuan nationwide, can be lifted to 4,500 yuan in Shanghai.

He added that Gome Shanghai has a narrower line of appliances because even the local rural people have better purchasing power than their counterparts elsewhere in the country. And they do not carry appliances that are at the lowest-end.

Zhu Jiagui, deputy general manger of Gome’s rival Sunning Appliance, agreed. “The average price of our products sold in Shanghai is 1,600 yuan, 400 yuan higher than the average price we sell across the country.”

“The policy could be better if adjusted to different city conditions,” he said.

The rebate policy’s intentions to boost rural consumption and mitigate weak home appliance makers, is noble. But complaints about the quality and piracy of products and unsatisfactory after sales service has not added to good reviews in cities and counties where the program has already been in force.

The program still needs to be polished before it can materialize its big sales ambition.

(Shanghai Daily May 11, 2009)

Production and sales of televisions in China dropped in the first quarter for the first time in five years, as the global financial crisis hurt external and internal demand and major producers slashed cathode ray tube television production, an industry association said.

Television sales in the first quarter dropped 28 percent year on year to 27 billion yuan (US$3.97 billion) and production decreased 9.2 percent from a year before, according to the China Video Industry Association.

Television exports in the first three months fell 18.4 percent on a yearly basis to US$1.67 billion and domestic sales declined 18.6 percent to 8.67 million units, CVIA said in a report.

The association said major producers have been shifting quickly to the LCD market from CRT televisions in a bid to weather the economic storm. Production of LCD televisions by major producers increased over 60 percent in the period.

In contrast, production of CRT TVs plunged 43 percent from a year ago and plasma-TV production fell 7.9 percent from a year before.

“Industrial-structure upgrading will accelerate this year,” said Shao Rong, an analyst from GFK China, a German-based research firm. “The CRT market has more than halved in the first quarter and this mainly happened in third and fourth-tier cities.”

With government subsidies to farmers for purchasing home appliances, smaller cities have become the battlegrounds for TV makers. Sales of LCD televisions in such cities is expected to reach 5 million units this year, CVIA said.

(Shanghai Daily May 6, 2009)

Recent simplified procedures for farmers to get subsidies on purchases of home electrical appliances had spurred sales of the products throughout China, said a Finance Ministry official Tuesday at the 4th Central China Expo in this capital city of Anhui Province.

Subsidized home-appliances sale in rural areas is part of China’s efforts to sustain economic growth amid the international financial crisis through stimulating domestic consumption. China began to spread the campaign to the whole country as of the end of last year.

According to Zeng Xiao’an, deputy head of economic construction department of the Ministry of Finance, the first quarter of this year saw China sell nearly 6 million home electrical appliances in rural areas, with a month-on-month growth rate of more than 70 percent in each of the first three months.

Zeng said the subsidized sale at home also helped struggling domestic electrical appliances manufacturers to survive the international economic downturn which had driven down their exports.

The subsidized sale targeted at farmers cover color TV sets, refrigerators, washing machines, air conditioners, water heaters, personal computers, mobile phones, microwave ovens and induction cookers.

The three-day 4th Central China Expo, which was due to conclude Tuesday, targeted six central provinces — Anhui, Jiangxi, Hunan, Hubei, Henan and Shanxi — and attracted about 16,000 participants from about 300 multi-national companies such as Carrefour and IBM.

(Xinhua News Agency April 28, 2009)