GOME Retail Holdings Limited (HKG:493) announced its audited annual results for the year ended 31 December 2020 (Reporting Period).
Strengthened Development in the Second Phase after Successfully Completing the First Phase of “Home . Living” Strategy
In 2020, GOME completed the first phase of strategic development under its “Home . Living” strategy and started in-depth development in a more refined manner in the second phase. In particular, GOME accelerated the development of its dual-platform new retail ecosystem powered by technology, intelligence, and innovation, and established the “Social + Business + Sharing” GOME ecosystem with a focus on the online operation by integrating online and offline platforms and utilizing the strength of proprietary operation and third party external supply chain.
During the Reporting Period, the novel coronavirus (“COVID-19”) pandemic boosted the development of the “Stay-at-Home Economy” and led to a change in consumer demand in the market. To capture the opportunities, GOME has stepped up efforts to further implement social marketing and expand its digital local retailing business built on its dual online and offline platforms by leveraging its resourceful supply chain, nationwide logistics network and professional services. In particular, the large home appliance business, which was affected seriously by COVID-19, started to recover in the second quarter of 2020 as reflected by the 31.3% growth in overall sales revenue in the second half of the year comparing to the first half of 2020. Overall gross profit margin also showed a trend of month-on-month recovery since the second quarter this year, and up by about 1 percentage point in the second half of the year compared to the first half of 2020. 1,034 new county-level stores were open throughout 2020, representing a YOY increase of over 100%. The number of GOME’s online communities also saw significant growth and passed the 1 million milestones with coverage of over 100 million users. Online and offline members reached more than 200 million, including over 1 million with paid membership. In December 2020, the first order conversion rate of new customers was 15% and the repurchase rate of members was 31%, representing a YOY increase of 64% and 21% respectively, and the membership activity increased by 105% YOY. In the first quarter of this year, the estimated sales revenue of the Company achieved over 170% YOY increase. These were all attributable to the effective digital operation of GOME’s online and offline platforms.
Operating Model Continued to Improve and Cash Position Maintained at Healthy Level
During the Reporting Period, the Group actively responded to the challenges posed by the pandemic by adopting stringent cost control measures and a relatively low-cost online inbound marketing model, coupled with an asset-light franchise operating model, which reduced substantial operating expenses such as rent and labor cost, enhanced operational efficiency, improved the overall profitability of physical stores, increased both customer traffic and sales while also effectively controlling the costs. In 2020, GOME’s marketing expenses decreased by 24.3% YOY, administrative expenses decreased by 14.9% YOY, and other expenses excluding major non-operating factors decreased by 14.3% YOY. In terms of financing, GOME is forming a positive operating cash flow thanks to the support of more banking facilities and credit terms offered by suppliers and has successfully redeemed bonds totaling over RMB3.8 billion in 2020, with all debt services funded by the Company’s own cash holdings. At the end of the reporting period, GOME’s cash and cash equivalents amounted to approximately RMB9.6 billion, maintaining at a healthy level of around RMB10 billion.
Upgraded Both Online and Offline Operations to Develop a Brand New Omni-channel Digital Platform
In 2020, GOME constructed the industry infrastructure through digital and standardized transformation of online and offline stores, products, transaction processes and service quality, which improved the transaction efficiency and service experience and facilitated the optimization and upgrade of the nationwide store network after the pandemic subsided. GOME has established a three-level service scope structure across the country to meet the demand of household customers in 3km, 5km and 8km radius based on different types of stores, scenarios, and customer experience, which formed a grid-based coverage and optimized the store layout and service offerings.
In the future, the Company will continue to rapidly expand its network and complete the basic layout of its offline platform with franchising as the main focus supplemented by proprietary operation, aiming to have 6,000 physical stores in the next 18 months and achieve monthly active users of over 100 million by diverting customer traffic from offline to an online platform. In terms of offline platform, the Group has completed the online migration of more than 3,400 stores nationwide by setting up a dedicated webpage for each store, which enabled such stores to carry out internet and digital operation and serve GOME customers in 3-8 km radius through video guide, a professional shopping guide and concierge services, thereby becoming the closest and most reliable shopping guide for the customers under the one-stop service model of “real-time online reply + on-time and speedy product delivery + in-store and at-home services”.
For online operation, the Group owns an E-commerce trading platform, social sharing platform, large social network, and wide range of community members to support localized operation. The GOME APP has been completely revamped and restructured with the addition of the 1.0 entertainment module including “Video Shopping Guide”, “Meixin” and “Short Video + Livestreaming + Matches”. The coverage of mini-program was further expanded, and the grid-based community expansion was completed, which enabled compact operation. In January 2021, our revamped mobile application was finally launched to the market under the new name of “FUN”. Since its launch and up to the end of March 2021, the estimated GMV of “FUN” APP grew nearly four times YOY with MAU stabilized at about 40 million and DAU of nearly 10 million on special offer days. The layout, functions, and style of the online platform have taken shape and will continue to release new benefits in the future.
Continuously Explored New Retailing Models and Created Interactive User Experience with Entertaining and Social Features
Based on the grid-based layout of physical stores, GOME actively carried out community marketing to integrate online and offline operation, and further utilized its strength in the supply chain, logistics service, video promotion, and community-based social network.
In addition, by leveraging its advantageous resources, GOME has developed a high-quality live streaming product promotion model of “informative content + most popular IP + immersive scenes” to create a refreshing and upgraded experience for consumers. In 2020, GOME cooperated with CCTV News, a reputable news outlet, to carry out live streaming product promotion events in 31 provinces across the country, showcasing GOME’s “New Store Image” and localized retailing to consumers in China.
Capitalizing on the favorable development trend, GOME strengthened its efforts in an entertaining-oriented marketing model by launching the “FUN” APP at the beginning of 2021. Its core strategy is to facilitate transactions driven by a social network where merchants and customers may sell and buy products and services on the platform in an entertaining way. With such interactive experience, entertaining content, fun and enjoyable marketing initiatives, and the sharing and social features, GOME has developed a unique retailing ecosystem, which laid a solid foundation for the continuous development of GOME’s digital, platform-based and entertainment-oriented operations under the theme of “social + business + sharing”.
Meanwhile, based on the new strategy, GOME established the “Home . Living” showroom to showcase high-quality products and create a unique experience for its offline platform, implemented the plan to optimize the layout of GOME stores through renovation and business format upgrade, striving to provide customers with the best immersive consumer experience. It also diversified and enriched the offline scenarios by offering a combination of service and content such as video promotion, live streaming promotion, and match broadcast, thereby creating a fun and enjoyable in-store experience for the customers. Looking forward, by maintaining a high standard of retail operation, GOME will fully promote the new model and mechanism of entertaining retailing to enable merchants and customers to sell and buy quality products and services and share their experience on the “FUN” platform, and facilitate the platform and merchants to acquire natural customer traffic at lower cost in a more efficient and sustainable manner, and improve the user stickiness and repurchase rate, thereby enhancing the GMV and profit of the platform.
Expanded and Strengthened Advantages in Supply Chain and Services and Accelerated Digital Development at Its All-out Efforts
After transforming to the “Home . Living” strategy, leveraging its 34 years of extensive experience in proprietary operation in a vertical market, the Company launched more carefully selected products and provided digital and intelligent management tools to serve external merchants and the general public under the idea of “being the pioneer of the industry in terms of uniqueness, quality and innovation”, thereby establishing win-win cooperation among GOME, merchants, and users. It accelerated the expansion in the non-electrical appliance business through a stringent selection of products for its proprietary operation, established partnerships with more external parties based on stringent selection standards, and developed an open supply chain platform for the stringent selection of quality products and services covering all categories.
During the Reporting Period, GOME House Manager under the Group also continued to provide “home installation, cleaning, repair and maintenance, and renovation services” to customers. With the optimized logistics and delivery services, GOME has applied its service capabilities in more business scenarios to continuously enhance customer satisfaction and shopping experience. The Group also utilized the power of big data analysis from its online platform to conduct research on consumer behavior and proposed “eight major procedures” for product selection in order to carefully select premium products from various perspectives. Based on massive data, supply chain support, bargaining power with suppliers and the intent of offering benefits to the consumers, GOME formed in-depth cooperation with the suppliers, reduced the prices through direct sales and control product quality at source in order to reward the consumers. During the Reporting Period, GOME has completed the infrastructure for its logistics service platform by setting up centralized warehouses, city warehouses and in-store inventory, and maintained a nationwide logistics network with 5 million square meters of storage space. With the fast delivery and flash store delivery provided by Anxun Logistics, GOME achieved fast and on-time delivery of products to customers and enhanced the turnaround efficiency, setting the highest industry standards with optimal user experience.
Introduced Strategic Partners with Huge Customer Base to Achieve Win-Win Cooperation and Mutual Development
The Group will continue to implement the multi-dimensional marketing strategy by sharing supply chain resources and opening up the logistics network, and form a strategic partnership with different channels such as JD.com and Pinduoduo to provide carefully selected high-quality products in all categories to consumers while bringing abundant customer traffic and resources to merchants, so as to share resources, reduce costs, enhance efficiency and achieve win-win cooperation and mutual development for GOME, its customers and merchants.
In April and May 2020, GOME formed strategic cooperation with Pinduoduo and JD.com, respectively, demonstrating the industry’s recognition of the value and potential of GOME’s unique resources. In 2021, GOME will further develop its strategic partnership with external high-traffic platforms and third-party suppliers and strive to achieve traffic integration and mutual empowerment. In addition, it will also establish a comprehensive supply chain to share advantageous resources and continue to develop the new retail model of online and offline integration to create greater synergy. The Company expects to maintain strong growth in the future with the empowerment of the online and offline platforms and the “FUN” APP covering all scenarios.
The Company management concludes: “In 2020, despite the impact of a pandemic on the retail industry, the Group actively tackled different challenges and adversities with concerted efforts by leveraging its strengths accumulated over the years, effective business strategies, and excellent service capabilities. In 2021, we presented the ‘New GOME’ with a new mindset and ushered in a new stage with a new development pattern. For future operation and development, we will focus on facilitating strategic upgrades to develop a new platform layout and enable mutual and targeted support between online and offline platforms, thereby reducing operating costs and fully improving our profitability and user experience. Meanwhile, we will also accelerate the development of digital operation at all-out efforts, continue to expand and strengthen the advantages in supply chain and services, open up the supply chain to cooperate with more third party suppliers, put more efforts into the stringent selection of quality products, and ensure premium shopping experience based on highest service standards in the industry. The launch of the ‘FUN’ APP kicked off GOME’s ambitious plan for the entertainment-oriented retailing business. To support this plan, we will uphold the core value of new retail to ‘create and share fun and enjoyable sales and shopping experience’, utilize our unique strength to upgrade the business models, and facilitate the development of a digital and platform-based retail ecosystem with entertaining features to fully release the huge potential of ‘New GOME’.”