Abstract

Retail Channels Dominated by Three Major Companies

Retail chains such as Gome and Suning have achieved rapid expansions in recent years. As of 2006, Gome has opened 504 retail stores in China. Counting in Yongle's stores, the number will top 800. Meanwhile, Suning also owns 363 stores. The top two retail chains have practically split between them the entire market in first- and second-tier Chinese cities. At the same time, Gome and Suning are furthering penetration in the third- and fourth-tier cities of other economically sound regions, such as Zhejiang and Jiangsu. It is expected that both companies will step up deployment in these regions.

Although Gome, Suning, and Yongle were listed as the top three Chinese retail chains in 2005, Yongle and Five Star were respectively purchased by Gome and BestBuy the following year. The main reason behind these acquisitions is that with China opening up its retail market, several overseas companies have either taken action or formed plans to enter the Chinese market. This trend alarmed the Chinese home appliance chains and thus accelerated the mergers and joint ventures thereof.

Following the mergers, Gome, Suning, and BestBuy are expected to accounted for over half of the entire market. The competition among Chinese home appliances retail chains will hence become a match between the three, rather than the five players stated at the beginning of the report.

Scale and Regional Deployment Keys to Success

Gome has the absolute lead whether in scale or the number of retail stores. National retail chains like Gome are expected to set the development model for other home appliance chains.

Although Gome enjoys huge advantages on a national scale, its performances have not been as impressive in some regional markets. For example, Dazhong is dominant over Gome in Beijing, both in store number and revenue. Also, Gome is no competitor for Suning in Jiangsu, and Yongle in Shanghai.

Therefore, scale and regionalization are the two keys to success for Chinese retail chains, and each route has its benefits. Gome and Suning are doing well scale-wise, but regional chains have their own potentials as they are familiar with how the local market operates.

First- and second-tier cities have been virtually exhausted by major retail chain players, allowing little room for newcomers to make advancement there. The competition in third- and fourth-tier cities, however, has only just begun. These regions are expected to constitute the main battlefield for Chinese retail chains in the future.

Appendix

List of Companies