omni-channel retailer strategy creates sustainable growth · omni-channel strategic implementation...

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Omni-Channel Retailer Strategy

Creates Sustainable Growth

2014 Interim Results Announcement

Acceleration Campaign

This presentation and the accompanying slides (the “Presentation”) which have been prepared by GOME

Electrical Appliances Holding Limited (“GOME” or the “Company”) do not constitute any offer or invitation to

purchase or subscribe for any securities, and shall not form the basis for or be relied on in connection with any

contract or binding commitment whatsoever. They are only being furnished to you and may not be

photocopied, reproduced or distributed to any other persons at any time without the prior written consent of

the Company. This Presentation has been prepared by the Company based on information and data which

the Company considers reliable, but the Company makes no representation or warranty, express or implied,

whatsoever, and no reliance shall be placed on, the truth, accuracy, completeness, fairness and

reasonableness of the contents of this Presentation. This Presentation may not be all inclusive and may not

contain all of the information that you may consider material. Any liability in respect of the contents of or any

omission from this Presentation is expressly excluded.

Certain matters discussed in this presentation may contain statements regarding the Company’s market

opportunity and business prospects that are individually and collectively forward-looking statements. Such

forward-looking statements are not guarantees of future performance and are subject to known and unknown

risks, uncertainties and assumptions that are difficult to predict. The Company’s actual results, levels of

activity, performance or achievements could differ materially and adversely from results expressed in or

implied by this Presentation, including, amongst others: whether the Company can successfully penetrate

new markets and the degree to which the Company gains traction in these new markets; the sustainability of

recent growth rates; the anticipation of the growth of certain market segments; the positioning of the

Company’s products and services in those segments; the competitive environment; and general market

conditions. The Company assumes no obligation to update any forward-looking information contained in this

presentation. Any forward-looking statements and projections made by third parties included in this

Presentation are not adopted by the Company and the Company is not responsible for such third-party

statements and projections.

Disclaimer

2


2014 1H Performance Review 1

2

3

Content Omni-Channel Retailer – Acceleration Campaign

Appendix

3


(RMB)

4

Sales Revenue Consolidated Gross Profit Margin

29.12 Billion (+7.4%) 18.8% (+0.5p.p.)

Net Cash Flow from Operations Operating Expenses/Revenue

3.28 Billion (+117.2%) 16.3% (-0.8p.p.)

EPS Dividend Payout Ratio

4.1 fen(+115.8%) 40%

Profit Attributable to

Owners of the Parent Company

Cash & Cash Equivalents

(as of 30th June 2014)

690 Million (+115.2%) 13.07 Billion (+45.0%)

2014 1H Performance Highlights


2013-2014 Omni-Channel Performance Highlights

Sales per Sq.m Sales per Store Operating Expenses/Revenue

RMB Million

RMB Million RMB Yuan

Consolidated Gross Profit Margin

Omni-Channel strategy guides GOME to outperform industry

in six key indicators for six consecutive quarters

5


Procurement Logistics IT

2014 1H Omni-Channel Strategic Implementation

Omni-Channel

Tier-One

Stores B2C

Dept.

Stores

Super

markets

Local

Chains Market

Place

Tier-Two

Stores

Open

Supply Chain

Business

Model

Offline Channel Online Channel

Self-Owned Operation Joint Operation Inventory Supply

1. 20141H same store sales growth 7.3%

(Renovated 31 flagship stores)

2. 20141H opened 55 new stores

(34 new stores in tier-two market)

20141H added 79 stores

within department stores &

supermarkets Mobile GMV

2014 1H: 10% of

online GMV

GMV

1. 20141H ▲ 53.7% Y-o-Y

(2014Q2 ▲ 64.8% Y-o-Y)

2. 2014 1H UV ▲ 43.8% Y-o-Y

Other online

Platforms

Mobile

Terminals

20141H Consolidated gross profit margin: 18.8%

Differentiated products: 32% 3 deliveries/day, precise delivery

Available in 178 cities

Comprehensive online/offline integration of

procurement/IT facilities

6


Offline Stores

Tier-1 & 2 Cities

Offline Stores

Tier-3 & 4 cities

2014 1H Omni-Channel Strategic Implementation – Offline Channel

RMB Million

7

Tier-one Market Same Store Sales Tier-one Market Revenue

▲ 5.6% ▲ 6.3% Physical Stores

(Tier-one Market)

Flagship stores renovation in tier-one market

20141H :31 stores

(20131H: 4 stores)

Physical Stores (Tier-two Market)

New stores in tier-two

market

20141H :34 stores

(20131H :22 stores)

Physical Stores (Dept. stores &

supermarkets )

New stores within

dept. stores &

supermarkets

20141H : 79 stores

Tier-two Market Revenue Tier-two Market Same Store Sales

▲ 15.1% ▲ 11.3%

2014 Q2 Channel Integration Revenue

▲ 60%


Omni-Channel Strategic Implementation

– Online Channel

Steady Increase in GMV Steady Increase in Consolidated GP Margin

Solid growth in both GMV & consolidated gross profit margin

since first launch in 2011 2H

8


Omni Channel Strategic Implementation

– Differentiated Product

9

Same Store Sales RMB Million

20141H

32%

50%

2017

Differentiated Products

2009

1.2%

Revenue RMB Million

Consolidated GP Margin

141H consolidated

gross profit margin

18.5%, excl

compensation from

major shareholder

▲ 7.4%

▲ 7.3%

▲0.5p.p.



– Low Cost Supply Chain

2013 1H 20141H Change in

p.p.

Selling &

Distribution 13.3% 12.3% (1.0)

Rent 5.5% 5.1% (0.4)

Sales Salary 3.1% 3.0% (0.1)

Advertising 2.0% 1.4% (0.6)

Delivery 0.7% 0.8% 0.1

Utilities 0.7% 0.7% 0

Other S&D 1.3% 1.3% 0

Administrative

Expenses 2.8% 2.9% 0.1

Other

Expenses 1.0% 1.1% 0.1

Total 17.1% 16.3% (0.8)

Operating Expenses / Revenue Expenses Breakdown

Note: Discrepancy due to rounding error 10



– IT Supply Chain

Inventory Turnover Days Sustained Increase in Cash & Cash Equivalents

6,484

8,413 7,866

9,016 9,344

13,074

13Q1 13Q2 13Q3 13Q4 14Q1 14Q2

RMB Million

ERP system and store-based planning model contribute to

the management of inventory and cash & cash equivalents

11



– Increasing Profitability

RMB Million

14Q2 net profit

325 million,

excl

compensation

approx. 100

million from

major

shareholder

100

325

141H net profit

margin 2.1%,

excl

compensation

approx. 100

million from

major

shareholder

0.3%

2.1%

12



2

3


Appendix


Focus Omni-Channel Supply Chain

GOME’s omni-channel strategy focuses on enabling consumers

to switch freely between bricks-and-mortar & online stores.

(GOME Online + 1,605* stores + store within supermarket, department stores)

*including non-listed GOME Group

Strategic Key Words

14


Omni-Channel Electronics Retailer in China

Search

Order

Delivery

Payment

Offline Shopping Online Shopping Omni-Channel

Shopping

Pay online

GOME stores

Order online in GOME stores

Home delivery

The rise of omni-channel means shopping is no longer merely ‘offline experience, online order’, channel

integration increases the importance of physical stores and mobile terminals, with continuous

leveraging on the procurement, logistics and IT units of the supply chain. 15

Store pickup

Online

(PC)

Online

(Tablet)

Online

(Mobile)

Online

(PC)

Online

(Tablet)

Online

(Mobile)

Home delivery

Pay in stores

GOME stores Online

(Mobile)

Online

(PC)

Online

(Tablet)

Online

(Mobile)

Home delivery

Online/offline/mobile payment


Omni-

Channel Tier 1

Stores B2C

Dept.

Stores

Super

Markets

Other

Platforms Mobile

Terminals

Local

Chains Platform Tier 2

Stores

Open

Supply

Chain

Business

Model Self-Owned Operation

Omni-Channel Supply Chain

Open Social Platform

Consumer

Interface

Value

Platform

Joint Operation Inventory Supply

16

Offline Channel Online Channel Mobile

Procurement Logistics IT

Manufacturers & Distributors Supplier


Enhance consumer

experience

Integrate offline IT

& logistics facilities Store optimization

Tier-two market

network expansion

Channel expansion

in supermarkets &

dept stores

Smart

Optimized

Decentralized

Five procurement

units

Overall IT support

Express logistics

services

Structural

Upgrade

Infrastructure

Upgrade

Offline

Acceleration

Online

Acceleration

Omni-Channel Acceleration Campaign

Encourage creativity & innovation in every business unit of GOME

Build Another GOME by 2017– Acceleration Campaign

17


1. Smart: Leverage on IT system to support online & offline supply chain and operation platform

2. Optimized: Strengthen regional management capacity

3. Decentralized: Flat organizational structure & new incentive scheme to accelerate expansion

in tier-two market

1. Structural Upgrade

*including non-listed GOME stores

131 Affiliated Tier-Two Branches*

Before : Headquarter 4 Regions 54 Independent Tier-One Branches*

Now: Headquarter 7 Regions 54 Independent Tier-One Branches*

75 Independent Tier-Two Branches *

56 Affiliated Tier-Two Branches*

18


New procurement platform ensures differentiated products

reaching 50% by 2017

98.8%

New Procurement Platform

Brown goods White goods 3C Unit 1 Unit 2 Unit 3 Unit 4

Shared online & offline targets Four specialized procurement units for online/offline

1.2% 50% 50%

2009 20141H 2016-2017 2009 2016-2017

32%

20141H

68%

Regular

Products

Differentiated

Products

Independent Independent Independent Independent Traditional model

2. Infrastructure Upgrade – Omni-Channel Procurement Platform

19


Comprehensive IT system support online & offline supply chain

2. Infrastructure Upgrade – IT System

Supply Chain

Key Data (Product,

Price) Sales

Inventory

Coordination

Order

Delivery Return

Payment Streamline

procedure

Stakeholders GOME

GOME Headquarter

Beijing GOME

Data sharing

Beijing Dazhong

Shanghai branch

……

Suppliers

3rd Party Logistics

Software Vendors

Horizontal Alliance

Financial services Interface services

20


2. Infrastructure Upgrade – Logistics Network

428 warehouses covering 398 cities

1,605 stores available for pickup

1.95 million sq.m warehouse

200 cities with 3 deliveries/day

(2014)

400cities with 3 deliveries/day

(2016)

Logistics Network Capacity* Nation Wide Logistics Network

Tianjin

Harbin

Changchun

Hohhot

Urumchi

Xining Lanzhou

Kunming

Guiyang

Nanning

Haikou

Changsha

Hangzhou

Hefe

i

Nanjing

Zhengzhou

Jinan

Shijiazhuang Taiyuan

Shenyang

Guangzhou

Wuhan Chengdu

Fuzhou

Shanghai

Xi’an

Beijing

Yinchuan

Nanchang

Dalian

Qingdao

21



2. Infrastructure Upgrade – Express Logistics

22

Precise Delivery Accurate

3 Deliveries/Day Fast

Installation of appliances upon delivery

Morning, afternoon & evening

Consumers can specify time of delivery

Installation Specialized with delivery


3. Offline Acceleration – Physical Store

Price Comparison: Wi-Fi coverage in1,605* stores

Store Experience: consumer experience oriented

Sales Assistance: professional sales team

Wireless Shelf: online/offline SKU available on

mobile App

Accelerate the introduction of new smart retail terminals at 1,605* stores


23


Tier-One Market Development Strategy

1. Focus on network & cost optimization, flagship store operation

2. Prioritize properties in existing & new business districts and along

metro lines

Tier-Two Market Development Strategy

3. Offline Acceleration – Network Development

1. Flagship store + satellite store: introduced to increase network

coverage in tier - two & tier - three cities

2. Regional development: Logistics services with 500km radius of

central logistics warehouse to stimulate cross-regional sales

3. Focus on the development in middle & western China provinces

with high population density

4. Expand market share in the regions of Shanghai & Nanjing

24


3. Offline Acceleration – Stores in Dept. Stores & Supermarket

Strategic Alliance : leading supermarkets, department stores in

Beijing, Shanghai, Guangdong, Hebei, Henan, Liaoning & Shandong

* non-listed GOME Group

Supermarkets

Department

Stores

Local Chains

Wumart Stores (74 stores)

Zhejiang Lianhua* (26 stores)

Guangzhou Mopark (4 stores)

Wuhan Guomao (1 store)

109 Stores within dept.

stores & supermarket

Nanning Baise Electronics

Stores* (4 stores)

25

Contribute to GOME revenue growth


4. Online Acceleration – Strategic Positioning

Goal: Omni-channel products & service platform with

core competitive advantage in direct home appliances retailing

26

Self-owned Operation + Market place + Virtual Mobile App + Big Data

Logistics Service

3 Deliveries/day

Precise delivery

Installation with delivery

Share traffic

Share products

Share services

Maximize number of SKU to

offer choices

Supply Chain support price

competitiveness

Differentiated products

support specialization

Online/Offline Integration

Mobile App accelerate

development

Big data support precise

marketing

Actively develop Internet

finance


Focus on both value & price: to create value for consumers &

increase market share with price competitiveness

Price: Low-price benchmark

online/offline

Service: Service benchmark with ‘3

deliveries/day, precise delivery &

installation with delivery to enhance

consumer experience

Products: Increase number of SKU to

10 million, provide one-stop shopping

Small Appliances

3C

Traditional Appliances

General Merchandize

Automobile

Virtual

Core:

self-owned

operation

Loyalty:

Market

place

… …

… …

27

4. Online Acceleration

– Self-owned Operation + Market place + Virtual


4. Online Acceleration – Online & Offline Integration

Procurement

Online/offline sharing of 100 billion capacity

Inventory

Complete sharing of inventory online/offline

IT

Sharing of ERP System & co-ordinate supply chain

Logistics*

428 warehouses in 398 cities

1,605 store pick-up points

Membership

Sharing of 120 million members online/offline

28

Consolidate online/offline resources,

streamline online/offline channels

Internet Mobile

Internet

Online

Offline

GOME Store: Sales/experience/pick-up/delivery service centre

App&PC

Search

* Including non-listed GOME Group


4. Online Acceleration – Mobile APP + Big Data

Omni-channel big data analysis support supply chain & financial business

Internet

Finance

Business district

Location

Foot traffic

Hotspot

Traffic based on LBS

Layout

Marketing

VIP

Consumer behavior

Product trend

Communication

Network Internet Logistics

Network

Online+Offline

Data Source Business district traffic Store traffic Regional traffic Movement Consumer focus Window display Consumer satisfaction

Online traffic Consumer demographics POS ERP CRM VIP Online/offline product & traffic

Big Data

Analysis

29

Supply chain

finance

Microfinance

GOME Pay (Meifubao)

Prepayment

card

(Meitong Card)

Consumer

Credit

Fund & Wealth

Management


4. Online Acceleration – Logistics Network

3 deliveries/day, precise delivery &

installation with delivery available both online/offline

—To Build Trust Through—

3 Deliveries/Day Your choice to schedule delivery in the

morning/ afternoon / evening time


Precise Delivery We deliver based on your preferred timing


Installation with Delivery Available A one-stop delivery and installation service

We Work Hard to Earn Your Trust 3 Deliveries/Day, Precise Delivery &

Installation with Delivery Available

Trust is a pleasure Inspired to be trusted Trust is a pleasure Inspired to be trusted

Trust is a pleasure Inspired to be trusted Trust is a pleasure Inspired to be trusted

30


31

2011-2013 2014-2015

Foundation

Building

Accelerated

Development

Specialized

Platform

Fast Expansion

Leading Platform

2016-2017

4. Online Acceleration


Build Another GOME by 2017

2013 2017 2014

Omni-Channel Retailer Strategy

Same Store Sales Growth

Tier-Two Market Share Growth

E-commerce

Supermarkets, department stores

Low-Cost, Highly-Efficient

Supply Chain

32



2

3


Appendix


RMB Million 2013 1H 2014 1H Increase

Revenue 27,114 29,124 7.4%

Consolidated gross profit 4,973 5,484 10.3%

Consolidated gross profit margin 18.3% 18.8% 0.5 p.p.

Operating profit 349 738 111.5%

Operating profit margin 1.3% 2.5% 1.2 p.p.

Profit before tax 432 846 95.8%

Profit attributable to owners of the parent company

322 693 115.26%

Net profit margin (attributable to owners of the parent company)

1.2% 2.4% 1.2 p.p.

Note: Discrepancy due to rounding error

Income Statement Summary

34


Balance Sheet & Cash Flow Statement

RMB Million As of

31st Dec 2013

As of

30th Jun 2014 Change

Balance Sheet

Cash & cash equivalents 9,016 13,074 45.0%

Pledged deposits 6,407 4,409 (31.2)%

Pledged deposit ratio (excl DGPOL) 32.9% 29.8% (3.1)p.p.

Inventories 8,221 9,235 12.3%

Inventory turnover days 61 64 3 days

Trade payables 5,992 7,802 30.2%

Trade payables turnover days 48 51 3 days

Bills payable 12,085 13,673 13.1%

Bills payable turnover days 89 94 5 days

RMB Million 2013 1H 2014 1H

Cash Flow Statement

Operating activities 1,509 3,277

Investing activities (132) (300)

Financing activities (25) 1,077 Note: Discrepancy due to rounding error 35


141H

consolidated

gross profit

margin 18 5%,

excl

compensation

approx. 100

million from

major

shareholder

0.3% 18.3%

18.8%

4,973

RMB Million

Note: Discrepancy due to rounding error

Non-recurring item

RMB Million 2013 1H 2014 1H

Revenue 27,114 29,124

Consolidated Gross Profit 4,973 5,484

Consolidated Gross Profit

Margin 18.3% 18.8%

Gross Profit Margin from

Suppliers 15.3% 15.2%

Other Income 3.0% 3.6%

Income from suppliers, net 1.1% 0.6%

Mgmt & purchasing services

fees from the Non-listed

Gome Group

0.5% 0.5%

Income from air conditioner

installation 0.2% 0.2%

Gross rental income 0.5% 0.5%

Government grants 0.2% 0.1%

Income from telco. service

providers 0.2% 0.6%

Warranty Sales 0.2% 0.3%

Compensation - 0.3%

Others 0.1% 0.5%

5,484

36

Consolidated Gross Profit Margin


Store Indicators

Period-end Sales Area Average Sales Per Store 1,000 sq.m.

RMB Yuan

RMB Million

No. of

comparable

stores

Average Sales Per Sq.m Same Store Sales Growth

3,873

971 947 911 897 963 942 37


Tier-One* & Tier-Two* Market Revenue

81.2%

18.8%.

79.9%

20.1%

一二线城市三四线城市

2013 1H 2014 1H

Tier-1&2 cities Tier-3&4 cities

22,018

5,096

23,256

5,868

一二线城市三四线城市

20131H 20141H

*Tier-one market: tier-one & two cities

*Tier-two market: tier-three & four cities

2014 1H revenue ▲ 7.4% Y-o-Y, tier-two market proportion ▲ 1.3p.p. to 20.1%

Tier-1&2 cities Tier-3&4 cities

RMB Million

38


2014 1H Revenue: RMB 29.12 Billion

2013 1H Revenue: RMB 27.11 Billion

Revenue by Region

18%

10% 8% 8%

7% 6%

5%

38%

18%

10% 9% 9%

6% 6% 5%

37%

Beijing Guangzhou Shenzhen Shanghai Chengdu Xi'an Tianjin Others

2014 1H 2013 1H

39


Gross Profit Margin by Category Revenue by Category

40

Revenue & Gross Profit Margin by Category


As of 30th June 2014 Group GOME ChinaParadise Dazhong Cellstar

Flagship stores 223 162 33 28 -

Standard stores 342 288 37 17 -

Specialized stores 523 383 89 9 42

Total: 1,088 833 159 54 42

T1 Market 680 480 113 50 37

T2 Market 408 353 46 4 5

Net store increase/(decrease)

in 2014 1H 13 11 4 (2) -

Number of stores opened: 55 42 13 - -

T1 Market 21 14 7 - -

T2 Market 34 28 6 - -

Number of cities accessed: 264 225 59 1 6

T1 Cities 26 20 9 1 1

T2 Cities 238 205 50 - 5

Number of cities newly

accessed 4 4 - - -

41

Store Network


Top Five Suppliers in 2013 1H

Top Five Suppliers in 2014 1H

42

Top Five Suppliers

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