In the past six months, Gome Retail (06808.HK), the parent company of RT-Mart, has faced significant challenges as it focuses on expanding its membership stores and responding to price wars.
On the evening of November 14, Gome Retail released its interim financial report for the first half of fiscal year 2024, ending on September 30. The report showed that the company’s revenue was 35.768 billion RMB, down 11.9% year-on-year, while it posted a loss of 378 million RMB, a substantial increase from the 87 million RMB loss in the same period last year. The net loss attributable to the company’s shareholders was 359 million RMB, compared to a loss of 69 million RMB in the previous year.
Gome Retail attributed the expanded loss to several factors, including the strategic contraction of its supply chain business, a decline in its supply assurance business, and underperformance against expectations. Additionally, this year the company implemented several operational adjustments, such as increasing discounts and expanding new retail formats, which added significant short-term cost pressures.
As fresh food e-commerce, membership stores, and discount stores grow, supermarket companies are facing more intense competition. After Freshippo initiated the supermarket industry’s price war in August, many supermarket companies responded by adopting a “discount-oriented” strategy. In the same month, RT-Mart launched its “No Bargaining” campaign, offering prices on products such as mochi, croissants, fresh milk, and salmon that were lower than those at Sam’s Club.
In October, RT-Mart upgraded its “No Bargaining” campaign to the “Honest Prices” promotion, covering more than 1,000 products across categories including dairy, snacks, personal care, home cleaning, grains, oils, and beverages. Gome Retail told Time Finance that the “Honest Prices” initiative will continue, and the company will enhance price competitiveness through product and vendor consolidation and by improving digital efficiency.
However, if RT-Mart cannot reduce costs from the supply chain and relies solely on lowering product prices, it may not resolve the issue of declining profits.
Currently, RT-Mart’s supply chain efforts are primarily reflected in its private label products. During the reporting period, the company launched 170 SKUs under its RT100 private label, which includes products exclusively developed by RT-Mart or in partnership with manufacturers. The promotion of private labels brought some buzz to RT-Mart in October, with its self-developed potato bread gaining popularity on social media platforms.
Gome Retail stated that its core business performance in the second quarter showed a significant narrowing of the gap compared to the previous period.
Unlike Yonghui Superstores and Bubugao Supermarket, which closed stores to cut losses, Gome Retail has continued to accelerate store expansion, adding some cost pressures. During the reporting period, Gome Retail incurred capital expenditures of 440 million RMB, up from 258 million RMB in the same period last year, mainly due to new store development, store renovations, and digital upgrades.
In the first half of fiscal year 2024, Gome Retail opened three new RT-Mart stores and accelerated the expansion of its mid-range RT-Mart Super format and M membership stores as part of the company’s second growth strategy. RT-Mart Super opened seven new stores in Jinan, Tangshan, Songyuan in Jilin, Changchun, Lanzhou, Dongguan, and other locations, with seven more expected to open by the end of the fiscal year.
After opening its first national M membership store in Yangzhou in April this year, the number of paying members has reached nearly 100,000. New stores in Changzhou and Nanjing are scheduled to open in December and January next year, respectively. To build a membership base early, the two locations launched online operations during this year’s Double 11 shopping festival.
Gome Retail revealed that M membership stores have already started preparations for their fourth and fifth stores, including new member recruitment and hiring, with three new stores expected to open by the end of fiscal year 2024. Currently, M membership stores are primarily focused on second- and third-tier cities, with locations in city centers and a community-based format that avoids direct competition with Sam’s Club and Freshippo X Membership Store during the initial growth phase. However, whether Gome Retail’s strategy of membership stores and “discount-oriented” pricing can reverse its ongoing losses will take some time to prove.
In the online B2C business, after revenue growth exceeded 15% in fiscal year 2023, the first half of fiscal year 2024 saw continued growth of 4.7%, with order volume increasing by 8.9%. The proportion of revenue from this segment rose from 18.9% to 22.6%. Among RT-Mart’s online channels, including the RT-Mart Fresh APP, Ele.me, and Taoxianda, the RT-Mart Fresh APP now accounts for more than one-third of sales.
Gome Retail stated that the group’s peak season for revenue and profits is in the fourth quarter of the fiscal year, which includes key holidays such as New Year’s, Spring Festival, and the Lunar New Year. The company plans to enhance its differentiated product offerings, optimize operational efficiency, and capitalize on the holiday season to boost performance.
It is worth noting that on March 28, after Alibaba initiated the “1+6+N” organizational restructuring, Gome Retail was integrated into the “N” segment of other business units, while Freshippo, which also operates in offline retail, announced plans to pursue an IPO.
When asked whether Gome Retail’s strategic positioning and status within Alibaba have been affected, Gome Retail responded to Time Finance by saying that Gome Retail has always been an independent listed company, with Alibaba as its controlling shareholder, and cooperation with other Alibaba business units has always followed market principles.
As of the close of trading on November 15, Gome Retail’s stock price rose 2.53%, closing at HKD 1.62 per share, with a total market value of HKD 15.454 billion.
