GOME Electrical Appliances (OTCPK:GMELY) has been called China's Best Buy (BBY)
in the past, even though the comparison can get a bit stretched at
times. Where Best Buy is estimated to hold about 30% share of the U.S.
electronics and appliance retailing market, GOME is #1 in China in
consumer electronics with about 10% share. Even so, both companies had a
period of serious turmoil as "growth for the sake of growth" created an
inefficient store base and online competition made serious inroads into
their businesses.
Whether you believe Best Buy's turnaround plan
is working and will continue to work is a story for another day. What I
want to focus on today is the strategic shift at GOME that has led to
improved same-store sales and the way in which management views the
evolution of competition and retailing in China. I believe that GOME is
correct in its view that success will ultimately come down to a battle
of logistics, and I think the company is ahead of its rivals in building
for that reality. I do not believe that GOME will ever generate sizable
FCF margins, but I do believe that modest improvement, coupled with
supply chain investments that will help the company maintain its
competitiveness, support a fair value almost 50% above today's level.
As
a quick aside, I would encourage investors who are considering GOME
shares to buy the Hong Kong-listed shares if possible (0493.HK). I
realize that it can be more expensive to do so, but the liquidity on the
ADRs is not very good at all.
Read the full article here:
GOME's Realism On Electronics Retailing Still Not Fully Appreciated
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