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Gome cancels entrance fee for suppliers

By Song Jingli (chinadaily.com.cn)
Updated: 2009-08-26 17:37

Gome Electrical Appliances Holdings, one of China's largest home appliance retailers, has canceled the entrance fee it previously charged suppliers to stock their goods in a store in Jinan, capital of eastern China's Shandong province, National Business Daily reported today.

The fee will also be canceled in 49 other pilot stores nationwide, said the Gome spokesman, He Yangqing. Other fees, such as the one charged for favorable placement on store shelves, will also be canceled, He said.

Luo Tianhao, a former analyst at the Cheung Kong Graduate School of Business, said Gome's move was designed to gain support from suppliers and improve its position against Suning, a major rival.

Gong Gangfeng, who is in charge of Gome's Jinan branch, said the cancellation will help encourage the suppliers to be more active and increase competition, which will benefit Gome in the long run.

Lu Ren, the vice secretary general of China Electronic Chamber of Commerce, said the fee often makes it difficult for small and medium-sized companies to gain access to retail network outlets like Gome.

Li Mingxu, sales manager of Samsung Electronics in China, a key Gome supplier, agreed. He said the cancellation of the fees will improve the efficiency of the cooperation between the retailer and the suppliers.

"The entrance fee should be canceled in all outlets," said Lu Ren, "it is the trend to cancel the fee."

Related readings:  Profits down 50% at Gome Electrical, shares dip 0.45%  Gome H1 profit declines 49.6%  Gome shares dip as Hong Kong court freezes Huang's assets  Chairman says no plans to list GOME on the mainland

Gome's interim report showed a 1.36-billion yuan ($199.7 million) drop in income from supplier fees in the first half of 2009. But He said that the cancellation of these fees will not have a big influence on his company's profitability, because it will ultimately improve the company's competitiveness in the long run.

Gome will also replace the promoters from the suppliers with the promoters hired by Gome itself, cutting costs for suppliers and enabling Gome to increase its own brand-recognition.