Gome Retail Holdings, once one of China’s leading electronics retailers, has recently suspended staff payments due to running out of cash. Over the last few days, the topic “Gome stopped paying employees salaries” became the most searched on the popular Chinese social media platform Weibo .

The companies required employees to sign letters of commitment in which they acknowledge the delayed payment, “Since October 2022, I understand the company may suspend salary payment in the following six months to a year, and I am ready to go through [this] difficult time with the company.”

According to Daily Economic News, Huang Xiuhong , chair of Gome Retail Holdings, told staff during an internal meeting that the firm would not pay their wages until the end of December.

Yicai , citing a filing to the Hong Kong Stock Exchange, reported that Gome’s sales revenue in the first three quarters plunged by 55%-60% year-on-year. Moreover, the company forecasts this year’s net loss to surge by 35%-65% from last year.

Data from the interim report shows that Gome Retail owes a total of $8.1 billion (58.6 billion yuan) while it has only $332 million cash on account, of which nearly $3.2 billion are loans due this year.

Daily Economic News noted that industry insiders believe the e-commerce transition in early 2021 was the most significant factor in Gome’s financial crisis.

After being released in 2020 due to committing economic crimes in 2010, Gome’s founder Huang Guangyu vowed to take his struggling firm back to its old glory within 18 months. On top of that, the stringent “zero-COVID” policy has also accelerated the online shopping trend across the country.

Therefore, Gome decided to make a renewed push into the e-commerce market with the launch of a rebranded platform called FUN instead of sticking to its legacy brick-and-mortar retailing business.

The FUN app aims to change Chinese consumers’ perception of Gome as an offline electronics retail store. It combines online shopping with entertainment features such as short videos and content sharing from social media giant Douyin , China’s version of TikTok.

However, this aggressive strategy put the company in direct competition with far more established and long-experienced rivals such as Alibaba and JD.com.

As a result, Bamboo Works, citing data from research firm Analysys, reported that after 18 months of operation, FUN attracted only 72.86 million active monthly users at the end of June. This is pale compared to 800 million and 350 million from e-commerce behemoths Alibaba and JD.com, respectively.

Liang Zhenpeng , a senior industry expert, commented that Gome was already at a loss when diversifying its products early last year. With the launch of FUN, the company had to work on multiple segments simultaneously and could not ensure normal operating cash flow.

Liang also disclosed another major cause that exacerbated Gome’s quagmire was the acquisition of the online home design platform Dabanjia in last April.

Gome Retail views this cooperation as essential in implementing its home living strategy. It provides lifestyle-oriented customers with services such as home design, furniture, and automobiles alongside its electronics lineup.

Cui Jian , founder of Dabanjia , said in an interview last September that the number of home decor showrooms spiked from 100 to 450 in just over four months after Gome had acquired the company.

Another staff working at Gome claimed that the figure even exceeded 1,000 stores at its peak.

Industry insiders again think Gome invested at the wrong time, as China’s property crisis has already undermined the home solution service sector in the last two years.

Liu Buchen , a senior industry expert, said that home improvement service is a whole new business segment in which Gome does not have many advantages as a new entrant. Plus, the market is no less competitive than the home appliance retailing business.

In addition, Daily Economic News said that the two parties did not work well together. 

In terms of business operations, another industry expert named Zhuang Shuai explained that Dabanjia did not integrate with Gome . Most business consultations were still conducted online and thus significantly impacted the home designer’s sales revenue.

Last but not least is the impact of the COVID pandemic.

Zhuang said that the harsh zero-tolerance approach has taken a toll on the economy and prompted Chinese households to cut spending on home appliances, including electronics, kitchens, bathrooms, and durable goods.

Liu added that apart from the ongoing slowdown in property and home appliance sectors, many other e-commerce firms are also on the rise. Thus, Gome would have little chance of recovering from the dire circumstances.

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