Fixing GOME

GOME is in trouble.

There is a lot of happy-talk coming out of China’s electronics retail giant, suggesting that despite a 14% drop in revenues and a 39% plunge in earnings for the first nine months of the year, things are actually looking pretty good. Same store sales are apparently up 2.1%, and they expect the chain to grow.

Reading between the lines of the WSJ report, GOME management is suggesting that the drop in sales was due to the global financial crisis. I am not so sure. Even if you grant that the crisis did have an effect on China’s economy (and therefore electronics sales), there are several other factors at play that the company does not seem to be addressing.

Hoping for Amnesia

What has kept GOME in the headlines over the past year has not been its prices, its selection, or its stores, but the arrest of its founder and allegations of serious ethical and legal violations on the part of the company’s most senior management. This is what is known as “bad publicity.”

Now, bad things happen to good companies, and usually when something like this happens the correct response would be to own up to the problem, distance the company from the wrongdoing, demonstrate that any malfeasance had no effect on customers or their purchases, make an all-out effort to prove that the bad behavior is history, and show how that the company has been made better by the process.

GOME has done none of that.

Instead, it has chosen to ignore the strategy and hope that it goes away and that people just forget about it all. That does not happen too often in China: remember, this is a country where the people are still pissed off at the British and French for sacking the Summer Palace 150 years ago. Memories are long. It would be dumb for a foreign company to bet on mass public amnesia to solve its image problem in China. It is incomprehensible that a local company would do so.

Unfortunately, the longer you allow negative perceptions to fester, the more deeply seated they become. It is not too late for GOME to address these problems, but the cost of doing so is rising by the day.

Problems In Store

The perception problem is not being helped by what appears, at least to this longtime GOME customer, to be a decline in the company’s operations. This is even more worrying. If the company is going to survive, much less thrive and beat local rivals Dazhong and Suning and interloper BestBuy, it needs to respond immediately to the dismal state of its shopping experience.

Stores are neither consistently sized, consistently laid out, or consistently merchandised. I went to three different GOME stores, and except for the logo on the front of the building they could have been from three separate chains. What this means is that a trip to a new GOME is like a box of chocolates: you never know what you’re going to get. That inconsistency of experience undermines the value of GOME’s brand.

Despite the chain’s “Shanzhai Rebranding” (i.e., “look, guys, we have a new logo – now we’re re-branded”), the stores I go into in Beijing seem more dismal and rundown each time I visit. Leave aside the tired-looking fixtures, the display cabinets with the logos of one manufacturer and the products of three or four others inside, and the well-worn decor. On the third floor of the store we went into – the floor with the highest value merchandise – the smell of cigarette smoke was so choking it drove us away from even looking at the selection of home theater setups. The excuse given: “oh, our breakroom is on this floor.”

Having started my own career as a retail associate, I understand the need to get away from customers for a few moments and relax. But never were the needs of the worker allowed to cause inconvenience to the customer, much less physical discomfort and, potentially, harm.

The M Word

Most noticeable, however, is how miserable the selection in brands and merchandise have become. Just looking through the computer section, only a small handful of the major brands are available, and a tiny number of models. Walking through a store owned by Dazhong, on the other hand, offers dozens of computers from a number of manufacturers, and while the selection does not match, say, a Fry’s, it is worlds better than GOME.

Merchandising is a craft, and Chinese retailers have historically eschewed the task of selecting the products to sell, buying and inventorying their own stock, and even working with manufacturers to create exclusive lines. Merchandising is, after all, expensive, it is hard work, and it takes a set of soft skills and hard research that are difficult to find in China.

Most companies – apparently GOME included – have outsourced the merchandising to the brands themselves, meaning that the appearance, stock, and selection in their stores is limited by how high a priority the vendors assign to that store, and how good the vendor people are in servicing that store.

In other words, they outsource their differentiation. And since the manufacturers don’t seem terribly concerned about GOME’s differentiation, they don’t spend a lot of time working on it. Mind you, there was a time when this was different, when GOME was the buzz leader in the electronics merchandising space, and electronics brands were ready to make deals. But that means having a position of strength with vendors, and having vendor relations types that know a little bit about merchandising. In its current weakened position (perceptually, anyway), GOME has less pull with the major vendors, explaining why I couldn’t find the DELL sub-notebook I wanted the other day. Nor, for that matter, would GOME sell me a battery for my mobile phone, nor did it have any stock of the new mobile phone my wife, the Hutong Party Secretary, wanted to buy (even though it was in the display.)

This is a bad thing. Because even though prices may attract buyers, unless you have what they want when they walk into the store, they’ll walk right out again.

Serving the (New) People

Perhaps most telling is the difference between the post-sales experiences at GOME and one of its competitors. At GOME, we bought a high-end DVD player and a new small kitchen appliance. Three weeks later, we have yet to hear anything back from the store.

At the competitor, we spent about the same amount of money (total) on a new kitchen appliance. We have received three follow-up calls, one from the original saleslady to check on how things were, one to explain how to get a rebate on our old appliance (which the store removed for free), and one from a service auditor to ensure we were happy.

I don’t mention the competitor’s name because that’s not the point. The problem is that GOME continues to deliver an acceptable level of service. Unfortunately, the market – the competitors, certainly – are evolving far beyond the acceptable and setting a standard that Chinese consumers to which CHinese consumers will rapidly become accustomed. Unless GOME can up its game to match or surpass the competition, the people who have money to spend will increasingly pass them by.

Make it Better, Bain

I have no doubt that the economic downturn hurt business at GOME. But These other factors, which touch on communications, marketing, merchandising, and operational excellence, underscore some more fundamental problems that suggest GOME’s comeback may not be as quick as its executives hope. By ignoring the outrageous (but, given the headlines, understandable) perception that GOME stands for “Gangsters Offering Mediocre Electronics,” GOME is allowing its customer base to erode like a sand castle in a typhoon.

As a longtime observer of China’s retail business, a gadget freak, and a onetime GOME customer, I view the recent investment by BAIN Capital in GOME’s operations as a hopeful sign. I may well be kidding myself: a 10% stake in a public company means much less in China than it does in the US. But if the GOME management and owners are smart, they’ll lend an ear to some of Bain’s ideas for improving the retailer’s prospects.

At this point, it could only help.

Talking Green

Second Ring Road
Trying to avoid looking at the traffic
1150 hrs.

Thomas Malthus once told us that as a race we are doomed because the planet could not grow enough food to support our exploding numbers. He was right, of course, until a sequence of changes in the way food is grown, produced, packaged, and distributed altered the equation. Malthus was, in effect, trumped by technology.

We now face a dilemma that echoes Malthus’ fear. What climate change implies is that as a race we are doomed because the planet cannot support the lifestyles to which we aspire. Just as Malthus challenged us to chose between reproduction and our future, today’s climatologists and other scientists challenge us to choose between the way we live and the well-being of the human race and the planet.

These are not choices we want to make.

The promise of green technology is that we will not have to make those choices – not right away, at least, and perhaps never. Six billion people will be able to live – if not like late 20th Century Americans, at least a lot better than they live today, all without sacrificing the future of the planet, of our race, and of our families.

It’s a huge ask. And nowhere is there a greater need for greentech to live up to its promise than right here in China. It is here, after all, where the innovations are likely to have their largest market. And it is China’s manufacturing capacity and surfeit of engineering headcount where many of the world’s green products are likely to be produced.

All of which serves to make the Greentech: A Call To Action conference organized by The American Chamber of Commerce in Shanghai and The Asia Society on September 7-8 probably THE single most important gabfest of the year in China (apart from the National People’s Congress, of course.)

Yes, the lineup of speakers is stellar. Yes, the topics are lean-forward-in-your -seat compelling.

But if you are like me, you don’t really go to conferences for what’s on the program. You go for the conversation, for the discussions that take place in between, during, and around the sessions. The Shanghai Chamber’s greentech forum looks unusually attractive in this regard, and I’m petitioning The Party Secretary for permission and funding to go.

Personally, I’m still in the middle of a long-term dissection of greentech, it’s promise, its realities, and where the interesting stuff is really happening. Once I start getting a comfortable handle on it all (in other words, once I’m reasonably sure I will not be talking out of my backside when I have something to say), I’ll be posting more.
In the meantime, take a moment to look at the website for the Shanghai event, and if you are in town, make it a point to go.

Catch Christine Lu’s Intersection

Jingmi Road, Inbound

Mellow New Year

1139 hrs

A quick tip of the hat and thank you to Christine Lu for having me as her guest on the inaugural installment of her new blog radio show, Intersection.

If you missed it, we had a fun and wide-ranging chat about China-US relations, the evolving role of social media in diplomacy, and the state of business in China. We also had questions from callers and people on Twitter from Boulder, Colorado to Mumbai India, and the hour was over before we realized it.

Blogradio matches the real-time immediacy of broadcast talk radio while offering the scope and variety of podcasting. Christine’s show, Intersection, looks at how different fields and industries are touched – and are being changed by – social media.

Make sure you catch the future installments of the show here, and follow Christine on Twitter at @christinelu.

A Vote for Our Pals

In the Hutong
I dream of burger
1143 hrs.

If you have a spare moment and are a fan of Dan’s China Law Blog, please pop over to the ABA Journal website and vote for Dan in the ABA’s BLAWG 100 competition.

I did.

Dan is one of those lawyers who reminds us all that there are good attorneys out there, and they exemplify all that is positive about the legal profession. Through China Law Blog, Dan does more than inform: he provides a public service.

Cool Tools Marketing Conference, Shanghai

The American Chamber of Commerce in Shanghai held their annual marketing conference in September 2003 on the topic of “Cool Tools.” The conference focus was on using innovative tactics and channels in the marketing process in the PRC. David’s keynote speech at the conference was intended to remind the delegates that specialization in marketing was the enemy of real craft, so the more tools you can use, the better problem-solver you’ll be.
Agenda here . I’ve got the speech somewhere around here, and I’ll post it when I find it.