GOME Retail Holdings (HKG: 0493) (OTCPK: GMELF) shares are up 80% in Hong Kong today on the back of a truly weird story. It’s not really possible to confirm this given the language and media barriers to getting useful information in a timely manner from Mainland China. But the story is that GOME is going to open 10,000 stores in the next 3 years. Which seems very unlikely to us. Not just the reality of opening that many stores, but the announcement of even having it as a target. We just don’t see physical retail as working quite that way these days.
But that’s what the story is: “Gome Group Purportedly Plans to Open 10K Supermarkets in 3 Yrs” and then in slightly more detail: “Chinese media reported that Gome Holding Group is planning to open 10,000 Gome supermarkets within three years.” At which point we’d note that this is Chinese media, being translated, and the use of the word “purportedly”. It’s possible that numbers got slightly mangled in that translation (our own linguistic experience doesn’t include Chinese but we’ve often come across confusions between tens (ie, twenty) and hundreds (two hundred) and thousands (two thousand) when moving across languages).
GOME Retail Holdings share price from Google Finance
The reason we say this is unlikely - beyond the near absurdity of that 10,000 number - is that GOME has been reducing its retail presence under pressure from online sales. As the company itself reported: “The Board wants to clarify that the Group has 2 self-operated stores and 107 franchise stores in Guangdong province as at 30 September 2023, as compared with 14 self operated stores and 181 franchise stores as at 30 June 2023. As disclosed in its 2023 Interim Report, the Group is optimising and upgrading new business model strategies as well as integrating online and offline operations. Accordingly, there may be further changes in the number of stores going forward.”
And other reports suggest distinct fiscal problems: “Shares of cash-strapped Gome Retail Holdings plunged after its electrical appliance unit closed its last remaining store in Guangdong province and failed to pay suppliers, Yicai learned from two home appliance suppliers in southern China.”
The idea that GOME is going to open 10,000 physical retail stores - even on a franchise model - strikes us as between most and extremely unlikely. We’re not sure whether this means a glitch in the information matrix or a boast that won’t be met. But we’d suggest that 80% up on the back of this is too much.
