Chen Xiao, former chairman of Chinese home appliance and consumer electronics retailer Gome (0493.HK), recently alleged that Gome requires suppliers to pay substantial fees to retail their products in Gome stores. He added that the increasing costs of the kickbacks are ultimately passed on to consumers, driving prices higher than those through other channels such as e-commerce and eroding Gome's competitive price advantage. Gome's largest suppliers, such as Haier and Siemens, take approximately 55% of revenue from sales of their products in Gome's stores, while smaller manufacturers such as Zhejiang-based home appliance maker Sacon receive only a 25% revenue share after various fees are deducted.
Chen also claimed that in addition to annual contract fees with Gome's headquarters, suppliers pay substantial fees at every layer of the company from regional offices to sales counters. Ordinary sales counter managers receive more than RMB 10,000 a year from suppliers in exchange for better counter space and product placement, according to Chen, who said that Gome's share incentive plan launched in July 2009 was not only aimed at retaining executives but also at limiting the extent of these kickbacks.
Editor's Note: For more information on this topic, please see "Gome Confirms Dazhong Founder Appointed Chairman," MD 3/10/11 issue.