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It will be the first of three facilities that could slash the company's distribution costs by half, Bloomberg News reported.

The 80,000-square-meter center will be able to store and distribute up to 12 billion yuan worth of products every year when operations start in October, said Chen Xiao, Gome's president.

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Two similar-sized logistic hubs will be built in southern Guangzhou and in eastern Tianjin port, he said.

Gome's 2005 profit margin fell to 9.2 percent, underscoring the push by founder and chairman Huang Guangyu to cut costs to match the 23 percent margin earned in the same year by Wal-Mart Stores Inc.

He's slashing transport costs, spending more on advertising and reorganizing his stores after paying HK$5.27 billion (US$675 million) last year to buy a rival.

"Out-dated logistics facilities in China are a drag on profit margins for some Chinese retailers," said Anthony Teoh, a Hong Kong-based analyst at South China Finance & Management Co. "They need to expand further as retail demand will grow robustly in the next five to 10 years."

To prevent rising rents from adding to costs, Gome will buy store space, Chen said, without elaborating.

The company has 850 stores in more than 200 Chinese cities.

"The efficiency of China's distribution service is still a little backward," Chen said in an interview in Beijing yesterday.

"By streamlining the logistics and warehousing with our suppliers, we not only speed up the distribution of goods to customers, we can cut costs by saving on warehousing and transportation."

Gome's most profitable flagship stores in Beijing, Shanghai and Guangzhou can earn between 600 million yuan and one billion yuan each in annual sales, Chen said.

Shares of Gome rose for the first time yesterday in seven days, closing 0.7 percent up to HK$8.45 on the Hong Kong Stock Exchange. Chen bought 18 million shares of the company in February.

(For more biz stories, please visit Industry Updates)