I N D U S T RY F E AT U R E
B Y E S T H E R YO U N G
IMAGINECHINA
Cracking the Chinese Retail Market Best Buy’s recent troubles are indicative of the immense challenges of the China retail market, but with the right strategies, there are opportunities as well.
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n late February, U.S. consumer electronics retailer Best Buy announced that it would close its nine branded stores across China after five years in the market. Though its move came as a surprise to many, that Best Buy was struggling to compete in China was not breaking news. Best Buy’s 2008 first-to-third quarter financial report, for example, shows its net earnings were down 77 percent from a year earlier to US$52 million. In 2009, the company said it would cut its spending by around 50 percent, slowing expansion plans. During its stay in China, Best Buy lagged behind local rivals Gome and Suning, capturing less than one percent of the domestic electronics market. The closing of Best Buy’s stores in China was not because of a lack of effort. When Best Buy announced its entrance to the China market in 2005, the company strived to meet Chinese consumer needs. The company opened “lab stores” to
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INSIGHT
APRIL 2011
“accelerate learning about the diverse consumers in China.” In addition, Best Buy banked on established relationships with manufacturers so that, in turn, it could offer Chinese consumers competitive prices on products for sale. Best Buy seemed to be prepared for the long haul. “It’s a marathon, not a sprint,” said then-CEO Bob Willett. But now, the Best Buy brand is gone from China. Best Buy is not the only U.S. retailer in China to retreat of late. Home Depot, the U.S. home improvement store, closed its last store in Beijing last January, its sixth store closing in two years. Mattel’s six-story flagship Barbie store in Shanghai closed its doors in February. The high-profile travails of Best Buy – the largest electronics retailer in the U.S. by sales – is a cautionary tale for any retail company heading into the China market. Though the China market is becoming more competitive by the day, many foreign companies continue to enter China because