Best Buy, the world’s largest consumer electronics retailer, announced its plan to close all nine retail stores in China and its headquarters in Shanghai. About 1,000 full-time employees will be laid off.
Best Buy stopped short of admitting a complete withdrawal from the Chinese market. Liu Ting, a Public Relations manager for Best Buy China, said that apart from the retail stores, Best Buy China does international trading and still owns the Five Star appliance store chain.
According to Beijing News, the severance package for each employee is about two years salary. Most employees have already signed the severance agreement. Best Buy will spend a total of 70 million yuan (about $10 million) in severance pay.
Best Buy entered the China market in 2006 as its first strategic move outside North America. It then acquired China’s third largest home appliance retailer, Jiangsu Five Star Appliance Co. in two installments, totaling $365 million in 2006 and 2008. In the meantime, nine Best Buy stores were opened in Shanghai, Suzhou, Hangzhou, and Beijing.
He Yangqing, Vice President of the largest Chinese home appliance and electronics retailer Gome, spoke about Best Buy’s decision to 21 Century Economic Report: “It is Best Buy’s own choice but it is also what domestic electronics retailers are willing to see.”
Appliance expert Liu Buchen thought that Best Buy entered the Chinese market too late. By 2005, the home appliance and electronics retail sector had already matured. Since it entered China in 2006, Best Buy has been under pressure from domestic retailers.
A China Economic Times report said that service is a luxury in China. Most Chinese consumers are bargain hunters who would not spend a little more money in Best Buy because of its professionally trained sales personnel. They would rather go to domestic retailers, such as Gome or Suning in order to save a few dollars.
It takes several million yuan for Gome to open a new store. Yet it takes as much as 10 times more for Best Buy to open a similar store. This is why in the past four years Best Buy only opened seven Best Buy stores and 30 Five Star stores. In the same time frame, Gome opened 350 new stores and Suning, the second largest Chinese retailer, opened 421 new stores.
Best Buy provides individualized service and a better shopping experience, but its price is higher.
Analysts have thus commented that Best Buy’s apparent failure to capture a market is a result of not understanding the priorities of Chinese consumers. A Yangcheng Evening News report said that ever since Best Buy entered China, it has been “struggling with pride” and eventually it failed to adjust to the environment.
Best Buy’s remaining business in China will be under the Five Star brand, which will operate under the business model of “localization with Best Buy experience.”
Read the original Chinese article.