Best Buy's Withdrawal: American Morals Fail to Transcend Chinese Co... http://www.china-briefing.com/news/2011/03/02/best-buys-withdrawal-...

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Posted on March 2, 2011 by China Briefing

By Vivian Ni

Mar. 2 The famous United States-based

consumer electronics retailer Best Buy
announced on February 22, 2011 that it had
decided to stop running its nine stores in
China. The surprise announcement
effectively signaled the end of Best Buys
eight-year China story in which it spent
three years preparing for its market entry
and five years expanding itself to nine Asias premier fore
investment practic
stores located in Shanghai, Beijing, Suzhou multinational comp
and Hangzhou. and grow througho
and India.
Best Buy disclosed its decision to close three of its stores in Shanghai at an upper management
meeting on the afternoon of February 21. Just one day later it officially announced its plan to shut down
all of its nine stores in China. Although the withdrawal seems a little too speedy, there were already
signs earlier that Best Buys business was not running very well in China. According to related reports,
in Shanghai alone last year, there were already three contracted Best Buy projects that failed to finally
settle themselves. The first-to-third quarter financial report Best Buy released last November also
showed a meager 4 percent sales increase in the Chinese market, among its total US$38.5 billion
global sales during the same period, an over 100 percent increase from a year earlier. The other part of
Best Buys business, the Chinese electronics brand Five Star acquired in 2006, also only opened
around 30 new stores between 2006 and 2010, a very small number compared to other Chinese
electronics retailers that are seeing rapid expansion.

Unsuccessful business model?

Opinions on reasons for Best Buys failure in the Chinese market do not differ much. Many people
believe it expanded way too slow to survive in the face of severe competition from other Chinese
electronics giants such as Gome and Suning, both of whom currently boast over 1,000 stores
nationwide.

Experts say that Best Buys decision to stick to its American business model brought about its failure in
the Chinese market, although the model has been working very successfully in Western markets.
Different from its major Chinese competitors, who lease separate parts of a store to retailers of distinct
brands and earn profits from the so-called entrance-fee and take a portion of every retailers sales
profit, Best Buy purchases all of its products directly from suppliers and prices them independently.
Also, while the majority of sales people in most Chinese stores come from the supplier side, Best Buy
hires a whole staff as its own sales team. The American company also utilizes a non-commission policy
for its sales staff in order to avoid biased promotions that will disturb customer decisions.

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