Best Buy plans China growth

02 April 2012

BEIJING: Best Buy, the electronics retailer, is ramping up its focus on China, both by opening more stores from its Five Star chain and through leveraging effective strategies proven elsewhere.

The firm has announced plans to cut $800m in costs, including closing 50 big box branches in the US. By contrast, China was placed among its four key future priorities, alongside ecommerce, mobile and "connectivity" and offering customer services.

At present, the company is represented in China via approximately 180 stores under the Five Star banner. Best Buy purchased the organisation in 2006, but shut down its nine own-branded outlets last year.

"One important tenet of our China strategy is the expansion of our profitable Five Star stores," Brian Dunn, Best Buy's chief executive, said on a conference call with analysts.

The retailer had previously set the target of securing $4bn in sales from China by 2016, when Five Star is due to boast between 400 and 500 branches. "We are on track to accomplish that objective," Dunn said.

He further reported that its Five Star sites will yield a rate of return reaching around 25%, meaning they should be lucrative enhancements to Best Buy's current portfolio.

Later this year, Best Buy will also introduce the "store-within-a-store concept" for mobile phones in six Five Star outlets by the end of July and another eight in August.

This initiative will be based on the "Global Connect" alliance that the company has formed with the Carphone Warehouse (CPW), a telecoms retailer in the UK.

"Its purpose is to bring the combined expertise and success CPW and Best Buy have had in mobile phones and connectivity to additional retail partners around the world," said Dunn.

"Based on what we've learned together in the United States and the global experience of our team in China, I'm confident we can bring a higher-value experience to consumers in China."

During the last quarter, Five Star's total revenue growth stood at 22%, with like-for-like figures improving by 8% on an annual basis. It also opened 38 stores in this period.

While the expected end of government-sponsored trade-in subsidies on some electronics products is likely to facilitate a slowdown, the company remains positive on China's long term prospects.

Data sourced from Seeking Alpha; additional content by Warc staff