Best Buy spies China revival

03 October 2011

BEIJING: Best Buy, the consumer electronics retailer, is considering reviving its brand in China, having decided to shut the nine stores operating under its trademark banner in February this year.

Brian Dunn, Best Buy's CEO, argued its "big box" outlets with fixed prices, and manned by the company's "blue shirts", fell out of line with other chains, largely staffed by employees working for manufacturers who are empowered to give discounts.

"The lesson we learned from last time is we got too far ahead of the Chinese consumer in how business is done there," he told the Financial Times. "The truth of the matter was we weren't able to get the right connection with the customer."

"The customer likes the Samsung specialised labourer, the Sony specialised labourer, and the negotiating. So we think, over time, the model will evolve, but we were too far out in front. Excuse us."

Best Buy's Chinese presence rests on Five Star, which it bought in 2006, and currently has 178 branches. Only 20% of in-store staff work for Five Star, with the remainder mostly representing brands sold on its shelves.

The Best Buy Mobile name has now been added to mobile phone sections of Five Star stores, although Dunn asserted this falls short of the "rebirth" of its brand.
"To be fully candid, we are still testing whether to call it Best Buy Mobile or Star Mobile, and we are going back and forth on that, and likely we'll test both and see how they play out and what matters most to the consumer," he said.

Shaun Rein, founder of the China Market Research Group, the insights provider, warned Best Buy did not appear to have "learned their lesson".

"It has nothing to do with being able to haggle: consumers told us they liked the fact that Best Buy had set prices," he said. "But Best Buy was perceived as being more expensive than the competition, and they had the wrong product mix."

Recent reports in Chinese media also quoted Wang Jian, Five Star's CEO, apparently suggesting Best Buy could "reopen its Xujiahui flagship store in Shanghai later this year, probably in December."

David Strasser, a Janney Capital Markets analyst, cautioned such a strategy "reeks of poor capital allocation". He said: "They have enough to figure out in the United States. They have a great Chinese business in Five Star."

Data sourced from Financial Times, Wall Street Journal, Minneapolis Star Tribune; additional content by Warc staff