Ｂｅｓｔ Ｂｕｙ：Ｓｔａｒｔ ａ Ｎｅｗ Ｐｅｒｉｏｄ ｗｉｔｈ Ｒｅｖｉｅｗ

After years competition with Gome and Suning in Chinas house appliance industry, Best Buy, which is always the loser, has to rethink of its development strategy in China.

Five years ago, Best Buy entered Chinas market. The media all said “Here comes the wolf!” and worried about the future of Chinas domestic household appliance dealers. Two years ago, Best Buy set up its first storefront in China. It acquired Five-star Appliance Co., Ltd, which was the fourth largest household appliance dealer in China at that time. Nearly every one misunderstood that this was the start of Best Buys strategy in China and began to wonder how this foreign giant changed the situation of household appliances retail chain industry in China. However, the change that Best Buy brought was too tiny to be considered. From the setup of the first storefront to now, Best Buy never stops its exploration in China. It can be said that the biggest failure of this America-based retail giant is that it has never formed an effective and suitable development pattern in China.

The Purpose of Acquiring Five-Star

Frankly speaking, it was a smart decision for Best Buy to acquire Five-star Appliances Co., Ltd at that time. However, as the time goes, people have already forgotten the unification of Best Buy and Five-star. Five-star Appliances Co., Ltd was the fourth largest household appliances retailer in China and had a large market share in Jiangsu and Zhejiang. Actually, Best Buy just made use of this acquisition to find the way to compete with Gome and Suning, the Top 2 household appliances retail giants in China.

But why no acceleration happened to the development of Best Buy in China after this acquisition? According to the experts, this is closely related with the truth that Best Buy didnt make clear of its role as an investor. For Best Buy, such an acquisition should at least function in three aspects: firstly, it acquired Five-star which was no longer a competitor. Presently, Best Buy has only fulfilled this initial object. Secondly, the acquired enterprise should completely accept the brand, concept and operating pattern which was quite impossible for Five-star. And now Best Buy just cares the development of Best Buy brand when both brands are under operation simultaneously. Thirdly, Five-star has 136 professionalized retail chain stores in 70 cities of eight provinces in China. If Best Buy can make good use of this and attach more importance to the development in Sichuan and Zhejiang, it can have a much better position in the competition of the household appliances retail chain industry. Unfortunately, by now Best Buy has never realized the last two functions.

The real status quo is that it is not enough for Best Buy to “sow seeds” if its wants take its root deep into the earth of China. At the first anniversary of the joint venture between Best Buy and Five-star, Five-star once declared in a high profile that it would consolidate the market share of the advantageous area in 2007 and newly opened 25 storefronts. But at last, only 20 ones had been realized. And the benefit rate of the single storefront is so deteriorating that it had to close ten storefronts in the middle of 2007. Actually, years from 2005 to 2007 were a golden period for the domestic retail chain enterprises to development. Take Gome for example: in that period, about 200 new storefronts of Gome opened in China. Five-star also welcomed its fast development in the year of 2005. The number of newly-opened storefronts was not smaller than the ones of Gome and Suning. If Five-star could hold on at that time, its present situation might be much better. With the hope of finding new development pattern through the hand of Best Buy, Five-star stopped its development pace by itself. Best Buy, as the benefit community with Five-star, Best Buy undoubtedly could not realize development. People cant help casting doubt on Best Buys purpose of acquiring Five-star. Maybe this is the first problem that Best Buy needs to review.

The Strategy under Query

Best Buys development strategy in China is “small in the number of storefronts and products but excellent in product quality, customer experience and after-sale service.” This strategy decided that its development pattern was different from the one of “enlarging business scale” adopted by Gome and some other domestic enterprises. However, the so-called focus on the “costumer experience and after-sale service” is just a fine show which is easy to be learned and mastered. In fact, the domestic household appliances retail chain enterprises, represented by Gome and Suning, have always been attaching great importance to the construction of high-end storefronts. As early as half a year before the opening of Best Buys first store in China, Gome and Suning had already taken some actions to change the traditional retail channel, to develop the flagship stores and to put more efforts in the sale of digital and IT products. Hereinto, Sunings “background construction project” started in 2002. The 2008 half-year performance report of Suning showed that its prime operating revenue saw a 39.41-percent year-on-year increase. With the consummation of the information system, modernized logistics and human resources management, Sunings background construction has become the “vane” for its market performance. And Gome, which is the largest household appliances retail chain enterprises in China, also pays a lot of attention to the construction of flagship stores. Of its 60 storefronts in Beijing there are more than 10 flagship stores. Presently, Gome and Suning are trying to realize the goal of improving the benefit rate of every single store, whereas Best Buys acceleration in enlarging the number of storefronts is just a kind of response to the public opinion, with no real meaning.

In addition, as the largest retail enterprise of consumer electronic products in the world, Best Buys sphere of influence can not be limited in those few stores in Shanghai. The urgent task of Best Buy is to walk out of Shanghai because no scale means no competitive power. If you want to win the competition, the precondition of taking root is to have the stores distributed in the whole country. Regrettably, in the face of the questions from the public, the fierce competition from Gome and Suning and the bad market performance, Best Buy still sticks to its former development pattern without very tiny, if any, changes. It explained like this: “We should do well in the business of a region and then spread our business to other places, making sure that our supply chain not too long and that we always have enough money for our investment.” This sounds right and reasonable, but the present competition situation may not allow such a development pattern to exist.

It is known that Best Buy declared in a high profile that “the performance of its store in Xujiahui, Shanghai was ranked at Top 50 among the more than 1000 storefronts in the world at the first anniversary of its Xujiahui store. If such a saying is true, it should thank to the potential of Chinas market. But why doesnt Best Buy continue to open some stores like the one in Shanghai in Guangzhou, Beijing and so on, since the store in Shanghai has seen “unprecedented success”. As we say that Movement Can Show Everything, the global leading household appliance retail giant Best Buy, having only opened a store with 400 square meters in Beijing, still seems to lack confidence in the market operation in China.

No Scale Means No Performance

In China, the more storefronts an enterprise owns, the more advantages the enterprise has in competition. Though Best Buy once issued some attractive and different conditions like “goods first and then money”, many upstream suppliers of household appliances in China still dont choose Best Buy as their supplier.

Actually, Best Buys stagnation in the development in China is attributed not only to the strategic mistakes but also to the opportunity, which is really beyond its control. For todays Gome and Suning, the period of taking as many resources as possible has been gone. Now Gome has 1300 storefronts while Suning has 800. This means that it is too late for Best Buy, which has been cautious in investment, to emirate to Gome to enlarge business scale through mergers and acquisitions because there are not enough resources. The markets in the major and second-tier cities have already reached the saturation point. Moreover, the situation of large sales volume with small profit will not be changed in a long while. These factors force Best Buy to pay high price for their “late arrival”.

Looking at the domestic and foreign macro circumstance, the financial crisis has influenced China; the consumers hold a conservative attitude towards the “large” consumption. In this situation, it is hard for the dealers specialized in the high-end electronic products to have a good performance. As we all know, the second largest electronic products retailer in the USA Circuit City has already gone bankrupt. Then, will the largest retailer Best Buy, whose performance in China is bad, follow the same disastrous road?

In China, the civil resident expect or even admire Best Buy a lot. It is not difficult to understand because Best Buy is a well-established enterprise founded in 1966. With a long history and a consummate management system, Best Buy always considers itself as the shopping mall for the high-end people. But in China, a famous brand is far away from enough. People who once hoped that Best Buy could change Chinas household appliances industry with its unique management philosophy and pattern must be disappointed since at present the foreign giant could not assume this responsibility. What Best Buy needs to do in China is to reconsider its development strategy.