China may be the world’s biggest and fastest-growing consumer market, but try telling that to American electronics firm Best Buy. who shut all nine of its branded stores in China after five years of failure. They were not the only ones – a month before, American home-improvement store chain Home Depot closed down its last outlet in Beijing. Critics were quick to blame Chinese consumers.
What do Chinese consumers want? Check it out here
The Chinese were, they claimed, “too cheap” to buy expensive products, or to care about service, and preferred to haggle for discounts over set prices. But that doesn’t tell the whole story. Local electronics retailer Gome has adopted fixed prices and non-commissioned salespeople in some flagship stores with the result that sales have soared, whilst Apple’s Shanghai store sells more iphones in the world despite being priced 30% higher than in the US.
SO WHAT WENT WRONG?
When Best Buy first entered the Chinese market, many people hoped it would successfully replace the long standing Chinese business model that focused on price centered competition, squeezing suppliers’ profit margins, and conducting promotions on questionable legal footing. Unfortunately, Best Buy struggled, whilst those outlets following the traditional Chinese business model prospered.
There were reasons for this – buying a Sony DVD or Nokia phone at Best Buy in China was simply too expensive – especially when you could get it cheaper at a local store. Chinese consumers showed they were only willing to pay more if they were buying something they couldn’t get elsewhere. Hence, the success of the Apple store.
Apart from this, local retailers in China were able to undercut their competitors because they pay less in salaries, benefits, rent and electricity. Rampant piracy in China also means local computer shops are willing to install counterfeit Microsoft software in products, which makes them more appealing to customers.
Best Buy also made the mistake of focusing on building large flagship stores, like they have in the U.S which didn’t work in China, where traffic congestion and a lack of parking means consumers often prefer to shop closer to their homes. A government ban on free shopping bags also resulted in consumers shopping more often, but buying less each time, which fueled the popularity of neighborhood stores. As Best Buy struggled against this background, local players such as Jiadeli and Lianhua, were quick to adjust by focusing on neighborhood stores and stocking better products.
MOVING ONWARDS AND FORWARD
By late 2014, Best Buy announced that it was selling to Jiayaun group and would be reconsidering their international operations. The focus of it`s efforts from now onwards would be to expand in the U.S., Canada, and Mexico. This admission of failure came with the knowledge that Best Buy`s major competitors Walmart and Amazon have had more success in Asia. However, Best Buy is now looking forward so they can proceed in the best interests of the company and its consumers.
Learn more about the success of Amazon in China here