Experts say that the unsuccessful business localization of U.S. retailer Best Buy may have underpinned its decision to close all nine outlets along with its regional headquarters on the Chinese mainland.
The consumer electronics giant said in a statement on Tuesday that it would merge its China operations into its wholly-owned subsidiary, Jiangsu Five Star Appliance Company.
The poor acclimatization to the local conditions and the fierce competition in the Chinese market had been attributed to the company's business troubles, said Han Jianhua, the secretary general of Shanghai Home Appliances Trade Association.
"Before Best Buy landed in China, the majority of market shares had been gobbled up by domestic giants like Gome and Suning," said Han.
In Shanghai alone, the three leading domestic brands, Gome, Suning, and Yongle, boast more than 160 outlets, far outnumbering Best Buy's six stores.
Furthermore, it turns out that some of Best Buy's business strategies worked out poorly in the Chinese market.
"The 'buyout strategy' of Best Buy, namely paying the full amount to suppliers while keeping out their salespeople, did not lower cost as expected," said Pei Liang, secretary general of China Chain Store & Franchise Association.
A Best Buy staff member admitted to Xinhua, on condition of anonymity, that the company had suffered from thin profit margins and had to lure customers into other services such as extended warranty.
As a result, many shoppers reported few desired bargains in Best Buy stores but more payments for additional services.
In Tuesday's statement, Best Buy Asia President Kal Patel said that the company now "intends to explore more profitable growth options" in China.
Patel also said that Best Buy would continue to serve Chinese consumers, with another 40 to 50 Five Star outlets to be opened in fiscal year 2012.
Best Buy took a controlling stake in Jiangsu Five Star in 2006 for about 180 million U.S. dollars and bought it out completely in 2008.
"I don't think Best Buy was withdrawing from the Chinese market. Their current transfer of business to Five Star is, in actuality, a step forward in localization," said Pei.
In 2009, the household electrical appliance industry in China reported over 743 billion yuan (113 billion U.S. dollars) in total output. Its annual growth rate is expected to average 8-10 percent in the next five years.
