Why Did Best Buy Fail China?

In February 22nd, BEST BUY, a North American appliance giant, suddenly announced the closure of all nine private brand stores and retail headquarters in China. Then two p.m., best buy in Nanjing low-key convened a press conference, announced that the business will be integrated into five star electrical appliances.

Best buy has dual brand and dual mode operation in China, trying to become a spoiler in changing China's electronic chain industry. Five years ago, from the original "wolf" to the present recession, best buy's proud North American model was defeated in China.

Coincidentally, the Home Depot, an American DIY home building material retailer, has recently closed its stores in mainland China because of its misjudgement on the local market. The largest building material distributor in Europe, France's Saint Gobain group, a building material seller who invested in China in Paris, has decided to withdraw from the Chinese market because of its poor management and huge losses. Mattel Inc (Mattel), the 6 floor Bobbi flagship store in Shanghai, is also closed down, and the enthusiasm of Chinese consumers in the traditional market is fading away.

Snail wandering

In 2003, best buy set up an office in China. But since entering China, best buy has not found smooth channels and methods in laying shops. It is common for newspapers to open up shop and check blocked news. In 2006, best buy bought five star electric appliances that Wang Jianguo founded. In November 2008, 18 months after the opening of the first store in Xujiahui, Shanghai, opened second stores in the same city, but this area has already been entrenched by Gome and Suning industry oligarchs.

Yang Deming, the second generation leader of best buy China, once regrets that after paying high tuition fees, best buy finally learned how to submit an application form to the competent government authorities in China.

Nevertheless, in the past five years in China, best buy has been expanding slowly, leaving only nine stores in China, six of which are in Shanghai, Beijing, Suzhou and Hangzhou. Compared with the same period, Gome opened 500 stores, Suning opened 310 stores, compared with best buy, snail walked like a snail.

In 2006, the development of five star electric appliances bought by best buy was not satisfactory. In the 5 years, only 170 stores were opened. Except for the 7 branches of Qingdao, Zhejiang, Anhui, Henan, Sichuan and Yunnan, the rest were concentrated in Jiangsu. This shows that the focus of best buy in China's market is not only Shanghai but Jiangsu, only in the stage of regional layout. After the merger, Wang Jianguo, chairman of the Five Star Appliance Company, once wanted to expand in Shanghai, but with the best buy headquarters in the first tier cities to develop best buy's own brand concept conflict, we can only give up.

In 2010, after the attempt to open five new stores failed, some suppliers began to shrink their cooperation with best buy. For example, Yang Dongwen, vice president of SKYWORTH group, said that the 7 stores of best buy did not enter. A US electrical appliance executive told the Zhejiang businessmen that the annual shipment of best buy in the US is only 100 million yuan, which is not worth investing too much in comparison with Gome and Suning system.

Home appliances do not catch up with best buy, so best buy can't get a lower price and no advantage. When price sensitive Chinese customers and best buy entered the market, they expected a sharp drop in the expectations of the fast-growing emerging middle class consumer market. Best buy finally found out that they had only been reduced to the experience Hall of Gome, Suning and even Jingdong mall.

Citrus trifoliate

Best buy has always adopted the mode of buyout operation, which is actually a distance from the "finance like" mode widely criticized by the domestic appliance chain industry, and emphasizes "differentiated experience service". This mode makes best buy expand rapidly in North America, but has also become a stumbling block for best buy in the Chinese market.

Buyout operation has a high demand for terminal capital chain. Since the purchase of property and self employment guide, the cost of best buy has been high, and its expansion speed has been increasing. Although spot cash was welcomed by suppliers at the very beginning, buyout operations cut off supplier control of terminals, and suppliers were worried about the decline of best buy's shopping guide.

What is even more embarrassing is that with the increase in the loss of best buy, the mode of cash settlement can no longer be carried out only after a year's trial. Although there is no entry fee, up to 15% of the return point also makes suppliers complain constantly. Best buy China has no influence on its global sourcing and hopes that suppliers will enter North America.

Wang Jianguo believes that the failure of best buy to lose Mai City is related to "no use of human beings".

Since the beginning of China's best buy, almost all key positions have been replaced. In just two years, its top policymaker in charge of the Chinese market has changed two jobs. Lv Weimin, President of best buy China, was ambitious at the beginning of his term of office, but was quietly replaced for a short time. A year ago, Tang Sijie, executive vice president and Asia Pacific president of best buy, took office. The change of senior headquarters directly led to the instability of the top management team in China.

Wang Jianguo believes that we can not adopt the "bring ism" and accept the management system and culture of best buy, because there are different regions. The management, finance and human experience in the home appliance chain industry can be used at the back level, while the services, prices and products at the front stage must be integrated into China's national conditions. {page_break}

In 2008, after Lv Weimin resigned, the successor Yang Deming began to carry out "localization operation" reform. Yang Deming had previously been president of baozi China, but he did not change the "buyout" mode, but began to ask for suppliers' entry fees.

This undoubtedly stirred up dissatisfaction among suppliers. In the absence of scale, the supplier believes that best buy has no reason to emulate Gome and Suning.

Wang Jianguo had hoped that best buy could get to China, but best buy only learned fur and did not follow its goal: business models, management mechanisms and even corporate culture did not understand the survival rules of the domestic market.

Confirmed habits are hard to get rid of

Xu Yuan, vice president of the Chinese Market Association, believes that closing stores is just a strategic adjustment of Best Buy: "it is a strategy to retreat to advance, just like an enterprise's adjustment of product line, which is conducive to its future development." But in the Chinese market, best buy seems to be a bit heavy.

After the international financial crisis, the development of best buy in North America slowed down, and the operating profit in the third quarter of 2008 dropped by 13.98%. According to the third quarter earnings report of best buy in 2010, best buy's net profit was $217 million, down 4.4% from the same period of last year, and achieved 11 billion 900 million US dollars in revenue, down 1.1% from the same period last year.

Shares of best buy fell sharply due to the failure of market expectations. After its third quarter earnings, best buy's shares fell 18%, creating the biggest decline since August 2002. Best buy's North American headquarters is precarious, resulting in insufficient expansion in the Chinese market.

And the market gap left by best buy has been coveted by competitors for a long time. The city of Foxconn, which is jointly built by metro and metro, has similar business style. After leaving the best buy, Wan De City announced that it would buy best buy after-sales service and other projects, and plans to set up 100 stores in the next 5 years. The development of B2C e-commerce platform has made the market structure more complicated. Jingdong mall has set the goal of achieving sales of 40 billion yuan in 2011. Online and offline double attack, best buy actually has been marginalized.

Whether it's a change of course, a return to the five stars, or a contraction in the attempt to make a comeback, best buy does not admit that it has already been defeated. In February 27th, Song Dawei, general manager of best buy China, said in Shanghai that in the near future, 1-2 stores in best buy will be opened in a new mode. By then, best buy will try to sell online, or introduce the mobile business mode to China to provide excellent mobile solutions. And best buy's own brand has been designed and manufactured in China, and this business will continue to develop. Song Dawei said: "we will never give up the Chinese market."

[expert comments]

Forgotten "localization"

Best buy, a North American appliance giant, lost its way to China in China. The most important thing is that best buy did not solve the problem of localization.

First of all, the development strategy of localization is not clear. Five years into the Chinese market, the best buy is three. Because each commander has his own strategic thinking and planning, frequent shifts will inevitably lead to the discontinuity of best buy's strategy in China. Even though the headquarters of the best buy company has its own consideration for every change, it is a fact that the localization strategy is not implemented effectively. However, the development strategy is not clear enough to make it possible for the best buy, which relies on personalized service and shopping experience, to effectively bring this competitive advantage into full play.

Secondly, the localization mode of operation is not effective. Although best buy started its localization operation in 2008, it never changed the American business model. Best buy has finally lost its way, and its business model is seriously unacceptable. It has become the consensus of the industry. It also makes the success of the retail business in the Chinese market match with the Chinese mode of operation. It is precisely because of the constraints of the buyout business model that is supported by high sales volume and high margin. The expansion speed of best buy in recent years has been left behind by Gome and Suning. It is not difficult to understand why domestic appliance suppliers are not very cold on best buy.

Third, localization management talent is insufficient. Based on the American mode of operation, most of the decisions and operations of best buy China come from the instructions of the global headquarters. However, the localization management team is obviously inadequate, leading to a lack of knowledge and experience in the Chinese market, and not enough to adapt to the Chinese market. In fact, Wang Jianguo, the former chairman of the Five Star Appliance bought by best buy, issued a feeling of "no use for people". It is true that best buy failed to realize the transformation of talent localization in the Chinese market, and did not understand the law of survival in the domestic market in terms of management mechanism and corporate culture. It also marked the fate of today's failure.

In fact, the failure of best buy to get rid of Mai City is not just a case. Localization failure is also widely seen in other foreign retail giants. Before best buy came to China, many foreign retail giants such as Jia De Bao, Mei song, Paris, MATTEL and so on also entered the Chinese market. But at the moment, they are also faced with an awkward situation of not being able to comply with the situation. The forgotten localization will be a major issue that foreign retail giants have to reexamine in the Chinese market.