Best Buy in China
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Case Code: BSTR299 Case Length: 20 Pages Period: 2003-2008 Pub Date: 2009 Teaching Note: Not Available |
Price: Rs.300 Organization: Best Buy Co. Inc. Industry: Retail Countries: China Themes: International Business, Globalization Business |
Abstract Case Intro 1 Case Intro 2 Excerpts
"We're trying to understand China in our own way, and offer an entirely different experience."
- John Noble, Senior Vice President, CFO, Best Buy International, in 2007.
"[...] a visit to the four-story Best Buy store shows that the Fortune 500 company has brought more than just a new retail outlet to the market. The Best Buy store is revolutionary in the shopping experience it offers."
- The China Daily, in 2007.
"Best Buy has little advantage in China over GOME and Suning, who know local consumers better. Best Buy is expanding at a slower pace than major Chinese rivals."
- Xiang Tao, Analyst, TX Investment Consulting Co., in 2008.
Introduction
In September 2008, US-based electronics retailer Best Buy Co. Inc. (Best Buy) reported revenue of US$ 9,801 million and net earnings of US$ 202 million for the quarter ending August 30 that year. The net earnings had declined by 19% compared to the second quarter of the previous year and the company attributed the decline to increased spending on enhancing its stores in the US and to international expansion. Internationally, the company's revenues for the quarter were at US$ 1.7 billion, a growth of 10% compared to the previous year. But the revenues in China had gone down.
On the reasons for this, Robert Willett (Willett), CEO Best Buy International and CIO, said, "In China, the earthquake and the major decline in the Chinese stock markets had a major effect on the psyche of the country, leading to a dramatic impact on the economy and retail sales. Our comparable store sales in China declined by the high single digits." Best Buy ventured into China in September 2003 by opening a sourcing office in Shanghai. Through this office, it also studied the Chinese market, which it eventually intended to operate in.
Best Buy entered the Chinese retail market in May 2006 by acquiring a majority stake in Jiangsu Five Star Appliance Co. (Five Star), the fourth largest electronics retailer in China. Five Star operated around 136 stores across the country. The acquisition was a part of Best Buy's 'dual brand' strategy - with Five Star stores and the Best Buy stores intended to cater to different segments of customers. Best Buy opened its first store in Shanghai in December 2006. The store, which occupied an area of over 87,000 square feet, was its largest in the world. It showed a marked contrast to stores operated by Chinese retailers, which were often dingy and badly maintained.8 At the Best Buy stores, customers could try out the products9 and employees helped them to decide on the products that would suit their needs...
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