Best Buy get­ting out of China

Glob­al­iza­tion over­reach claims another vic­tim

China Daily (Canada) - - ACROSSAMERICA - By JACK FREIFELDER in New York jack­freifelder@chi­nadai­lyusa.com

Best Buy’s decision to sell its re­tail business in China is the lat­est ex­am­ple of a multi­na­tional company over­reach­ing in the coun­try.

“China is a mas­sive coun­try, and it has cer­tainly been a chal­lenge for a lot of in­ter­na­tional re­tail­ers, par­tic­u­larly Amer­i­can re­tail­ers,” said Mau­reen Atkin­son, a se­nior part­ner with the JC Wil­liams Group, a Toronto re­tail and mar­ket­ing con­sul­tancy.

“A lot of com­pa­nies are now look­ing out­side their bor­ders to other mar­kets, a phe­nom­e­non we call the ‘glob­al­iza­tion of re­tail,’ ” Atkin­son told China Daily. “We see com­pa­nies like Best Buy, Wal-Mart and a lot oth­ers who start to hit the lim­its of their growth within the mar­kets that they know best, so then they start look­ing beyond those mar­kets.

On Thurs­day, Best Buy Co Inc an­nounced it would sell its majority share in the Jiangsu Five Star Ap­pli­ance Co to the Ji­ayuan Group, a lead­ing Chi­nese real es­tate firm.

“It be­comes very chal­leng­ing in some cases for the com­pa­nies to be as suc­cess­ful or suc­cess­ful at all in th­ese new mar­kets with the same for­mula that they’ve used in oth­ers,” she said. “So it’s not sur­pris­ing that Best Buy would find the Chi­nese mar­ket to be a chal­lenge as well.”

Michael Pachter, a man­ag­ing di­rec­tor of eq­uity re­search with Wed­bush Se­cu­ri­ties Inc, a fi­nan­cial ser­vices firm based in Los An­ge­les, said Best Buy’s an­nounce­ment means it will no longer be a re­tailer in China, though the company will con­tinue to man­u­fac­ture in China.

“Best Buy didn’t un­der­stand the Chi­nese mar­ket, which is pretty clear from their pres­ence and lack of growth,” Pachter said in an in­ter­view with China Daily.

Pachter said the driv­ers for the Amer­i­can re­tailer are pre­mium prod­ucts like the elec­tron­ics of­fered by Ap­ple Inc, Sam­sung Elec­tron­ics Co and Sony Corp.

“Best Buy’s rea­son for be­ing is to sell pre­mium prod­ucts at a rea­son­able price, not the off­brand ver­sions,” he said. “You can buy a very high-qual­ity prod­uct for a lot less money with­out the brand name, and the Chi­nese are prob­a­bly a lot savvier about that than the Americans. But Best Buy is not mak­ing a com­ment on the Chi­nese business cli­mate here; they’re mak­ing a com­ment on re­tail.”

Pachter said China, Canada and Mex­ico are all mar­kets in which Best Buy has seen head­winds.

The deal, which is still sub­ject to reg­u­la­tory ap­proval, is to be finalized dur­ing the first quar­ter of 2016. No fi­nan­cial terms were re­leased.

The Wall Street Jour­nal re­ported in June that Best Buy was con­sid­er­ing sell­ing its China business in a deal that could net nearly $300 mil­lion.

Best Buy, the world’s largest mul­ti­chan­nel con­sumer elec­tron­ics re­tailer, left the Euro­pean mar­ket in April 2013 by sell­ing a 50 per­cent stake in a joint ven­ture to Car­phone Ware­house Group Plc for $775 mil­lion.

Hu­bert Joly, pres­i­dent and CEO of Best Buy, said in a state­ment that the sale of Best Buy’s in­ter­est in Five Star does not sug­gest “any sim­i­lar ac­tion” in Canada or Mex­ico.

“In­stead, [ this move] al­lows us to fo­cus even more on our North Amer­i­can business,” Joly said. “Over the last two years, we have worked to im­prove our business in China and are proud of the progress we have made there.”

Joly also said the company would con­tinue to invest in its China-based pri­vate la­bel op­er­a­tions, a group that in­cludes brands such as Dynex and In­signia.

Best Buy, with its main of­fice in Rich­field, Min­nesota, has more than 140,000 em­ploy­ees and op­er­ates in the US, Puerto Rico, Canada, Mex­ico and China.

Best Buy has more than 180 stores in China un­der the Five Star brand.

In 2006, Best Buy ac­quired a majority stake in Five Star for $180 mil­lion. At the time, Five Star was among the top five ap­pli­ance chains in China. Founded in 1998, with its head­quar­ters in Nan­jing, Jiangsu prov­ince, Five Star be­gan op­er­at­ing as a sub­sidiary of Best Buy in June 2006.

“There are lots of op­por­tu­ni­ties for Best Buy be­cause they have a name, but a clear un­der­stand­ing of the cus­tomer and ex­actly how that cus­tomer thinks is re­ally crit­i­cal to suc­cess in any coun­try,” Atkin­son said.

lo‘ A t of com­pa­nies are now look­ing out­side their bor­ders to other mar­kets, a phe­nom­e­non we call the ‘glob­al­iza­tion of re­tail.” MAU­REEN ATKIN­SON SE­NIOR PART­NER WITH THE JC WIL­LIAMS GROUP

LU HUI­QUAN / FOR CHINA DAILY

A Best Buy store is seen at the At­lantic Cen­ter in New York on Thurs­day. The world’s largest elec­tron­ics chain reached an agree­ment to sell its China op­er­a­tion “Five Star” to Ji­ayuan Group, a Zhe­jiang-based real-es­tate company, on Thurs­day.

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