Best Buy's failure in China - Shaun Rein

Image by Fantake via Flickr

Even though Chinese consumers are spending more on expensive products like Apple, they shunned the Best Buy stories, explains Shaun Rein in CNBC. The economy of scale did not pay off:

According to our research, Best Buy in China was perceived as being too expensive, with many of their products priced higher than in local markets. Why buy a Sony DVD player or Nokia phone at Best Buy when you can pay less for the exact same product at a local store? Consumers will only be willing to pay more, like at the Apple stores, if they are buying something they cannot get elsewhere.
While scales of economy have allowed big chain stores in America to offer cheaper prices than niche players, local retailers in China are able to undercut prices because they pay less in salaries, benefits, rent and electricity. Rampant piracy in China also means local computers shops are willing to install counterfeit software in products, which makes it more appealing for customers.

More in CNBC

Shaun Rein is a speaker at the China Speakers Bureau. When you need him at your meeting or conference, do get in touch.

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Low profit margins force BestBuy out - Paul French

Former flagship in Xujiahui, Shanghai

The decision by US electronics retailer BestBuy to close its outlets in China hardly comes as a surprise, says retail analyst Paul French in USA-Today. "They were ahead of the consumer."

Unlike the warehouse style of top Chinese electronic chains Gome and Suning, where sales personnel push particular brands to earn commission, Best Buy provided "a much nicer retail environment," said French, at prices no higher than its competitors.

But the perception of the customers was different, they still feared they were paying a price for the better store, used it for window-shopping and rushed to the competitor when they went for a purchase.
French wonders whether switching to Five Star, an electronic retailer from Nanjing, purchased by BestBuy, will help:

Paul French by Fantake via Flickr

As independent shops and plazas, not chains, still dominate electronics sales, "the pie is going to get cut very thinly," French cautioned. "Profit margins are great if you are Apple," he said. Elsewhere, "There are too many brands and not enough people buying the high-margin items."

Paul French is a speaker at the China Speakers Bureau. When you need him at your conference or meeting, do get in touch.

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The barrow boy grocer from Tesco - Paul French

Paul French  via Flickr

Some foreign companies do well in China, others fail. And some have a more rollerskating experience like Tesco, recalls retail analyst Paul French in the Telegraph. The UK retailer set off on a wrong foot with Taiwanese management, but took a good turn when Mr. Towle, a real grocer from the UK moved over.

Mr Towle has been in China for five years, and has no plans to leave. Under his leadership, the operation is clearly gaining momentum. Tesco did not make the best start in China, paying £140m (a rather steep price-earnings multiple of 51 times) in 2004 for a 50pc stake in Hymall, a Taiwanese supermarket chain with 25 stores.

“So many weird things happened at those stores,” said Paul French, a retail analyst at Access Asia. “It probably would have ended in a labour dispute these days. The staff hated the Taiwanese management and they used to talk about sabotaging the products and so on.

"The UK management sent over some people to try to tell the Taiwanese what to do and in the end they just got rid of them all. Since then, it has all been running well.”

A year after his arrival in China, Mr Towle took 90pc control of the venture for a further £180m and last year Tesco finally clinched the remainder.

Inside his stores, Mr Towle, who has been with Tesco for 25 years, working up from the bakery section, can reel off the prices of any of his products and will happily discuss catchment areas, layout and volumes.

“He’s a good old-fashioned grocer,” said Mr French. “Basically, to understand the Chinese consumer, you have to be a barrow boy grocer. They get it immediately. What was needed was a good deal of ruthlessness. In a business where you have a 2pc margin, you need to be ruthless.”

More in The Telegraph.

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Paul French is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.

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