Best Buy Closures Show China Ain't For Everyone

By Kristin Graham China isn't for everyone. That's the answer I offer to the numerous individuals who question my decision to live here. It's also the answer the Chinese gave to Best Buy (BBY). The retailer announced it's closing down its 9 Best Buy branded locations across China. I am far from surprised. All of the points that make Best Buy a success in the US make it an utter failure in China.

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Where Sears (SHLD) is the only major brick-and-mortar domestic competitor, there is no shortage of players in China. Electronics is an enormously fragmented market. And while there are nation-wide players such as Gome and Suning, electronics markets, where bargaining is standard, and small mom-and-pop shops are the preferred method of purchasing electronic goods. Best Buy has expanded into a household name in the US where high-quality customer service is its specialty. Not the same story in China.

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The brand is virtually unknown and while customer experience is key in the Chinese luxury sector, it is less than desired when it comes to electronics and the middle-market in general. Even if customer service was valued, there was little to appreciate. Customer service at the two Best Buys I visited several times was sub-par, at best. The Chinese purchase electronics on price and price alone. Due to the bargaining at electronic markets and online, such as at Taobao, Best Buy couldn't win on price like it does in the US. As for the infamous Geek Squad, Best Buy could hardly begin to compete in this space as electronics repair shops line the streets and will do the job for a small fraction of the cost of Best Buy's service. Replacement parts are sold near cost.

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Best Buy's failure is a reminder that reaching out to the seemingly holy grail of consumers -- the Chinese -- is proving far more difficult than imagined for those outside of the coveted luxury space. First mover brands in China positioned themselves as premium. In many cases, brands considered average in the US are priced and perceived as high-end in China. For China's luxury market, higher prices actually drive sales growth. And localization tactics aren't as imperative. But Best Buy is part of the new wave of middle-market retailers entering China to try and capture the country's emerging middle-class. They're coming to the retail party as themselves. Meaning, US strategies are being replicated, replacing the “mark-up and act luxury” strategy.

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