Bye Bye Best Buy

I was sad, but not really surprised, to see Best Buy close the doors of it 9 branded stores in China last week.

I am not surprised because I think there are three fundamental errors that they made in their market entry:

Error # 1.
When Best Buy arrived just four years ago they promised a dramatically different and better consumer electronics retail experience for Chinese buyers:
- plush store environment
- impartial product advice

- live demo equipment
- geek squad support staff

This was all well and good, but critically failed to recognise that the Chinese do not place any value on service. So if an enhanced level of service is your only differentiator in China, you will only succeed if your pricing is the same. But Best Buy was more expensive.

Error # 2

Carrefour was an early entrant in China and so largely wrote the rule book that everyone in China modern trade food retailing now follows. But in electrical retailing, the Chinese market was already dominated by major players like Gome, Suning and Yolo. These local guys had written an alternative rule book that Best Buy chose to ignore. There were just two rules:

- Don't sell anything. Instead, focus on property development, establishing prime real estate sites and renting out a few square meters to each major brand so they can sell everything for you (including paying for all the staff!)
- Don't stock anything. Instead, get the brands to hold all your stock, whilst you take all the cash (and no doubt holding it for a few weeks to ensure positive cash flow before passing it on to the brand owner).

Best Buy chose to lease it's sites, employ it's own staff, and hold it's own stock, so adding three critical and expensive operating costs to its P&L that it's competitors did not have.

Error # 3

When Tesco came to China, despite being very late for the party, they still invested many more years waiting, and selling nothing. They simply opened an office in Shanghai and watched...and watched...and watched. Only when they felt they were really ready did they pounce and buy the local HiMal chain, converting them all to Tesco stores - "China style". Best Buy so nearly got this one right. Best Buy also bought a local Chinese retailer called Five Star. But instead of learning from them, they kept the 161 Five Star stores totally separate from the Best Buy business, and chose instead to open 100% American-style Best Buys with not even a hint of Chinese flavouring.

If Best Buy really wanted a presence in China, they should have simply converted the 161 Five Star outlets into 161 Best Buy outlets, and added just a twist of American to the successful China recipe. If they had, China might not now be saying 再見 "Zai Jian" (Good Bye) to Best Buy.