Failure of Best Buy in China
Best Buy’s Failure in China
Lea Pernet and Paulina Nunez-Candiani
INTB4501/ Advanced Global Management
Alvaro Cuervo-Cazurra
April 25, 2012
Best Buy Co. is a “multinational retailer of consumer electronics, home office products, entertainment products and related services” 1. The group is the largest U.S consumer electronics retailer by revenue.
In 2006, Best Buy made its first steps in China with the acquisition of a Jiangsu Five Star, a Chinese retailer and opened its first Chinese store under its name in Shanghai, soon followed by eight others. With a consumer focused strategy, Best Buy was hoping to capture part of the electronics retailing market, so far dominated by the local retailers Gome and Suning. However, in 2008 the group’s net earnings had decreased by 77 percent from the previous year. No later than February 2011, the multinational announced it would close all nine of its branded stores.
This report analyses the reasons of Best Buy’s failure in China and tries to assess recommendations for the company to approach the Chinese market.
1
SITUATION ANALYSIS
Best Buy in the USA
History of Best Buy
The company started in 1966 when Richard Schulze and James Wheeler opened a store called “Sound of
Music” in Saint Paul, Minnesota. At the beginning, the company focused on home and car stereos. In early 80s Schulze realized that there was little potential selling audio components to a shrinking audience with little resources and began focusing on appliances and VCRs2. The company’s name was given when they had a special sale event they called “Best Buy”. After the success of this event, the board of directors approved the name for the company.
The design of the stores was introduced in 1989 and had spacious 44,000ft warehouse -like layout. The company overtook Circuit City as the leader in electronics retailer by revenue. In 1998 Best Buy entered e-commerce by launching a site that sold CDs and DVDs. Shortly after, the offering
Lea Pernet and Paulina Nunez-Candiani
INTB4501/ Advanced Global Management
Alvaro Cuervo-Cazurra
April 25, 2012
Best Buy Co. is a “multinational retailer of consumer electronics, home office products, entertainment products and related services” 1. The group is the largest U.S consumer electronics retailer by revenue.
In 2006, Best Buy made its first steps in China with the acquisition of a Jiangsu Five Star, a Chinese retailer and opened its first Chinese store under its name in Shanghai, soon followed by eight others. With a consumer focused strategy, Best Buy was hoping to capture part of the electronics retailing market, so far dominated by the local retailers Gome and Suning. However, in 2008 the group’s net earnings had decreased by 77 percent from the previous year. No later than February 2011, the multinational announced it would close all nine of its branded stores.
This report analyses the reasons of Best Buy’s failure in China and tries to assess recommendations for the company to approach the Chinese market.
1
SITUATION ANALYSIS
Best Buy in the USA
History of Best Buy
The company started in 1966 when Richard Schulze and James Wheeler opened a store called “Sound of
Music” in Saint Paul, Minnesota. At the beginning, the company focused on home and car stereos. In early 80s Schulze realized that there was little potential selling audio components to a shrinking audience with little resources and began focusing on appliances and VCRs2. The company’s name was given when they had a special sale event they called “Best Buy”. After the success of this event, the board of directors approved the name for the company.
The design of the stores was introduced in 1989 and had spacious 44,000ft warehouse -like layout. The company overtook Circuit City as the leader in electronics retailer by revenue. In 1998 Best Buy entered e-commerce by launching a site that sold CDs and DVDs. Shortly after, the offering