By Fang Yu, China Entrepreneur magazine
Best Buy shut down their nine stores in China on February 22nd, and within 48 hours fell into an unprecedented credibility crisis. Customers rushed to Best Buy stores on hearing the news and were locked outside security doors. They finally broke through the doors and went into the shops, partly to seek refunds on the extended warranty policies they had purchased. Because of quarrels with staff over return policies, the Shanghai Municipal Government had to send police to maintain order. Best Buy, which has always boasted it was centered around consumers, never predicted it would withdraw from the Chinese market in such a disgraceful way.
Best Buy China top executives said the business closed because their model did not adapt to the Chinese market. Best Buy China president David Sisson said, “I have never worked in such a price-sensitive market.”
Best Buy shops within China were forced to close after a five year struggle
Best Buy explains its failure with the excuse “Chinese consumers pursue low prices rather than services.” This excuse shows that Best Buy still does not understand why it failed. This excuse does not take into account that China’s spending power is the fastest growing in the world. Home appliance expert and director of the Pal consulting firm Luo Qingqi argues luxury brands now entering into Chinese second- and third-tier cities, and the purchasing power for luxury cars in Chinese inland is no worse than in the first-tier cities. Ding Jie, a global partner at the Roland Berger consulting firm, notes that there are foreign retailers running excellently China. Why not Best Buy?
Slow and arrogant
Dennis, who has worked for ten years selling audio products, worked as an employee at Best Buy until it shut its doors. After signing a compensation agreement, he began to seek a new job. He first came to a giant domestic chain giant to be interviewed, but he felt the treatment he received and business culture was too different from Best Buy, so he started looking for jobs at foreign retail enterprises.
Dennis says the experience of working at Best Buy was profound and lasting. It’s difficult for him to adapt to the performance-oriented culture of domestic enterprises that stresses absolute obedience and brute execution. Instead, he has become used to Best Buy’s “people-centered” culture: trying to win returning customers and promotion opportunities based on giving good service. He also became used to the sound of the English name that the store provided him with.
The employee culture of Best Buy, which is not based on sales volume, enables the store to be peaceful, without a feeling of fierce competition between the sales staff.
However, observers believe this unhurried attitude is exactly what drove Best Buy to become a loser in China’s fiercely competitive home appliance market, which is dominated by the retailers Suning Appliance and Gome.
When Best Buy entered China, Suning Appliance chairman Zhang Jindong said his company would ignore Best Buy for the next five years. Gome founder Huang Guangyu also said Best Buy could not compete with Gome in China because Best Buy did not have a sense of where to put its stores.
People who participated in the press conference announcing the acquisition of Five Star Appliance by Best Buy in 2006 remember that Five Star founder Wang Jianguo was excited to announce the establishment of 300 stores annually with the financial backing of Best Buy. However, this plan was quickly denied by Best Buy top executives. Wang and his team eventually left the company.
In the United States, Best Buy defeated the second-largest retailer Circuit City, which...