Failure of Best Buy in China

Powerful Essays
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

You May Also Find These Documents Helpful

  • Powerful Essays

    Problems of Best Buy

    • 2546 Words
    • 11 Pages

    Best Buy Co. is a specialty retailer of consumer electronics, entertainment software, home office products, appliances and related services. The company operates both in the domestic and the international segment. Its domestic segment consists of all Best Buy stores and online operations within the United States, including the brand names: Best Buy, Geek Squad, Magnolia Audio Video, Pacific Sales Kitchen and Bath Centers and Speakeasy. Its international business covers Canada and most recently China.…

    • 2546 Words
    • 11 Pages
    Powerful Essays
  • Better Essays

    Critical Analysis 1

    • 1154 Words
    • 5 Pages

    As a company, Best Buy can be held at fault for some of its performance struggles purely from an internal point of view. Best Buy is categorized as the “leading global electronics and appliance specialist retailer (Passport 4).” They have obtained such success from their warehouse type stores, with specific services offered inside (Geek Squad and MindSHIFT). Using this success as a basis Best Buy strategized to expand their stores in the United Kingdom, China, and Turkey, in hopes of expanding to obtain more revenue and more net profit. However this strategy backfired and these stores in the international market were forced to close in 2011. These store closures carried a 2.6 billion dollar charge with them, which were reflected in the 2012 fourth quarter results.…

    • 1154 Words
    • 5 Pages
    Better Essays
  • Good Essays

    With a return on assets of 7.3% in the past 12 months, Best Buy has directed the way towards advancement product selection and multimedia campaigns (Forbes). It was in May of 2009, for example when Best Buy was proclaimed as the primary electronics store which was escalated after Circuit City went out of business. The average Gross Profit Margin for the past 5 years for the company has been at 26% which means that it has a little over a quarter of the revenue minus the related expenses that occurred is what Best Buy has at the end of the day (Forbes).…

    • 642 Words
    • 3 Pages
    Good Essays
  • Better Essays

    Most popular items they carry are computers, mobile phone, TV, appliances, and much more. The SWOT analysis that I did on this company is as following. Best Buy strengths are listed as following: Over two decades of brand presence, with at least one decade of extremely strong brand recognition within the US, longstanding relationship with vendors, and well-known brands. Their weakness is an area they must improve if they want to stay ahead of their competitors. For example, too many brands, poor inventory management, recent senior Leadership turnover, and weakening financial situation. Their opportunities are as following: lower overhead costs, online retailers are poised to, experimenting with, offering same-day delivery via courier, and increasing need for IT Outsourcing. The threat best buy is facing are as following: low frequency of television upgrades, cheap retailers such as Walmart, and exchange rate fluctuation. Their top competitors are Amazon, Digital River, and…

    • 1663 Words
    • 7 Pages
    Better Essays
  • Better Essays

    Best Buy Strategy

    • 1790 Words
    • 8 Pages

    1) Following are the key features of various elements of Best Buy’s Big-box retail model:…

    • 1790 Words
    • 8 Pages
    Better Essays
  • Powerful Essays

    The Best Buy company has recently developed several strategic resources that support it in competing with other competitors for survival, this has therefore led to its expansion resulting to the current increased trends in the supply of its products globally. The company has several locations ranging from within the nation to the global level. Its…

    • 2103 Words
    • 9 Pages
    Powerful Essays
  • Good Essays

    Best Buy Co., Inc. is an American public company that is a specialty retailer of consumer electronics in the United States, accounting for 19 percent of the market (1). Over the last fifteen years, Best Buy, like many retailers, is “competing with a perfect storm of disruptive technologies (2)”. It is hard to compete with those companies embraced with innovations, such as Apple and Amazon. Best Buy has lost $1.23 billion and 2.4% decreasing of revenue last year. In order to create a delighting customer atmosphere, Best Buy should focus on: engaging in innovations of e-commerce, training employees, and focusing on the target market.…

    • 606 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Best Buy Analysis

    • 12713 Words
    • 51 Pages

    According to the Best Buy’s corporate website, the company’s “unofficial” mission statement is simple, “We’re a growth company focused on better solving the unmet needs of our customers.”1 Upon reviewing this statement, our team was motivated to construct a unique plan that expands Best Buy brand and influences new target markets, while also continuing to provide growth and development in Best Buy’s products and services. Our initiative is to develop smaller stores that feature a condensed selection of consumer electronics, these stores will be strategically placed in areas where customers have unmet needs. The products, services, and staff offered will, high quality and knowledgeable service. These condensed stores will focus on the…

    • 12713 Words
    • 51 Pages
    Powerful Essays
  • Good Essays

    Kmart History Timeline

    • 2033 Words
    • 9 Pages

    1912 - S.S. Kresge Company incorporated in Delaware with 85 stores and sales of $10,325,000.…

    • 2033 Words
    • 9 Pages
    Good Essays
  • Powerful Essays

    eBay first entered the Chinese market in 2002 by acquiring a 33% stake in its local counterpart, EachNet, followed by a full acquisition a year later in 2003. Critically assess eBay.s choice of market entry strategy for China, listing both the advantages and disadvantages of its acquisition strategy.…

    • 1642 Words
    • 5 Pages
    Powerful Essays
  • Good Essays

    Best Buy Case Analysis

    • 1439 Words
    • 6 Pages

    Best Buy is a retail store with over 600 stores nationwide and over a thousand around the world. It is the major retailer store for electronics around the world and leads top ranked followed by Circuit City, Wal-Mart and Costco. The consumer electronics industry is growing steadily over the past few years. 2008’s projected revenue is expected to increase by 6.1%. This isn’t higher than 2007 but it is higher compared to other industries which are failing. Some items that are expected to see an increase are TV displays, gaming platforms, and next generation DVD players such as Blu-Ray and HD DVD (which Blu-Ray has won out over).…

    • 1439 Words
    • 6 Pages
    Good Essays
  • Powerful Essays

    Best Buy Financial

    • 8032 Words
    • 33 Pages

    At the end of fiscal 2012, Best Buy found itself in an increasingly challenging situation. Although it could still claim to be the world’s largest consumer electronics retailer with $50.7 billion in revenues, growth for the year, at 0.9% was anemic. Meanwhile, Amazon’s sales in Best Buy’s categories were growing at more than 50% p.a. and its total sales, at $48 billion, were approaching those of Best Buy. Operating profits were also disappointing having dropped 54% to $1.1 billion and net income fell into the red at -$1.2 billion. The fiscal 2012 year-end stock price fell to $24.70, down from a high of $53.86 in 2006. In five years, Best Buy had lost more than 55% of its market capitalization.1 Best Buy had slowly been losing market share to both discounters and online retailers. As WalMart cherry-picked popular items for steep discounts and Amazon encouraged consumers to compare prices using smart phones, Best Buy became a showroom for lower cost retailers. 2 Although there had been promising growth in Best Buy’s online and mobile divisions, store closures and programs to reduce the size of stores by 10% increased expenses.3 International expansion, a key pillar of a goal to double revenues in five years was struggling. Adding to the problems, the boom in digital TV sales was cooling and in 2011 mobile devices comprised a larger percentage of overall electronics sales than digital TV sets, effectively ending the sixty-year reign of television as the biggest category in consumer electronics.4 Moreover, many mobile devices were sold by telephone service providers, creating increased retail competition. To add to Best Buy’s problems, on April 10, 2012, CEO Brian Dunn resigned after an investigation into his “personal conduct” with a female subordinate. 5 Board member G. Mike Mikan took over as interim CEO. On May 14, 2012, Dick Schulze, the firm’s founder, stepped down…

    • 8032 Words
    • 33 Pages
    Powerful Essays
  • Powerful Essays

    Best Buy Business Strategy

    • 5320 Words
    • 22 Pages

    Best Buy stores offer a wide variety of consumer electronics, home office products, entertainment products, appliances and related services. These include, Best Buy Mobile which offers a wide selection of mobile phones, accessories and related services. Geek Squad provides residential and commercial computer repair, support and installation services. Magnolia Audio Video Stores offer high-end audio, video products and related services. Naspstar is an online provider of digital music. Pacific stores offer high end home improvement products including appliances, consumer electronics and related services.…

    • 5320 Words
    • 22 Pages
    Powerful Essays
  • Good Essays

    Back in the day when I was a young lad ( 2003 ) I worked at a place called Best Buy. The undisputed heavy-weight electronic’s retailer champion of the world. I worked there for over two years and got to see what Best Buy was really all about.…

    • 1811 Words
    • 8 Pages
    Good Essays
  • Powerful Essays

    share over the past two years, a drop of roughly 60 percent.1 While revenues had been increasing at a marginal…

    • 13943 Words
    • 92 Pages
    Powerful Essays

Related Topics