What did Media Markt do wrong? - Ben Cavender

Ben Cavender

The German electronic retailer Media Markt announced now officially it will close its China stores in April, after a two year long expedition into the China market. Retail analyst Ben Cavender sums up for the China Daily what Media Markt did wrong. 

The China Daily:

Media Markt's exit from the promising but elusive Chinese market reminds industry insiders of Best Buy Co Inc's departure a couple of years ago. 

The electronics retailers' disappointing experience in China highlights just how difficult it is to build a new retail brand in the country, especially in the consumer electronics space, said Ben Cavender, an associate principal at the China Market Research Group. 

There is a tremendous amount of competition from well-established domestic brands and consumers' attention is shifting very rapidly to other shopping channels, like the Internet, Cavender said. 

Given the high cost of operating large footprint retail stores in first-tier Chinese cities, their decision to leave the market is not surprising, he added... 

Analysts said that these examples do not necessarily indicate a failure of Western retail models, but only show the companies' inability to better understand the Chinese market. 

Understanding what Chinese consumers really want should be the companies' most important task, they said. 

"Where many companies fail here is looking at the costs of operating their business. Media Markt, with a massive flagship store in Shanghai, was a good example. 

"The store ended up costing a tremendous amount of money, while effectively becoming a showroom that consumers could use before buying the products online from other sources," said Cavender.

More in the China Daily.

Ben Cavender is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Failing foreign firms in China was also the subject of the China Weekly Hangout on January 30, with panelists +Richard Brubaker of Collective Responsibility and +Andrew Hupert, expert on conflict management in China. Moderation: +Fons Tuinstra  of the China Speakers Bureau. Including references to Apple, Mediamarkt, Foxconn and many others.

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Media Markt did not get it - Ben Cavender

Ben Cavender

The decision to close down German retailer Media Markt in China shows - yet again - a profound lack of understanding on how the market in China works, tells business analyst Ben Cavender in the China Daily. 

The China Daily:

Experts said the closure of Media Markt China would represent the highest-profile retail failuresince early 2011, when Best Buy, the United States-based electronic products retailer, closed its nine branded stores in China along with its Shanghai headquarters.

Some experts have also suggested that Media Markt stores occupied too much space on some of the most expensive retail streets in China, an unworkable plan when selling cheap products.

Ben Cavender, associate principal of China Market Research Group, said it would not mark the failure of a Western business model, but the failure to understand the dynamics of the China market and the wider transformation of the country's retail sector.

"Local competitors Gome and Suning have built strong brand presence and market share in China, and their huge store numbers guarantee a competitive advantage," said Cavender. "Additionally, consumers are increasingly using brick-and-mortar stores as showrooms beforebuying their products online, where they can save both money and time."

More in the China Daily.

Ben Cavender is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Ben Cavender discussed last summer failed attemps by foreign companies to localize their operation. Examples include Gap, B&Q, Dunkin Donuts and IKEA.

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Why Media Markt failed in China, and HEMA will

Media Markt Shanghai

Are they crazy? That was the first question I asked myself when I visited the giant Media Markt store in Shanghai in December 2010. A giant store in electronics, like I knew them from Europe, with a mostly similar range of products, apart from their rice cookers and dehumidifiers.

No competition for their domestic competitors both in price and selection, I concluded after a bit of research. Since my visit they expanded to seven stores in Shanghai, so the low number of visitors did not really deter the management.  Although, they initially had planned to open up to 100 stores up to now, but that also proved to be a challenge. This week, as German media announced Media Markt was closing their operation in China, although the holding company Metro still has to make the formal announcement.
Only three months ago, Media Markt did start in China a new marketing campaign, with a strong focus on pricing, but it was obvious too little, too late.

Why did they even try such a hopeless concept, now even their German management might ask. A nice clue I got earlier this week, when I watched a nice documentary "The Secret of the HEMA". The retailer HEMA is a kind of household name in the Netherlands and now also Belgium. An iron century-old business model of selling cheap commodities of decent quality to low-earners (and cheap high earners).
They have a long-standing tradition of sourcing their products in China, but during the documentary we watched not only their expansion into France. Also China was on the agenda.
"Don't do it," I jelled at the TV screen, a habit I do not often display, since it is pretty useless. But why was this sympathetic CEO Ronald van Zetten transferring a modestly profitable retail model in a small part of Europe into China, following the failed tracks of Media Markt?
The explanation came later, as Van Zetten had to visit the company who bought the HEMA in 2007, the investment firm Lion Capital. He did not say much after the visit, but booked a flight to Shanghai to explore the market.
He asked the right questions, in the Shanghai stores he visited. He did some math and discovered that the stores needed 50 percent of their turnover to cover for the rent. A short moment of desperation, since that is pretty high if your business model is based on low margins. Foreign companies will have a hard time when they try to beat local competitors on price. But then he soldiered on, following the instructions of his investment bank owners, for the HEMA there is no other way than expanding, even into markets where there is no future.

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