Best Buy ends its China struggle - Ben Cavender

+Benjamin Cavender 

The decision by Best Buy to withdraw from the China market is not a real surprise, and illustrates that successful brands elsewhere cannot assume they can conquer the China market too, says Shanghai-based retail analyst Ben Cavender in the China Daily.

The China Daily:

Ben Cavender, principal of the Shanghai-based China Market Research, said Best Buy has been struggling in China since the time they entered the market. 

In China, Best Buy has not been able to achieve the same kind of brand awareness and consumer recognition it enjoys in the United States, said Cavender. The cost of being a brick-and-mortar store is very high in China, not to mention the fierce competition with local home appliance retailers like Suning Commerce Group Co, Gome Electrical Appliances Holding Ltd and rising e-commerce giant JD.com, he said. 

"It makes sense for them to exit the market as it would have proved expensive for the retailer to develop the market on its own," he said. 

Cavender said Best Buy's main selling point in the United States－the store warranty－was not working in China where consumers are only familiar with the manufacturer warranty and are still price sensitive. 

Suning, Gome and JD.com have already developed close connections with local manufacturers and customers. Best Buy, on the other hand, was often considered an outsider in the local market, 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.

Are you interested in more branding experts at the China Speakers Bureau? Do check out our latest list.  

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Why global brands fail in China - Shaun Rein

Shaun Rein

While some brands like Nike and Intel make neat profits in China, the country has become a corporate graveyard for many other global brands. Why do global brands fail in China, wonders business analyst Shaun Rein in CNBC. They should focus on China.

Shaun Rein

Best Buy  and Home Depot shut their stores in 2011. Google, eBay and Amazon have been trounced by local competition. Walmart  faces dwindling market share. These great firms, which dominate their home markets and are widely successful internationally failed to grab profits in China... 

In China, revenue and profit per square feet of retail space is too low to justify giant stores selling low margin products. Brands need to think whether their traditional business models fit China and, if not, either skip entering the market or adjust accordingly. 

The second theme that emerged was that senior executives sitting in foreign headquarters often ignore what local country heads, who are more attuned to local conditions, have to say. Or they hire the wrong country heads in the first place. One eBay executive, for example, told me that his seniors ignored the advice of local employees to run servers out of China and switched hosting to America. 

“The day they switched to the US servers despite our protests, traffic dropped 50 percent because access speeds were too slow. We never recovered. It is a myth that local auction site Taobao won because they don’t charge fees. We lost because headquarters tried to implement what worked in the US, from interface design to customer service help," the executive said. 

Businesses need to hire senior executives who understand how to operate under local market conditions and delegate decision-making authority to them... 

China has become the must win market, so billions of dollars a year are being invested in the country. The reality is that many companies will end up failing there, or missing expectations, because they don’t localize their business models and management teams enough to compete with fast emerging domestic players.

More in CNBC

Shaun Rein 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.

Shaun Rein is the author of the upcoming book The End of Cheap China: Economic and Cultural Trends that will Disrupt the World. Read more about Shaun Rein and his book at Storify.

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Why Wal-Mart loses in China - Shaun Rein

Big store in China are not cheap via Wikipedia

Top management of Wal-Mart in China is leaving 'for personal reasons', signalling all is not well at the major retailer. Shaun Rein explains in CNBC why the US firm loses market share in China and how it can rethink its strategy.

Wal-Mart has lost market share from 8 to 5.5 percent, according to Shaun Rein's China Market Research Group:

Wal-Mart made the mistake of leaning too heavily on the big box retailer format like in the U.S., rather than smaller, conveniently located retail outlets. Expecting China to develop the same way towards big box retailing, as America did, is the same mistake Home Depot [HD  34.77   0.24  (+0.7%)   ] and Best Buy [BBY  31.54   0.53  (+1.71%)   ] made. Both of those retailers ultimately retreated from the market. China may have high compound annual revenue growth rates, but traffic and the lack of free parking means consumers often prefer to shop in neighborhood stores. A government ban on free plastic shopping bags has also resulted in consumers shopping more often, and buying less each time, further fueling the popularity of stores closer to home...

Wal-Mart surprisingly has struggled with consumer perception and their branding. They espouse the 'everyday low price' concept, yet are positioned relatively high in the market when compared to street vendors that are truly low price. Our research suggests that the consumers who spend the most at Wal-Mart and account for most of their revenue tend to be upwardly mobile, middle class, or wealthy. They are not looking at Wal-Mart as a low price destination but rather as a location where they can buy safe, high-quality products...

Rising costs and more demanding consumers are changing the retail landscape in China. Wal-Mart needs to adjust its strategy by shrinking the size and locations of its stores, going upscale in product selection and ambiance, and by differentiating its product lines. Unless it does that, Wal-Mart might end up another casualty of the fast growth but hard to win Chinese retail market.

Shaun Rein

More arguments in CNBC.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch.

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Getting your brand right in China is tough - Tom Doctoroff

Tom Doctoroff by Fantake via Flickr

Foreign brands in China have seen huge successes and massive failures. Tom Doctoroff gives in Gulf News his take on the difficulties of building a brand in this booming economy. Gulf News:

After setbacks for brands such as Home Depot, Best Buy and Barbie, which have closed stores or withdrawn after failing to win over Chinese consumers, the lessons of Huai Hai Road are germane.
"Anybody who comes into this market and thinks they can just plant their brand and let it grow will be sadly mistaken," Tom Doctoroff, north Asia chief executive of JWT, the advertising agency, said.
"Any [foreign] business model needs to be brought into alignment with Chinese cultural and consumer imperatives."
He points to Pizza Hut, Starbucks and Haagen-Dazs as the gold standard for foreign brand success in China. They took products alien to Chinese tastes and made them popular.
Pizza Hut and KFC, both owned by Yum Brands, localised their menu.
But adjusting to local tastes is not just about food, Doctoroff says. Pizza Hut, Starbucks and Haagen-Dazs all focused on eat-in, rather than carry-out, in China. "Barbie just got plonked down in China."
Even luxury goods companies have had to adapt their model, he says. The Chinese market for luxury goods is "broad and shallow".

More in Gulf News.

Tom Doctoroff is a speaker at the China Speakers Bureau. When  you need him at your meeting or conference, do get in touch.

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Best Buy's failure in China - Shaun Rein

Image by Fantake via Flickr

Even though Chinese consumers are spending more on expensive products like Apple, they shunned the Best Buy stories, explains Shaun Rein in CNBC. The economy of scale did not pay off:

According to our research, Best Buy in China was perceived as being too expensive, with many of their products priced higher than in local markets. Why buy a Sony DVD player or Nokia phone at Best Buy when you can pay less for the exact same product at a local store? Consumers will only be willing to pay more, like at the Apple stores, if they are buying something they cannot get elsewhere.
While scales of economy have allowed big chain stores in America to offer cheaper prices than niche players, local retailers in China are able to undercut prices because they pay less in salaries, benefits, rent and electricity. Rampant piracy in China also means local computers shops are willing to install counterfeit software in products, which makes it more appealing for customers.

More in CNBC

Shaun Rein is a speaker at the China Speakers Bureau. When you need him at your meeting or conference, do get in touch.

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Failing in a booming consumer market - Shaun Rein

Shaun Rein by Fantake via Flickr

Home Depot and BestBuy were just two of the foreign companies in China that failed, while the consumer market is reaching record heights. Shaun Rein explains what they were missing in CNBC.
First, they get China's middle class wrong:

For one, Western brands need to understand there is no Chinese middle class in the American context. In the United States, the middle class tends to be a fairly static socio-economic group. People are born into it and their children and grandchildren tend to retain similar middle class habits like shopping atMacy's, driving Ford cars and visiting the Disney theme parks during vacations.
In China, however, the habits of the middle class are often described as anything but static. With many rags-to-riches stories doing their rounds across the mainland, many believe they, or their offspring, can also be wealthy. This optimism mirrors the conditions American Baby Boomers grew up in during the post World-War II era.

Even more complicated: Chinese want to be wealthy rather than middle class, avoiding typical middle class brands.
In CNBC Shaun Rein adds two more pitfalls.

Shaun Rein is a speaker at the China Speakers Bureau. When you need him at your meeting or conference, do get in touch.

Low profit margins force BestBuy out - Paul French

Former flagship in Xujiahui, Shanghai

The decision by US electronics retailer BestBuy to close its outlets in China hardly comes as a surprise, says retail analyst Paul French in USA-Today. "They were ahead of the consumer."

Unlike the warehouse style of top Chinese electronic chains Gome and Suning, where sales personnel push particular brands to earn commission, Best Buy provided "a much nicer retail environment," said French, at prices no higher than its competitors.

But the perception of the customers was different, they still feared they were paying a price for the better store, used it for window-shopping and rushed to the competitor when they went for a purchase.
French wonders whether switching to Five Star, an electronic retailer from Nanjing, purchased by BestBuy, will help:

Paul French by Fantake via Flickr

As independent shops and plazas, not chains, still dominate electronics sales, "the pie is going to get cut very thinly," French cautioned. "Profit margins are great if you are Apple," he said. Elsewhere, "There are too many brands and not enough people buying the high-margin items."

Paul French is a speaker at the China Speakers Bureau. When you need him at your conference or meeting, do get in touch.

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Hope for Mediamarkt in Shanghai? - Updated

Image by Fantake via Flickr

On my little tour through Shanghai today I ran into the new (and first) outlet of the German retailer Mediamarkt. Last month I just already have tweeted about the really cute 3D trailer they made for the opening, so this was a good opportunity to check them out. Five floors of electric appliances, in setup not that different from their European stores, including boxes to store your bags with locks that did not work.
I was amazed to see especially long rows of coffee makers, surprising since Chinese do not drink often coffee at home. They do drink coffee at Starbucks and the growing number of other chain stores, but that is to be fashionable and Starbucks did a good job in actually hiding the coffee taste.
Fortunately, the no-doubt stubborn European management had also listened to their Chinese staff and I noted long sets of dehumidifiers - more than in Europe and important in humid Shanghai - and many, many rice cookers. There were actually more rice cookers than customers in the store on a Friday afternoon. That of course does not spell good for the sales in China. Is Mediamarkt taking the same direction as Best Buy?

Update I: We went back to Mediamarkt to compare some prices with some of the appliances we bought in Europe, so not the products that are also common in China. For an espresso machine and advanced cleaning equipment we paid in Europe half of the price tag at the Mediamarkt in Shanghai. Quite a premium, we thought. The high margin might make it affordable to keep products in store that seldom sell.
Update II: We visited again Mediamarket on Saturday, after we concluded that an electronic product we wanted to buy an electronic product that was actually cheapest in Mediamarkt. The number of (window) shoppers was also reasonably high. We discussed our changed views with a few customers, and indeed Mediamarkt is offering a better shopping experience than any other outlet (including Chinese stores, Best Buy and Carrefour). That includes a wealth of choice and - most important in Shanghai - the cheapest prices. Unless you go for overpriced imported products. We actually found today on three spots qualified staff giving us good and relatively unbiased expert views. It it not help the people at the cashier: we literally had to wake up one of them when we wanted to pay. Real business is not yet brisk.
Returning goods is also not a policy in Mediamarket (probably for good reasons), but cost us another ten minutes in negotiating a possible purchase with the highest manager in charge.

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Dell goes for cheap

A few interesting left-overs from yesterday. I'm doing too many things these days that cannot be blogged. But the news that computer manufacturer Dell is going to produce cheap computers in China was special.
I have been blogging about Dell's strategy in China before and just as other companies like Ikea and Best Buy, who came to China and seemed to give up on their core business model: offering consumers a cheap offer.
The suggestion: foreign companies have a hard time to compete on price with their domestic competitors. Now, Dell resumes also in China its competitive approach.