month in review • CoMPaNIES
growth rate in the domestic consumer electronics sector. At first glance, Media Markt and Best
Buy exhibit worrying similarities in their business models – both pitch to the up- per-middle range of the market, both of- fer large-format stores, and both depend on big revenue returns from a compara- tively small number of locations.
Know thy market
But according to Hong Shibin, deputy director of the China National House- hold Electric Appliances Commercial Association, this is where the similari- ties end. Media Markt’s future success in China will depend on one major factor: understanding the local market. “Best Buy has a good operational
LINE UP: Media Markt’s Shanghai flagship store
Better buy
Despite the recent failure of Best Buy, Metro’s Media Markt may well prove naysayers wrong
T
he decision by Media Markt to dive head first into the mainland consumer electronics market
made perfect sense – on paper, at least. Propelled by higher income growth and rising purchasing power in both urban and rural areas, this market segment is expected to be worth up to US$265 bil- lion by 2015. Chinese consumers want more – and better quality – TVs, DVD players, desktops and laptop computers, mobile phones and a vast array of other electronic gadgetry. However, the domestic market re-
mains controlled largely by domestic home appliance and consumer electron- ics retail giants Gome and Suning Ap- pliance. Te jury is still out as to whether foreign entrants can make a successful dent in the market, particularly after US retail behemoth Best Buy decided in February to scuttle its China operations, closing all of its nine branded stores here after five years of losses. Te company is now pinning its hopes to the smaller- scale Jiangsu Five Star retail chain it ac- quired five years ago.
16 China Economic Review • May 2011 Only weeks before Best Buy’s deci-
sion was made public, Media Markt an- nounced plans to intensify its presence. It had already opened a 13,500-square- meter flagship store on Shanghai’s snazzy Huaihai Road last November and fol- lowed up with a second store in the city’s eastern Pudong district. Now the company says it will roll out another 10 stores in Shanghai by the end of next year. While Media Markt said it will focus on the Shanghai market at first, managers have set the ambitious target of putting 100 China stores into operation by 2015 in pursuit of an estimated 8% annual
Power surge
China’s consumer appliance sales, 2005 -2010 160 140 120 100 80 60 40 20 0
2005 2006 2007 Source: National Bureau of Statisitics 2008 2009 2010
model back in the US, but it may not be the best for China,” said Hong. “Compa- nies come to China because they see the market growth and the big opportunities available. However, they often forget that this market is also immature and they focus on what they are good at, and not what the market actually wants.” Zhou Li, senior analyst at consul-
tancy Sinoci, agrees. She noted that even though Best Buy may be a world leader, it has little brand recognition in China, particularly compared to Suning and Gome, which have built themselves into household names. In a country glutted with hardware tinkerers, local shoppers were not interested in Best Buy’s offer of “Geek Squad” after-sales service. Tey only wanted the best price possible. So while Best Buy generated a fair
share of foot traffic, many who passed through its sliding doors were there to compare prices, not buy anything. More often than not they would check Best Buy’s tag, then go to the Suning store next door to get a better price. Media Markt hopefully learned this
lesson before market entry. “Compared to Best Buy, Media Markt did more re- search on Chinese consumers’ purchasing habits,” said Li. “Tey can offer strong after-sales service to consumers, but have also promised to compete on prices, and store managers have been given greater control over securing supplies and have stronger financial incentives to perform.”
Parents and partners
Media Markt is fortunate in one respect: Despite being a newcomer, it can still call on in-house China expertise through its parent Metro Group, the world’s third-
US$ billion
Phototex
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