largest retailer, which has been operat- ing on the mainland since 1996. Metro opened its first Cash & Carry through a venture with Jinjiang Group, and now has 48 outlets in 35 cities, a figure the company expects will continue to grow in coming years. Although Metro’s historical focus
has been on the food and beverage sec- tor, it is nevertheless already experienced analyzing trends and shifts in Chinese consumer demand, a key skill that can be employed on behalf of Media Markt’s operations. Also in Media Markt’s favor is its
partnership with tech giant Foxconn, owned by Taiwan’s Hon Hai Industries, which controls 25% of the Media Markt China. Media Markt hopes that Foxconn, a manufacturer of several big name prod- ucts including Apple’s iPad, can support the retailer’s expansion in several ways. “Working with Foxconn could prove
advantageous through its government relationships, real estate, and human re- sources,” said Gong Wending, from con- sultancy Shangpu-China. “Media Markt is also planning to bring in store-labeled products, which would provide Foxconn
Home turf
Gome, Suning, Best Buy China sales, 2009 20
15 10 5 0
Suning Sales Source: Bloomberg, CITI, Deloitte
with a direct sales network.” Furthermore, Media Markt may be
able to leverage Foxconn’s strong rela- tionship with big brand names in se- curing supply contracts at competitive prices, something Best Buy failed to do and which could make a difference when it comes to successfully competing with bargain-basement local electronics retailers. “If we assume that the relationship
between Media Markt and Foxconn is sustainable, Media Markt may enjoy a price advantage over domestic firms,” said Chen Yuefang of trade journal China Chain Store. “Tis competitiveness cannot be cop-
Gome Best Buy China Gross margin
30% 25% 20% 15% 10% 5% 0
ied by Suning, Gome or any other do- mestic firm.” In addition to this partnership, bal-
ancing product quality and competitive pricing will be a key issue in determining Media Markt’s success in China.
Bottom line
By observing Best Buy’s demise on the mainland, the German firm now knows what not to do, which is a good start. But will it ever be able to successfully com- pete with Suning or Gome, which have a combined market footprint of over 2,000 stores nationwide? By understanding that most Chinese
consumers are first-time buyers of its products and keeping prices low, Media Markt might just pull it off, said Hong of the China National Household Electric Appliances Commercial Association. “Media Markt needs to position it-
self in the middle between what Suning is doing and what Best Buy tried to do,” said Hong. “Most importantly, they need to maintain a strong bargaining position with suppliers to keep prices down, be- cause that is what will keep customers coming in.”
China Economic Review • May 2011
17
US$ billion
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