Best Buy gets foothold

Wang Rui, mink coat-clad and clutching a Louis Vuitton handbag, sized up the intelligent home system section of the Best Buy Premium store in Beijing's Sci Tech shopping center.

"Madam, this system is 2,000 yuan more than that one," said a shopping assistant.

"You don't need to tell me the price difference, please just tell me what they do," said Wang.

The American-based Best Buy is the world's largest electronics retailer and, hit by slumping US sales, is eyeing the Chinese market. Its growth here hinges on high-income customers such as Wang and younger Chinese keen to snap up the latest fashionable digital gadgets.

The retail giant opened its first Chinese store in Shanghai in 2006 and the outlet sold enough to rank in the top 50 Best Buy stores (out of 1,300) worldwide. But Best Buy didn't expand until recently, adding four new stores in Shanghai and two in Beijing over a two-month span at the end of 2008.

The company plans to open more this year, said Redmond Yeung, president and chief operating officer for Best Buy Asia-Pacific.

Best Buy tries to reach its target demographic by stocking its shelves differently.

Household appliances make up the bulk of the product mix at Chinese retailers such as Gome and Suning, but are only 6 percent of Best Buy's product line, said Li Xiangfeng, a Tebon Securities Co Ltd analyst, adding digital electronics are Best Buy's staple, accounting for 41 percent of products sold.

Digital consumer goods have a higher profit margin than TVs or refrigerators, said Li, allowing Best Buy to maintain a gross profit level of about 24 percent, some 15 percent higher than either Gome or Suning.

Best Buy tries to lure Chinese customers with a comfortable shopping environment and fastidiously attentive service instead of lower prices.

"Some digital products are priced 5 percent higher at Best Buy than other stores, but the nice presentation and courteous staff are impressive, so I'm willing to pay the premium," said Zhang Ming, a university student at Best Buy's Lifestyle store in Shanghai's Laya Plaza.

Nevertheless, Synovate, an international research company still reminds Best Buy in a tailored survey the importance of price awareness. The survey says prices are the top concern for middle and high-income customers.

The picure of the Chinese electronic retail market looks tough for Best Buy with powerful local competitors. Gome, the largest one in the market, seems unfazed by the share trading investigation of its founder Huang Guangyu. Suning, another major retailer, plans to open new 200 stores and five more logistics bases in China this year.

Yet the crumble of Best Buy's rivals at home could give the company a relief. Its main rival Circuit City, filed for bankruptcy and another competitor, Tweeter, shut down. It is poised to swallow their market share and seems to have enough cash to keep expanding through the recession. American analysts expect its revenue to grow slightly next year.

"Many companies are slowing down expansion in the economic slowdown. Tactically it might be a good chance to jump ahead. When the real estate market is down, for instance, we will get cheaper rental rates," said Yueng.

(China Daily 01/05/2009 page6)