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Best Buy back, game plan tweaked

MORE than one year after Best Buy closed all of namesake stores in China, the US-based retailer of consumer electronics has decided to relaunch its Best Buy Mobile brand to sell mobile phones to mainlanders through its wholly owned retail subsidiary Five Star.

The company said the decision was based on China's huge market potential.

That market may look especially tempting now because Best Buy hasn't been faring all that well in its home market, where same-store sales have declined in seven of the last eight quarters.

Can the retailer find a profitable renaissance in China? The odds are against it.

"It's not a surprise that Best Buy chose mobile devices to experiment with this time around because it is a category where consumers are more willing to spend," said Paul Zhou, managing director for market research and brand consultancy firm Illuminera.

Booming sales

According to market research institute GFK, sales of mobile phones in China will reach 303 million units this year and sales of smart phone will more than double from a year ago to 177 million units.

A Nielson's survey, covering more than 700 consumers in four domestic cities in the first quarter this year, found that more than 70 percent of respondents said they will buy a new cell phone every six months to two years. About four-fifths said they buy at bricks-and-mortar retail stores, compared with only 18 percent choosing to place orders online.

It also pointed out that the process ordinary consumers go through to decide what to purchase is long and complicated and there are still unmet demands in terms of suitable handsets and carriers.

Illuminera's Zhou pointed out that the competitive landscape has changed dramatically since Best Buy shuttered its shops last year. Online retailers such as Tmall and 360buy are offering great prices and reasonably good shopping experiences.

"Best Buy Mobile hopes to provide services tailored to consumers' needs, and our staff will help consumers choose the most suitable carrier and handset," explained Stephen Mackarel, leader of the Best Buy Mobile China project.

He said the target audience will be white-collar workers with good disposable income - people who are seeking high quality and care less about comparing prices.

Speculative move

Luo Renxiao, an independent retail industry observer in Shanghai, called Best Buy Mobile's move "speculative" and noted that the company isn't making a huge financial investment at the start.

"It obviously didn't want to pour too much resource into it and is making use of existing shop space inside Five Star so it can save rental costs," he said.

Five Star, which was taken over by Best Buy in 2009, has 209 stores in seven provinces in China.

Best Buy indeed seems to be testing the waters before taking a big market plunge.

The company said it plans to open independent stores to sell personal mobile devices and accessories and will extend sales to the online sector. However, it gave no timetable for such moves.

From my own personal experience and what I hear from work colleagues and friends, word of mouth is a powerful influence in handset buying.

Mobile phones are very standard products, and consumers can easily compare prices among various shopping channels.

Favoring e-commerce

It's unlikely that Best Buy will do a better job competing with online retailers in China, Zhou said, noting that many domestic handset makers, such as Xiaomi and 360, are favoring e-commerce and shunning high-cost offline retailers.

Best Buy said it will revamp existing cell phone counters within Five Star outlets and turn them into Best Buy Mobile points of sale.

Fourteen of these sites will be open by the end of this year, a token number in China's gigantic consumer market that is not likely to produce lower sourcing costs than, say, giant rivals Gome and Suning.

Best Buy's initial foray in China was stymied, to a large degree, by the same shopper pattern that is hurting sales in the US.

Consumers have tended to use its stores as "showrooms" to handle and try out electronics. But when it comes down to actual purchases, they go online, where competition is keener and prices lower.

It does appear that Best Buy is trying to reinvent that wheel in its latest expedition into China, giving it the appearance of a company that is out-of-step with a rapidly changing retail environment.


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