Best Buy's China Challenge

For its part, Best Buy gained entry to China through the $180 million acquisition in May of fourth-ranked appliance retailer Five Star. The deal gave the U.S. retailer a network of 136 stores concentrated in a southeastern province, but it still lacks Gome's nationwide reach. The company has announced plans for only one Best Buy-branded store, an outlet in Shanghai.

"At this stage, we wouldn't see Best Buy as a threat to the major players," says DBS Vickers analyst Mavis Hui, who has a buy rating on Hong Kong-traded Gome. Domestic electronics retailers already have a major head start, both in staffing and in choosing their store sites, she says. "All the major prime locations have been more or less locked up by the domestic players."

That said, Best Buy is still in buying mode. Earlier this month, chief executive officer Bradbury Anderson said the company is "not done" making acquisitions in China. Local press reports speculate it's in talks with Beijing-based Dazhong, another large electronics retailer. (Dazhong agreed this spring to be acquired by China Paradise, but now wants out of the deal.)

Deals aside, Best Buy will have to contend with China's irksome and persistent retail price wars. Chinese are inveterate bargain hunters, renowned for shopping on price alone. Consumer electronics stores traffic in basics like air conditioners and water heaters, as well as stereo equipment.