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TheStreet Open House

Best Buy Seeks Return to China

Stocks in this article: BBY


By the Financial Times ( Financial Times) -- Best Buy (BBY), the U.S. electronics retailer, is exploring a way to reintroduce its brand in China and says it has learned from errors that forced it to close its eponymous stores earlier this year.

Brian Dunn, Best Buy's chief executive, told the Financial Times it was testing ways to attach the Best Buy brand to the mobile phone sections of its Five Star stores, which were acquired in 2006 and survived this year's cull.

Best Buy is one of the U.S.'s best known retail marques and its February decision to close nine own-branded stores, which had failed to catch on, highlighted the difficulties western retailers can face in China. While others have stumbled by not modifying products to suit Chinese tastes, Dunn said Best Buy's poor performance stemmed from imposing a U.S. model of staffing and store organization.

"The lesson we learned from last time is we got too far ahead of the Chinese consumer in how business is done there," he said on a tour of Best Buy's flagship store in New York.

He said Best Buy's mistake had been to open big box stores with fixed prices that were staffed entirely by Best Buy's blue-shirted employees.

This turned off Chinese shoppers, who are accustomed to subsections of electronics stores staffed by manufacturers' own employees, who can offer specialist knowledge and negotiate discounts.

"The truth of the matter was we weren't able to get the right connection with the customer," said Dunn.

Torsten Stocker, head of the China consumer goods practice at Monitor Group, a strategy consultancy, said Best Buy had tried to provide "a premium shopping experience that consumers were ultimately not willing to pay for". The brand it is testing within its Five Star stores -- which were originally Chinese-owned and are organised as a traditional Chinese retailer -- is Best Buy Mobile, which it has used in the U.S. for standalone mobile phone shops as well as specialized stores-within-a-store.

But Dunn said it was an exaggeration to present this as a possible "rebirth" of Best Buy in China.

"To be fully candid, we are still testing whether to call it Best Buy Mobile or Star Mobile, and we are going back and forth on that, and likely we'll test both and see how they play out and what matters most to the consumer," he said.

At Best Buy's 178 Five Star stores, just 20 per cent of staff are employed by Five Star and work across the store.

"The customer likes the Samsung specialized labourer, the Sony specialized laborer, and the negotiating. So we think, over time, the model will evolve, but we were too far out in front. Excuse us," Dunn said.

But Shaun Rein, author of upcoming book The End of Cheap China, said: "I'm scared they haven't learned their lesson ... It has nothing to do with being able to haggle: consumers told us they liked the fact that Best Buy had set prices.

"But Best Buy was perceived as being more expensive than the competition, and they had the wrong product mix," he said.

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