Hard Choices: Best Buy and Five Star in China (A)

Given the huge size and growth potential of the Chinese market, no multinational corporations can afford to neglect it. Nonetheless, Chinese culture, consumer behavior, and competitors are quite different from those in the West. Adaption and localization are necessary steps for many multinational corporations to survive in China. The leading global consumer electronics retailer, Best Buy, opened its own-branded stores in China in 2006 and adopted a U.S.-style operating model. However, Best Buy–branded stores could not break even in China, and Best Buy had to close all of them at the beginning of 2011. Case A analyzes why the top global consumer electronics retailer closed all its eight own-branded stores in China in February 2011 after a continuous decline in revenue. The case describes the operating model adopted by Best Buy in China, which was incompatible with Chinese market demand and expectations. Five Star Appliances, a Chinese electronics retail brand acquired by Best Buy in 2006, continued with its original operating model and generated profits. After the closure of Best Buy stores, Five Star Appliances followed a path of expansion. Case B covers the measures taken by its rivals in competing for market share after Best Buy closed its stores in China and lays the foundation for a discussion of whether Best Buy should re-open in China. The Industry Note describes the electronics retail market in China, including an analysis of consumers and major players.