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The US home appliance retailing giant Best Buy is said to retreat from China and has to change its strategy.
Best Buy finally lowers its head after being stuck in China for five years. As the news on February 10 stated, the US retailer is planning on “Everyday Special Price”, trying to turn price cut into normalcy.
As a part of global strategy, the strategy of lowering price is available in China. However, how it will go in this country is still unknown. Another news says that Bet Buy is planning on quitting China’s market due to the enduring failure to find a proper way of expansion.
Condescend for Expansion
Mike Vitelli, executive vice president of Best Buy American Business says that Best Buy might turn the tactical discount into “Everyday Special Price” pattern. Though such a change is still under the inside discussion, Best Buy can not stand the fact that the consumers’ rising concern about the price, thanks to the global depression, forces many companies to lower their products’ prices and take away their customers.
Actually, Best Buy’s “Everyday Price” means that every day there are some products sold at discounted price, turning price cut into normalcy. It is known that the foreign retailers only offer big feast of discount for Christmas and the other important holidays, which is different from the regular sales promotion campaign held by Chinese retailers.
Liu Ting, public relation manager of Best Buy China says that this is an international strategy of Best Buy, which starts from China. It will take some time to spread it to the whole world, and there is no fixed schedule to the price adjustment to be carried out.
As Liu Ting says, now Best Buy has a special team to track down the prices of products sold in the stores. Like Chinese local retailers, Best Buy will launch sales promotion campaigns at holidays or weekends.
Liu Bucheng, an observer of the home appliance industry, thinks that Best Buy’s “everyday low price” strategy might attract more consumers, but defectively, such a strategy may lead to a less stimulated consumption wave at holidays. “I recommend the combination of two patterns – ‘everyday low price” at regular time and tactical price cut at holidays,” says Liu Bucheng.
Actually, Gome and Suning, the two largest Chinese local home appliance retailers, also use the “everyday special price” strategy. Therefore, Best Buy’s initiative is not innovative. He Yangqing, vice president of Gome declined to comment Best Buy’s new motive. He says that the price is an important factor that influences upon the consumers’ activities and that’s why Gome lays emphasis on low prices. However, he says that there are a lot of factors affecting the consumers. Some consumers attach importance to experience; some prefer certain brands and some hold rational minds. The low price is the feature of huge chain retailing stores. Gome, as one of them, improve their service level and other abilities at different aspects while keeping the price low to maintain the consumers’ loyalty.
He Yangqing stresses that keeping prices low is not an easy job. The retailer needs to control the cost of supply chain at the lowest level by, for example, improving the inventory turnover and average efficiency of stores. In that the companies can have proper profits.
To Quit China?
Though Best Buy rules the US home appliance retailing market, it never works out a proper way to have a good job in China, since it entered this country by spending 180 million US dollars acquiring 75% stakes of Five Star Electronics in 2006 and opening the first store in Shanghai.
According to Best Buy’s official statistics, it has only opened eight stores in China since its entry five years ago. Among them, six are located in Shanghai and the other two respectively stand in Hangzhou and Suzhou. In addition, it has a store in Beijing, which is located within another retailing store instead of standing as an independent one and thus is not considered as a single store. Its number of stores, is far behind Gome and Suning even plus the over 100 stores of Five Star Electronics.
As Gome and Suning turn from simply increasing the number of stores to improving the efficiency of single stores, Best Buy’s situation in China become worse and worse. It is even said that Best Buy plans to quit China’s market due to the stagnant development.
“The business concepts of Best Buy China may be different from the US headquarters’. Best Buy may come up with a new idea, from which the thought of quitting generated,” says an anonymous insider. Best Buy went into China at a wrong time, when the local home appliance retailers have already taken the dominant place and great competition power. Its entry cast little influence upon the Chinese rivals and it has been failing to find a proper development pattern.
In truth, it is not the first time that Best Buy is said to leave China. In 2007, Best Buy met several failures in opening the second store. At that tome, there was rumor about its possible leaving. In 2008, Best Buy closed its representative office in Beijing, which raised the rumor that it would cooperate with Gome.
Liu Ting denies the truth of this rumor. “Best Buy’s long-term promise to China will not be changed. We should see that Best Buy has already walked out of Shanghai and established stores in Suzhou and Hangzhou,” says Liu Ting. She points out that each enterprise will go through the difficult period and Best Buy keeps learning from Chinese local retailers from its entry into this market.
Liu Bucheng also shows his doubt about this rumor. “I don’t think it wise to quit the huge Chinese market instead of striving in it,” says he. “In my opinion, there is quite a small possibility for Best Buy to leave China.”
Liu thinks that Best Buy needs to make clear where its advantages lie in China and then think of how to make use of these advantages. A Japanese home Yamada Denki is walking on the same path with Best Buy, indicating that this is a common for foreign home appliance sellers.
Right now, Best Buy owns over 100 stores of Five Star Electronics in China. It has a booming status in China. Even though Best Buy is forced to quit the Chinese market, it doesn’t mean that it will completely give up China.
Hard to Change Current Situation
It is certain that Best Buy, no matter changing its strategy in China or leaving this market, will not bring too much change to China’s home appliance retailing market
He Yangqing from Gome says that Best Buy, and the other foreign home appliance retailers’ entry into China can not affect the leading place of Gome and Suning in this field. Meanwhile, the competition gives the companies opportunities to learn from each other and optimize themselves.
It’s easy to see that Best Buy’s attaching importance to experience of shopping, self-appointed salesman and displaying products based on their types instead of their brands have been borrowed by the local retailers in their new stores.
Liu Bucheng also believes that the settlement of foreign home appliance retailing giant will not pose a threat to Gome and Suning. They are doomed to be minor roles instead of protagonist. The root lies in the dominant place the local retailers have gained and that is hard to take away.
In addition, the rise of e-commerce will take a part of consumers away from the traditional market, but it will not replace the shopping malls as the mainstream.
Pain of Pattern
Actually, there are two major business models for the global home appliance retailing market. One is mainly adopted by Gome and Suning. They rent their selling areas to different home appliance manufacturers who dispatch sales promoters in the stores. The retailers take rent from the manufacturers, as well as a certain proportion of sales volume of products as the profits. Another pattern is popular among the retailers represented by Best Buy and Wal-Mart – the companies buy a batch of products at low prices, then sell them in their shops, with the assistance of their own employees and earn profits from the price difference.
Though the head of Best Buy’s Asian business keeps changing. Kal Patel, who was appointed this position, last March, doesn’t blame Best Buy’s stagnant development on the pattern it uses. Best Buy previously believed that the Chinese market will accept Best Buy’s pattern after a while. However, it now finds out that this market is still supplier-oriented, not retailer oriented.
Does the rumor that Best Buy’s plan to quit proclaim the failure of this pattern?
Best Buy’s method of earning profits from price difference is the essence of retailing industry. However, such a pattern doesn’t work well in China despite its being classic. Best Buy feels contradictory in China. On one hand, it can not completely copy the pattern from the USA in China. One the other hand, it can borrow the pattern of Gome and Suning without any changes. It can not find a proper method until now, which leads to its predicament.
Difficult Time in China
In June 2006, Best Buy spent 180 million US dollars acquiring 75% stakes of Five Star Electronics, the fourth largest home appliance retailing store in China, changing its simple role as a purchaser in China.
In February 2009, Best Buy spent 185 million US dollars getting the rest 25% stakes of Five Star Electronics and became the third largest home applicant retailer in China.
From April 2007, Lu Weiming resigned from the chairman and general manager of Best Buy China. He was replaced by Yang Deming. Then there was rumor about Best Buy’s quitting China. In March 2010, Best Buy China has a new leader – Kal Patel from the USA.
The expansion of Best Buy is very slow. In October 2008, its second store in China was opened, 19 months later than the first one.
In 2010, Best Buy finally walked out of Shanghai, where its China branch was headquartered, and settled down in Suzhou and Hangzhou – both are close to Shanghai.
Best Buy finally lowers its head after being stuck in China for five years. As the news on February 10 stated, the US retailer is planning on “Everyday Special Price”, trying to turn price cut into normalcy.
As a part of global strategy, the strategy of lowering price is available in China. However, how it will go in this country is still unknown. Another news says that Bet Buy is planning on quitting China’s market due to the enduring failure to find a proper way of expansion.
Condescend for Expansion
Mike Vitelli, executive vice president of Best Buy American Business says that Best Buy might turn the tactical discount into “Everyday Special Price” pattern. Though such a change is still under the inside discussion, Best Buy can not stand the fact that the consumers’ rising concern about the price, thanks to the global depression, forces many companies to lower their products’ prices and take away their customers.
Actually, Best Buy’s “Everyday Price” means that every day there are some products sold at discounted price, turning price cut into normalcy. It is known that the foreign retailers only offer big feast of discount for Christmas and the other important holidays, which is different from the regular sales promotion campaign held by Chinese retailers.
Liu Ting, public relation manager of Best Buy China says that this is an international strategy of Best Buy, which starts from China. It will take some time to spread it to the whole world, and there is no fixed schedule to the price adjustment to be carried out.
As Liu Ting says, now Best Buy has a special team to track down the prices of products sold in the stores. Like Chinese local retailers, Best Buy will launch sales promotion campaigns at holidays or weekends.
Liu Bucheng, an observer of the home appliance industry, thinks that Best Buy’s “everyday low price” strategy might attract more consumers, but defectively, such a strategy may lead to a less stimulated consumption wave at holidays. “I recommend the combination of two patterns – ‘everyday low price” at regular time and tactical price cut at holidays,” says Liu Bucheng.
Actually, Gome and Suning, the two largest Chinese local home appliance retailers, also use the “everyday special price” strategy. Therefore, Best Buy’s initiative is not innovative. He Yangqing, vice president of Gome declined to comment Best Buy’s new motive. He says that the price is an important factor that influences upon the consumers’ activities and that’s why Gome lays emphasis on low prices. However, he says that there are a lot of factors affecting the consumers. Some consumers attach importance to experience; some prefer certain brands and some hold rational minds. The low price is the feature of huge chain retailing stores. Gome, as one of them, improve their service level and other abilities at different aspects while keeping the price low to maintain the consumers’ loyalty.
He Yangqing stresses that keeping prices low is not an easy job. The retailer needs to control the cost of supply chain at the lowest level by, for example, improving the inventory turnover and average efficiency of stores. In that the companies can have proper profits.
To Quit China?
Though Best Buy rules the US home appliance retailing market, it never works out a proper way to have a good job in China, since it entered this country by spending 180 million US dollars acquiring 75% stakes of Five Star Electronics in 2006 and opening the first store in Shanghai.
According to Best Buy’s official statistics, it has only opened eight stores in China since its entry five years ago. Among them, six are located in Shanghai and the other two respectively stand in Hangzhou and Suzhou. In addition, it has a store in Beijing, which is located within another retailing store instead of standing as an independent one and thus is not considered as a single store. Its number of stores, is far behind Gome and Suning even plus the over 100 stores of Five Star Electronics.
As Gome and Suning turn from simply increasing the number of stores to improving the efficiency of single stores, Best Buy’s situation in China become worse and worse. It is even said that Best Buy plans to quit China’s market due to the stagnant development.
“The business concepts of Best Buy China may be different from the US headquarters’. Best Buy may come up with a new idea, from which the thought of quitting generated,” says an anonymous insider. Best Buy went into China at a wrong time, when the local home appliance retailers have already taken the dominant place and great competition power. Its entry cast little influence upon the Chinese rivals and it has been failing to find a proper development pattern.
In truth, it is not the first time that Best Buy is said to leave China. In 2007, Best Buy met several failures in opening the second store. At that tome, there was rumor about its possible leaving. In 2008, Best Buy closed its representative office in Beijing, which raised the rumor that it would cooperate with Gome.
Liu Ting denies the truth of this rumor. “Best Buy’s long-term promise to China will not be changed. We should see that Best Buy has already walked out of Shanghai and established stores in Suzhou and Hangzhou,” says Liu Ting. She points out that each enterprise will go through the difficult period and Best Buy keeps learning from Chinese local retailers from its entry into this market.
Liu Bucheng also shows his doubt about this rumor. “I don’t think it wise to quit the huge Chinese market instead of striving in it,” says he. “In my opinion, there is quite a small possibility for Best Buy to leave China.”
Liu thinks that Best Buy needs to make clear where its advantages lie in China and then think of how to make use of these advantages. A Japanese home Yamada Denki is walking on the same path with Best Buy, indicating that this is a common for foreign home appliance sellers.
Right now, Best Buy owns over 100 stores of Five Star Electronics in China. It has a booming status in China. Even though Best Buy is forced to quit the Chinese market, it doesn’t mean that it will completely give up China.
Hard to Change Current Situation
It is certain that Best Buy, no matter changing its strategy in China or leaving this market, will not bring too much change to China’s home appliance retailing market
He Yangqing from Gome says that Best Buy, and the other foreign home appliance retailers’ entry into China can not affect the leading place of Gome and Suning in this field. Meanwhile, the competition gives the companies opportunities to learn from each other and optimize themselves.
It’s easy to see that Best Buy’s attaching importance to experience of shopping, self-appointed salesman and displaying products based on their types instead of their brands have been borrowed by the local retailers in their new stores.
Liu Bucheng also believes that the settlement of foreign home appliance retailing giant will not pose a threat to Gome and Suning. They are doomed to be minor roles instead of protagonist. The root lies in the dominant place the local retailers have gained and that is hard to take away.
In addition, the rise of e-commerce will take a part of consumers away from the traditional market, but it will not replace the shopping malls as the mainstream.
Pain of Pattern
Actually, there are two major business models for the global home appliance retailing market. One is mainly adopted by Gome and Suning. They rent their selling areas to different home appliance manufacturers who dispatch sales promoters in the stores. The retailers take rent from the manufacturers, as well as a certain proportion of sales volume of products as the profits. Another pattern is popular among the retailers represented by Best Buy and Wal-Mart – the companies buy a batch of products at low prices, then sell them in their shops, with the assistance of their own employees and earn profits from the price difference.
Though the head of Best Buy’s Asian business keeps changing. Kal Patel, who was appointed this position, last March, doesn’t blame Best Buy’s stagnant development on the pattern it uses. Best Buy previously believed that the Chinese market will accept Best Buy’s pattern after a while. However, it now finds out that this market is still supplier-oriented, not retailer oriented.
Does the rumor that Best Buy’s plan to quit proclaim the failure of this pattern?
Best Buy’s method of earning profits from price difference is the essence of retailing industry. However, such a pattern doesn’t work well in China despite its being classic. Best Buy feels contradictory in China. On one hand, it can not completely copy the pattern from the USA in China. One the other hand, it can borrow the pattern of Gome and Suning without any changes. It can not find a proper method until now, which leads to its predicament.
Difficult Time in China
In June 2006, Best Buy spent 180 million US dollars acquiring 75% stakes of Five Star Electronics, the fourth largest home appliance retailing store in China, changing its simple role as a purchaser in China.
In February 2009, Best Buy spent 185 million US dollars getting the rest 25% stakes of Five Star Electronics and became the third largest home applicant retailer in China.
From April 2007, Lu Weiming resigned from the chairman and general manager of Best Buy China. He was replaced by Yang Deming. Then there was rumor about Best Buy’s quitting China. In March 2010, Best Buy China has a new leader – Kal Patel from the USA.
The expansion of Best Buy is very slow. In October 2008, its second store in China was opened, 19 months later than the first one.
In 2010, Best Buy finally walked out of Shanghai, where its China branch was headquartered, and settled down in Suzhou and Hangzhou – both are close to Shanghai.