So with Five Star and Best Buy you’re trying
the same dual-brand approach in China.
Absolutely. Best Buy will target the higher-end consumers
in the more affluent east coast, or top-tier, cities.
Five Star is focused on the less-developed areas of China.
It already operates in seven provinces and it has added
60 new stores since 2005; most of these are in second-tier
cities throughout China. It’s the number one electronics
retailer in Jiangsu province. One of the advantages
of the dual-brand strategy is that having two
approaches give us more leeway to learn and adapt. We
can translate lessons learned at Five Star about the specific
wants and needs of Chinese consumers to Best Buy
— and vice versa.
How did the company first get to China?
We started to utilize global sourcing from China, first in
Shanghai. But then sourcing also provided a window
into the market. It became clear after several years of this
that once we launched our global expansion, we have to
be here as a business.
So you see Chinese consumers as different
from North American ones?
There are some differences. We won’t sell DVDs, because
there are some regulatory hurdles here we can’t overcome.
And we have a huge mobile phone section, which
reflects the great interest in mobile communications in
China. We also sell a lot more basic appliances, such as
cooking hotpots and smaller household items such as
irons. Best Buy has a more upscale component that Five
Star doesn’t. There’s a lot of money in Shanghai and the
first-tier cities. At our flagship — and this will eventually
be offered in all our stores — we’re featuring our ‘Magnolia’
service plan, which offers the sale of home theater systems.
This is the same as the U.S. We also have a separate
room in which we show U.S.$70,000 systems: people have
this kind of money to spend in Shanghai these days.
Another service that we think is smart for China is our
Geek Squad, which has proved successful in the U.S. We
actually have a team of technicians to help set up computers,
either for in-store advice or in customers’ homes.
Computer equipment is becoming so complex that customers
are grateful for the service.
Are you worried about competition in China?
You’d be crazy if you weren’t thinking about competition.
Our biggest challengers are Gome, with the top market
share, and Suning Appliance Co. Gome just recently
bought the number three electronics retailer, China Paradise,
but I don’t think the acquisition integration is
going to be easy. There’s too much duplication. We’re
trying to understand China in our own way, and offer an
entirely different experience. Our decision to buy Five
Star was more about culture and a sensible entry into
this market than a grab for market share. I came to
China a year ago, when we first planned our expansion
here, and said to senior management when I returned:
We’ve got to get this right. We have to figure this market
out, and even if that means some faulty calls, so be it.