Best Buy might pull out of China market

US-based Best Buy Co Inc, a leading consumer electronics retailer, is reportedly planning to withdraw from the China market and focus on its home market.

Best Buy is considering selling its Five Star Appliance and Best Buy Mobile units, Wall Street Journal reported on Wednesday, citing insiders close to the matter. The two remaining Chinese operations of Best Buy are valued at $300 million, according to media reports.

A PR staff from Five Star Appliance, a wholly owned subsidiary of Best Buy, said the company is aware of this news but does not comment on rumors and speculation.

"We [Five Star] just concentrate on improving our service quality and pay no attention to rumors," the person, who only gave her name as Nancy, told the Global Times Wednesday.

Since the end of 2013, Five Star has seen improved efficiency and better profit growth as a slew of reform measures have taken place, the PR person noted.

A salesperson in one of the Five Star flagships located on Shanxi Road in Nanjing, capital of East China's Jiangsu Province, told the Global Times that he had not heard about the rumored sales deal.

Best Buy Co Inc bought Five Star Appliance, a local consumer electronics retailer with over 200 stores, for $185 million in 2009.

The possible pullout from China is seen by analysts as a move by the company to streamline underperforming operations worldwide and focus on the US home market since company CEO Hubert Joly took the helm in the fall of 2012.

Best Buy saw revenues of $9.04 billion in the first fiscal quarter of 2014 that ended May 3, 2014 with a net profit of $461 million.

Joly said in a financial statement that the financial performance indicated the progress the company made in its Renew Blue transformation, which is Best Buy's cost-reduction initiative.

Best Buy closed all nine of its stores in China in 2011 due to mediocre performance and left the business operation entirely to Five Star Appliance.

Globally, Best Buy sold its 50 percent stake in its European arm in 2013 to Carphone Warehouse for reportedly $775 million, ending a joint venture with the latter that it had set up in 2008, and pulled out of Europe.

Liang Zhenpeng, a Beijing-based home appliance industry analyst, said Best Buy is feeling the pinch from strong local rivals such as Suning and Gome and the rapid development of e-commerce in China.

"The emergence of e-commerce sites such as taobao.com, tmall.com, and jd.com in recent years dealt a crushing blow to the traditional retail chain stores. That's one of the key reasons for Best Buy's decision to leave China," Liang told the Global Times Wednesday.

Even giants such as Suning and Gome have been hit badly by e-commerce. For instance, Suning saw declining profits in 2013 and even a loss in the first quarter of 2014, Liang noted.

Best Buy's possible withdrawal is yet another example of big Western chains that did not do well in China. The predecessors include British supermarket chain Tesco, which announced its withdrawal from the China market in August 2013.

Best Buy has always wanted to differentiate itself from strong local players with its customized services and carefully crafted shopping areas yet failed to offer Chinese consumers price-competitive goods, Liang said.

"In their heyday about a decade ago, Gome and Suning routed hundreds of thousands of department stores, supermarkets, wholesale markets, and individual vendors of electronic goods in China with just one weapon - low prices," Liang told the Global Times. "Best Buy came into the Chinese market late and lost the price war, and eventually, the Chinese market."