Another retailer fails to learn a Chinese lesson
By Ding Yining |
March 5, 2013, Tuesday
|
Print Edition
Print Edition
ELECTRONICS retail chain Media Markt confirmed last week that it will shut its seven stores in Shanghai and pull out of China this spring, becoming another casualty of fierce competition in the consumer market.
In January, the company - owned 75 percent by its German namesake parent and 25 percent by Taiwan-based Foxconn - said its two-year pilot foray into the Chinese market had failed to win over consumers.
The retailer said six of its outlets, mostly in suburban areas, will close by mid-March. Its downtown flagship store on Huaihai Road M. will remain open until the end of April to provide wrap-up customer services.
When the chain entered the Chinese market in 2010, the company said it had plans to open 100 outlets by the end of 2015.
Expensive rents and poor sales scuttled those ambitions.
Just months before the announcement of its exit, Media Markt launched an online unit that promised to offer consumers more than 8,000 products across a range of merchandise.
Surviving for just five years
Media Markt's retreat is reminiscent of the fate of US retailer Best Buy, the world's largest electronic retail chain.
Best Buy announced in early 2011 that it would close its nine namesake mainland stores and its regional headquarters in Shanghai after surviving in the market for just five years.
At the time, analysts said the company failed to grasp the temperament of Chinese consumers.
Both Best Buy and Media Markt offered excellent customer service but miscalculated the Chinese consumer's obsession with low prices and discounts offered by domestic rivals such as Suning and Gome.
Two foreign CEOs headed Media Markt's China operations, and neither seemed to fully understand the competitive market landscape, analysts said.
Adding to Media Markt's woes was bad timing. It entered the market just when sales of home appliances hit a plateau after years of explosive growth. Sales growth plummeted to less than 8 percent last year from more than 20 percent three years ago.
Sales of smartphones and mobile devices prospered, but consumers were swayed by the cheaper prices offered by established domestic retailers.
Media Markt found itself competing not only against traditional retailers such as Gome and Suning, but also against giant online sellers such as 360Buy and Taobao.
Given Best Buy's debacle, it's hard to understand why Media Markt didn't learn from that experience. Placing a premium on customer service, while admirable, just didn't compensate for higher prices in the end.
"Offering premium service is a good idea but at the end of the day neither Media Markt nor Best Buy had enough understanding of Chinese consumer habits to change their business model to suit the local market," one consumer wrote on his Weibo microblog.
Sluggishness in the home appliances market is forecast to continue for the next three to five years, while retail rivalries are expected to get even hotter.
It may be a while before any foreign-backed venture dares to tread where Media Markt and Best Buy have stumbled.
And any company wanting to try their luck in the Chinese market would be well advised to do their homework on the habits of Chinese consumers.
In January, the company - owned 75 percent by its German namesake parent and 25 percent by Taiwan-based Foxconn - said its two-year pilot foray into the Chinese market had failed to win over consumers.
The retailer said six of its outlets, mostly in suburban areas, will close by mid-March. Its downtown flagship store on Huaihai Road M. will remain open until the end of April to provide wrap-up customer services.
When the chain entered the Chinese market in 2010, the company said it had plans to open 100 outlets by the end of 2015.
Expensive rents and poor sales scuttled those ambitions.
Just months before the announcement of its exit, Media Markt launched an online unit that promised to offer consumers more than 8,000 products across a range of merchandise.
Surviving for just five years
Media Markt's retreat is reminiscent of the fate of US retailer Best Buy, the world's largest electronic retail chain.
Best Buy announced in early 2011 that it would close its nine namesake mainland stores and its regional headquarters in Shanghai after surviving in the market for just five years.
At the time, analysts said the company failed to grasp the temperament of Chinese consumers.
Both Best Buy and Media Markt offered excellent customer service but miscalculated the Chinese consumer's obsession with low prices and discounts offered by domestic rivals such as Suning and Gome.
Two foreign CEOs headed Media Markt's China operations, and neither seemed to fully understand the competitive market landscape, analysts said.
Adding to Media Markt's woes was bad timing. It entered the market just when sales of home appliances hit a plateau after years of explosive growth. Sales growth plummeted to less than 8 percent last year from more than 20 percent three years ago.
Sales of smartphones and mobile devices prospered, but consumers were swayed by the cheaper prices offered by established domestic retailers.
Media Markt found itself competing not only against traditional retailers such as Gome and Suning, but also against giant online sellers such as 360Buy and Taobao.
Given Best Buy's debacle, it's hard to understand why Media Markt didn't learn from that experience. Placing a premium on customer service, while admirable, just didn't compensate for higher prices in the end.
"Offering premium service is a good idea but at the end of the day neither Media Markt nor Best Buy had enough understanding of Chinese consumer habits to change their business model to suit the local market," one consumer wrote on his Weibo microblog.
Sluggishness in the home appliances market is forecast to continue for the next three to five years, while retail rivalries are expected to get even hotter.
It may be a while before any foreign-backed venture dares to tread where Media Markt and Best Buy have stumbled.
And any company wanting to try their luck in the Chinese market would be well advised to do their homework on the habits of Chinese consumers.
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