The largest US electronics retailer, Best Buy Co. Inc., is to set up its first China shop in June in Shanghai, the country's commercial center.
The Beijing News reports the US company has very probably secured a lease contract with the owner of a commercial building in Shanghai's downtown core for the shop.
The property, owned by Feidiao Electrics Co. Ltd., is located in one of Shanghai's most expensive business areas. It is reported the negotiation between Best Buy and Feidiao began as early as one month ago. Best Buy plans to purchase the 1st to 3rd floors of the building, an area of 6,000 square meters, at about 250 million yuan (US$31.25 million) with the cost of decoration and outsourcing included.
Meanwhile, responding to Best Buy's approach, the Shanghai-based electronics retailer Yongle, which owns nearly half of the local market share, says Chinese electronics retailers have already completed their market deployment in Chinese front-line cities, and they and other national retailers now welcome challenges from foreign rivals. Yongle currently has two stores operating near the building where Best Buy will put open its debut store in China.
Representatives from GOME Electrical Appliances Holdings Ltd. (0493.HK) and Suning Appliance Chain Store (Group) Co. Ltd. (002024.SZ) both express a similar opinion: Although Best Buy is a global leader with regard to its size and assets, its focus is on the North American market. The Chinese market has its own rules for competition, and regardless of whether it opens in Beijing or Shanghai, Best Buy's first store in China will not have much effect on the domestic electronics market.
Best Buy had originally planned to open its first China shop in Beijing, using a 15,400 square meters of commercial space vacated by Swedish furniture giant Ikea. But the plan was thwarted as Pengrun Electronics, a subsidiary of China's top electronics retailer GOME, secured the lease contract from the owner of the commercial building at 20 million yuan (US$2.5 million) per year.
Although Best Buy offered 80 million yuan (some US$10 million) as a yearly rent, the owner of the commercial building preferred the Pengrun deal because of its 15-year contract, terms of payment and good credit and financial strength of parent company GOME.
(CRI March 13, 2006)