US consumer electronics retailer Best Buy's plan to cut costs and lay off a section of its employees is likely to derail its ambitious expansion plans in China.
In a statement issued on Tuesday, the company said it would scale down spending by approximately 50 percent in 2009, involving a "substantial reduction in new store openings in China, the United States and Canada."
"We haven't got any details" of the retrenchment, a spokeswoman for Best Buy China said.
Last week, Redmond Yeung, president of Best Buy Asia, said in Shanghai that the company is not slowing down, but rather speeding up its expansion in China. He said the company plans to double the number of stores in the mainland from the current six next year.
Best Buy posted a net earnings of US$52 million for the quarter ending Nov 30, down 77 percent from a year ago.
The earnings setback and the expected deterioration in business environment have combined to force the company to "make significant adjustments" in cost, the company said.
Best Buy also said it would provide incentives for employees who choose to leave voluntarily.
The company's spokeswoman said China is not included in the company's staff retrenchment plan. Its China operations employ more than 1,000 people.
Best Buy opened its first China store in Shanghai in 2006. It was not until this October that the company began to expand. In the past two months, Best Buy opened five more stores - four in Shanghai and one in Beijing.
"With rentals of choice retail space coming down, this is the best time for Best Buy to grow its business," said Tian Huilan, senior electronic analyst, First Capital Securities.
The falling rents have encouraged Suning, a leading Chinese electronic retailer with 784 outlets, to consider opening 200 more stores in 2009.
As a foreign retailer, Best Buy China adopted a different business model. "We target mid- and high-end consumers," said the spokeswoman.
Best Buy introduced several value-added services, such as an extended warranty to entice customers. The firm also employs its own in-store sales people to offer non-biased service to customers. In contrast, most Chinese consumer electronics retailers allow sales people from different electronic brands to push their own products in store.
"The niche market that Best Buy created is promising in the long term because Chinese consumers are getting richer and are becoming increasingly discerning about shop environment," said Tian.
(China Daily December 19, 2008)
