China Consumer

Getting trolleyed

Foxconn pushes into retail, hoping to learn from Germany’s Media Markt

Getting trolleyed

A ballooning store network

The opening of Media Markt, the German electronic goods retailer, in Shanghai early in November had somehow gone unnoticed by the mainland media. Little was written about the opening ceremony despite the appearance of Terry Gou, chairman of Foxconn, something of a celebrity within China. As it turns out, the store wasn’t officially open for business. Media Markt said it couldn’t train its staff in time but decided to push ahead with the ribbon-cutting anyway. No matter, the 5-storey flagship store finally opened this Wednesday.

Media Markt said it will use Shanghai to test the Chinese market, opening 10 more stores in the city by 2012. If that proves successful, it plans to open another 100 across China by 2015.

Media Markt is following other global brands like Best Buy, the Gap and Apple in opening stores in China. (Fellow German firm, Adidas also announced plans this week to open 2,500 new stores by 2015, expanding its footprint to 1,400 towns and cities.)

According to Media Markt, the market for electronics is expected to be worth $209 billion in 2013, with the Shanghai market alone making up 10% of the total.

“Chinese consumers’ purchasing power is soaring, making this an ideal time to enter the market,” says Roland Weise, chief executive of Media-Saturn, which owns Media Markt. Weise is betting that the same business model that has worked in Europe – where it is the continent’s biggest retailer of consumer electronics – will work in China, too: a wide product range and a “lowest-price guarantee” on thousands of different products. Customers who find a product at a cheaper price within 15 days of the original purchase will get the difference refunded by Media Markt, says the Southern Metropolis Daily.

Analysts wonder if Media Markt is going to find the market quite so straightforward. “It is one thing to compete in Germany, where they had to beat mainly staid department stores and local electronics retailers. Competing in China, they are the challenger to the large and well-established local players,” Torsten Stocker, retail analyst at Monitor Group, told beyondbrics, a Financial Times blog.

Especially when it comes to taking on competitors like Suning and Gome, two retailers, with over 2,000 outlets between them. “How are they [Media Markt] going to get products that Suning and Gome don’t have, at a good price?” asks Shaun Rein of China Market Research in Shanghai.

Enter Terry Gou. Media Markt has picked Foxconn, the Taiwanese contract manufacturer, as its partner – Foxconn has a 25% stake in the joint venture – to help with acclimatising to the mainland market.

What’s in it for Foxconn? Its manufacturing business – making gadgets for the likes of Apple and Nokia – might struggle with thinner profit margins, especially if labour costs increase. Analysts say the company has been on the lookout for opportunities to develop its retail capacity, hoping that with its healthier margins may offer a timely diversification. Given that so many products are made in Foxconn factories, it may have a distribution advantage too. Alongside the cooperation with Media Markt, Foxconn also plans to open 200 retail electronic stores of its own, to add to the small Cybermarket chain it purchased a decade ago but which has seen little growth. At present, Foxconn has 34 Cybermarket shops in China.

Perhaps Foxconn saw the recent disarray at Gome as an opportunity to expand (see Talking Point, WiC80). But the People’s Daily reports this week that a deal seems to have been brokered between Gome’s jailed major shareholder who’s been battling its current chairman. In exchange for the right to nominate two board directors, founder Huang Guangyu has rescinded his threat to sell 400 of the Gome-branded stores that he still personally owns. The truce suggests Gome can get back to business – a fact that will disappoint its competitors.

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