Best Buy has always maintained a relatively harmonious "competitive and cooperative relationship" with its suppliers in the US market. After acquiring Five Star, Best Buy claimed that it would change the bad habit of some domestic chain companies squeezing manufacturers, consider the interests of upstream manufacturers in terms of settlement methods, and said it would guarantee 15% of the gross profit of upstream manufacturers.
Improving profits through product management and service extension
How to increase profits has always been a major issue faced by home appliance chain retail. Due to direct price competition, the profits of major retailers have Very low. In addition to continuing to expand scale and squeezing suppliers' profits, retailers seem to be able to consider improving profit levels from commodity management.
As of the end of 2012, no home appliance retailer has placed such emphasis on these categories: mobile phone accessories, gaming peripherals, household products, audio-visual accessories and wires. These categories, which were not closely related to home appliances in the past, occupy a considerable area in Best Buy stores. These may not be the most suitable categories for the Chinese market, but we can at least get inspiration: a reasonable category combination can drive related sales and make up for the profit losses caused by direct price competition.
In addition to direct material products, Best Buy also sells a service product without any direct price competition--"Anxinbao". As of 2012, although consumers still have not generally accepted this payment service method , but who can predict the situation in the next few years? Just imagine, if 10% of Best Buy customers accept this product in the next five years, this product will increase Best Buy's net profit by nearly 0.5%. This is of great significance to domestic home appliance chains whose average profit margin is less than 5%.
Since Best Buy acquired Five Star Appliances in 2010, home appliance and IT retailers have been paying attention to the opening of Best Buy stores. Simply judging from the time required for Best Buy to achieve internal integration of domestic business and regional store coverage, Within three years, Best Buy will certainly not affect the market share of domestic large home appliance chains in its core areas. However, if we can look at it from another aspect, even if Best Buy's business model cannot be used as a reference for domestic peers, it can still be used as a model. hint. Business competition never excludes mutual reference and imitation. In the face of Best Buy, apart from disapproving, it seems that we can do more.
Tips on business methods
More than six months after acquiring Jiangsu Five-Star Electric Appliances, Best Buy finally opened its first store named "Best Buy" in Shanghai. Faced with this giant who is still in his infancy, the domestic home appliance retail giants are extremely disapproving. We can only guess their thoughts from the external remarks of Gome Suning executives---in terms of scale and development speed, Best Buy will not become a threat to domestic home appliance chains in three years. Of course, with hundreds of stores, tens of billions of turnover, a nationwide store network, and absolute advantages in some regions, domestic home appliance chain retailers (including Critics) have every reason to believe that this little brother with a cute yellow price tag will not make any waves in the short term. After all, judging from the turnover of a single store, he is too small. After all, his store opening plan is very conservative. It's a bit ridiculous, and judging from the product mix and category sales ratio of Best Buy's Xujiahui store, it seems that there is no direct conflict or competition between him and the domestic home appliance chain. The opening of Best Buy seems to have brought us something new - shelves instead of counters, unified style decorations instead of various manufacturer showcases, Best Buy employees instead of manufacturer promoters, spacious in-store space, and product related displays. Direct product experience replaces promoter introductions and machine models, there are no hanging flags and posters, and there is no signature vending machine. Of course, they also have Chinese-style rebates.
Shelves replace counters, direct product experience, product display by category, unified decoration... The core behind all these forms is the focus on consumers. Whether you are price sensitive or not, as a Consumers, you will never refuse a more spacious and relaxed shopping environment, and you will never refuse the direct experience of the goods you are about to purchase. As a Chinese consumer, if you are more accustomed to accepting rebates, why not? It took Best Buy three years from entering China to opening its first store. As early as 2003, Best Buy established an office in Shanghai. Purchasing goods from Chinese home appliance manufacturers became the main task of the office at that time.
Starting from procurement, Best Buy further understands local suppliers.
By 2005, Best Buy's purchases from China accounted for 72% of its global purchases, and Hisense, Haier, Changhong, Xohua, etc. were all its important suppliers.
In fact, the annual sales of China's home appliance industry of 500 billion yuan is the most important reason that attracts Best Buy to make the decision to enter China. Starting in 2005, Best Buy began to look for store resources in China and wanted to sell the original IKEA store in Madian, Beijing. However, it was unexpectedly intercepted by Huang Guangyu's Pengrun Electric Appliances.
After all the hardships, Best Buy took a controlling stake in Five Star Appliances for US$180 million in May 2006. According to the agreement between the two parties, the Five Star brand will be retained. This also strengthens Best Buy's determination to take the dual-brand path.
Five-star electrical insiders revealed: The so-called dual brand means that in the Jiangsu and Zhejiang areas where Five-star is based, the "Five-Star" brand will still be the main brand, waiting for opportunities to expand; while in the first-tier cities in China, it will use the "Best Buy" brand at the same time. Gome and Suning compete. On the day the Shanghai store opened, those local suppliers were also invisible in the crowd. Best Buy's sales staff are all Best Buy employees, and there are no promoters sent by the manufacturer. Those home appliance suppliers who are accustomed to sending promoters to promote sales on the front line are obviously not too confident about Best Buy's model.
But what attracts the attention of Gome, Suning and many suppliers is the "pay first and then get the goods" model proposed by Best Buy. This also fundamentally subverts the "quasi-financial" model that local home appliance retailers rely on to survive and expand.
The so-called "quasi-financial" model means that home appliance retailers use the account period to occupy suppliers' funds, and use these cash flows to expand wildly and compete for store resources.
According to Luo Qingqi, a home appliance chain expert, Best Buy pays first and then gets the goods. It puts the business risk on itself, achieving a win-win situation among suppliers, consumers and itself. While domestic appliance chain sales companies are rapidly expanding, they have transferred almost all operating risks to manufacturing companies, which has greatly inhibited the capital turnover of manufacturing companies. According to the above principles, after the supplier's products enter Best Buy, they are completely displayed and sold by Best Buy. The implementation of this strategy determines that it must give more profits to suppliers, otherwise it will not be able to attract more suppliers.
It is not difficult to explain that the product settings in Best Buy stores insist on targeting high-spending groups, and those low-margin home appliances are basically hard to find in the store. In other words, the competition between Best Buy, Gome and Suning will not be a price war.
In fact, even suppliers who have been bullied by Gome and Suning have no more confidence in Best Buy’s model. According to sources, it is precisely because some suppliers cannot accept Best Buy's operating model that it has indirectly led to the postponement of the opening of the first store in the first half of the year.
Best Buy seems to be still looking for its own Chinese model. Once we find a good model, we will quickly copy it. This may be what local home appliance retailers are afraid of.