By Laurie Burkitt
BEIJING-- Best Buy Co. is selling its China division to a
Chinese real estate group, exiting a country where the American
electronics retailer has struggled for years as it streamlines its
global business to focus on its core U.S. operations.
Best Buy is selling Jiangsu Five Star Appliance Co. to Chinese
real estate company Zhejiang Jiayuan Real Estate Group Co. for an
undisclosed amount, a spokeswoman for Best Buy said Thursday. She
said that Best Buy is exiting the China market except for its
sourcing operations, and that the sourcing of its private-label
products--everything from tablets and cords to televisions--is
projected to grow.
The Wall Street Journal reported in June that Best Buy was
considering a sale of its China business and that a sale could
fetch around $300 million.
Zhejiang Jiayuan--which operates in 20 cities across China and
whose main business focuses on developing housing estates,
commercial complexes and hotels--wasn't immediately available for
comment.
The move comes as Richfield, Minn.-based Best Buy carries out a
turnaround plan that Chief Executive Hubert Joly launched after
taking the helm two years ago when online rivals were ravaging Best
Buy's sales.
As part of the turnaround efforts, Best Buy has invested heavily
in its website and has leaned on suppliers to help finance
improvements to its more than 1,400 U.S. stores. It also exited
Europe last year, selling its 50% interest in Carphone Warehouse
Group PLC's European business back to Carphone in a mostly cash
deal valued at about $775 million.
In China, a slowing economy is presenting challenges for many
multinational companies in what has been a key growth market.
Rivalry with local Chinese companies is also intensifying online
and off, further sparking many to rethink their strategies.
The sale of the China business will enable the company to focus
more on the U.S., which generates the bulk of the company's
revenue, the Best Buy spokeswoman said.
Best Buy had big aspirations for its business in China in 2006,
when it bought a majority stake in Five Star, a Chinese electronics
chain that got its start selling air conditioners, and announced
the first Best Buy store openings. But after rolling out nine
namesake stores, where it sold the espresso machines and
home-entertainment systems that it sold to U.S. shoppers,
executives said they learned that Chinese consumers were poorer and
more interested in washing machines than surround-sound.
It closed its nine namesake stores in the country in 2011 and
focused its operations on Five Star. Best Buy hoped Five Star, a
more familiar Chinese brand, could build sales of washing machines
and cellphones.
But a slumping Chinese real estate sector took a toll on
operations, as consumers pulled back on purchases of washing
machines, air conditioners and other home appliances.
Tough online competition has also been a key factor in declining
sales outside the U.S., company executives have said. Revenue from
its international division dropped 8.4% to $1.39 billion in the
third quarter, which ended November 1, from the same period a year
earlier. Sales at international stores that have been open for a
year dropped 3% in the quarter, driven by declines in China, the
company said.
"Over the last two years we have worked to improve our business
in China and are proud of the progress we have made there," Mr.
Joly, Best Buy's chief executive, said in a statement.
Best Buy's overall revenue in its fiscal third quarter increased
0.6% to $9.38 billion.
Other retailers are also finding China tough going. Europe's
Metro AG announced last year that it would pull out of the Chinese
consumer-electronics business.
Home Depot Inc. closed its stores in 2012, saying that its
do-it-yourself store didn't work in a " do-it-for-me culture."
Rather than pulling out of China, U.K. supermarket chain Tesco
PLC completed a joint venture with Hong Kong-listed China Resources
Enterprise in May, enabling the Chinese retailer to combine its
supermarkets across China and Hong Kong with Tesco's.
Still others are feeling the effects of the slowing Chinese
economy. Unilever PLC, SABMiller PLC, Nestlé SA and Wal-Mart Stores
Inc. have cited ebbing consumer demand as reasons for slowing sales
in the country.
China's retail sales grew 12% in the first 10 months of the
year, down from 13% for the same period last year, according to
China's National Bureau of Statistics.
Write to Laurie Burkitt at laurie.burkitt@wsj.com
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