Metro Group’s Media Markt opened its long-awaited first store in China last month, marking the entry of the second international electricals retailer into the country.

Metro Group’s Media Markt opened its long-awaited first store in China last month, marking the entry of the second international electricals retailer into the country. Media Markt has announced ambitious plans for the Chinese market, which include opening 100 stores over the next five years. Experiences of earlier entrant Best Buy, however, suggest that Media Markt has significant hurdles ahead.

On the positive side, Media Markt has tried to differentiate itself from both the strong local competitors, Suning and Gome, and Best Buy. Unlike the local players, whose sales staff are employed by the manufacturers, Media Markt has decided to hire and train its own staff. While Best Buy adopted a high-end strategy to avoid direct competition with local players, Media Markt will compete with a wide range of products at low prices. Media Markt in Shanghai has a 32,290 sq ft area for entertainment and catering services, with which it hopes to drive family day trips.

Partnering with Taiwanese semiconductor and electronics manufacturer Foxconn will give Media Markt access to Foxconn’s broad range of electronics, but also establish business connections with local suppliers, and crucially with local governments, which in turn will help it to accelerate expansion. There is also a decentralised structure, whereby store managers will own a 10% stake in their store and have power to influence purchasing and promotion decisions.

So far, so good. Nevertheless, it remains uncertain whether Chinese consumers will take to this unknown brand. Suning and Gome have significant bargaining power in China and there is a risk they may pressurise local suppliers in terms of the prices offered to Media Markt.

The shortage of talented retail staff will also be a hurdle to expansion. In fact, the first Media Markt store was planned to open in September and was postponed several times until November. Rumour has it that this was because Media Markt could not recruit qualified store managers and other middle management.

The biggest problem is likely to be in securing suitable sites for its ambitious store opening plans. Poor urban planning means there are few suitable sites for new and large stores in Shanghai and other leading Chinese cities. Suning and Gome are also unlikely to sit idly by as Media Markt secures prime sites. Best Buy, for example, opened its first store in Shanghai in late 2006. Currently it has only eight stores in the country.

Matthew Stych, Research Director, Planet Retail. For more information contact us on:

Tel: +44 (0)20 7728 5600

Email: info@planetretail.net