Best Buy, Amazon, Aisidi In Retailing Shuffle
Several news bits from the electronics retailing space are in the headlines today, reflecting the volatile state of a highly competitive sector where margins are razor thin. US retailing giant Best Buy (NYSE: BBY) leads the headlines, with word that it’s mulling a sale of its China business 3 years after closing most of its own-brand stores in the market. Leading e-commerce firm Amazon (Nasdaq: AMZN) is also reportedly eying a retreat in the China home appliance market, while homegrown player Aisidi (Shenzhen: 002416) is moving in the other direction with its purchase of one of the nation’s top online cellphone retailers.
All of this shows that electronics retailing will remain difficult for many companies in China over the next few years, and is likely to undergo more adjustments as major players leave the market and others merge. The withdrawal of big names like Best Buy and Amazon foreshadows what lies ahead, since foreign retailers are typically more bottom line-oriented than their Chinese peers and tend to close poorly performing businesses earlier if they don’t sense any strong profit potential in the next 3-5 years.
Let’s start with Best Buy, which has been gradually pulling back many of its global operations over the last 2 years as it attempts to rectify its struggling core US business. The company made headlines when it shuttered its own-brand China stores in 2011, after discovering that local consumers were less interested in its better service and were more interested in lower prices offered by its rivals. (previous post)
Now media are reporting the US company is weighing a sale of its remaining China operations, which consist of Best Buy Mobile, a cellphone-oriented chain, and Five Star, a regional electronics seller. (English article) A sale of those 2 chains could fetch a relatively modest sum of up to $300 million, the reports say, adding that Best Buy is working with several investment banks on a deal. Such a withdrawal would be a disappointment for China bulls, but certainly seems like a good move in a market that will almost certainly be difficult for at least the next 5 years.
Next let’s look at Amazon, which is reportedly weighing a withdrawal from directly selling appliances on its China website. (English article) This particular development looks much smaller than Best Buy’s, and would see Amazon let third-party merchants handle all appliance sales on its China site.
Several reasons were given for the move, including tough competition and difficulty finding companies that can install appliances for customers in many local Chinese markets. Such logistical services are probably one area that Amazon could easily outsource to third-party merchants, and thus this move looks quite logical and should help the company focus on other more important areas.
Lastly there’s Aisidi, which has announced it is buying Shandong Sanji Electronics, the largest seller of cellphones on e-commerce leader Alibaba’s 2 major online shopping malls, Tmall and Taobao. (Chinese article) The purchase price is relatively small, with Aisidi paying 300 million yuan ($50 million) in 2 tranches. The low price probably reflects the fact that Sanji has very little profits despite its leading status in the ultra-competitive space.
I can’t comment too much on the implications of this particular deal since I’m unfamiliar with the Aisidi and Sanji. Alibaba is likely to closely watch the situation, since Sanji probably accounts for huge transaction volumes on Taobao and Tmall. In the meantime, we can probably expect to see lots of similar deals and other adjustments in the electronics retailing space until competition finally starts to ease.
Bottom line: China retrenchments by Best Buy and Amazon and the sale of a top online cellphone seller reflect intense competition in electronics retailing, with many similar adjustments likely in the next 2 years.
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