Best Buy Buys Chinese CE/Majap Chain
By Alan Wolf -- TWICE, 5/12/2006
Minneapolis — Best Buy is acquiring a majority interest in China’s fourth-largest brown- and white-goods chain to accelerate its expansion into that market.
Five Star, operated by Jiangsu Five Star Appliance Co., Ltd., operates 136 stores in eight of the China’s 34 provinces. Best Buy is paying $180 million for its stake in the chain, which generated $700 million in revenues last year. Best Buy will also plow $122 million in capital into Five Star, whose management and employees will retain a minority interest in the business. The transaction, which has received the requisite Chinese government regulatory approvals, is expected to be neutral to Best Buy earnings in fiscal 2007, the company said.
The deal will give Best Buy an immediate retail presence within the world’s largest and fastest-growing market. The company will also proceed with previously announced plans to open the first Best Buy store in China later this year, to be located in Shanghai.
“Best Buy is pleased to be entering China’s retail market with Five Star’s management team as our partners,” said Robert Willett, CEO of Best Buy International. “They are strong leaders with considerable customer insights and strong local networks.”
Wang Jian Guo, chairman of the Five Star board of directors, said, “We believe that we can continue to enhance our customers’ experience as we benefit from Best Buy’s expertise in retail operations, IT and supply chain.”
China represents a major strategic thrust for Best Buy, whose stores are nearing saturation levels within the United States. The company says total CE sales in China are expected to hit $100 billion by 2010, and are projected to grow in the double digits over the next decade.
Best Buy already operates buying offices in Shanghai, Beijing and Shenzen, and boasts “well-established relationships with manufacturers that are seeking to gain broader distribution in both China and North America.” The latest deal was designed to accelerate its understanding of Chinese consumers and retail operations, the company said.
Five Star was founded in Nanjing in 1998 as a wholesale business and opened its first retail store in 2001. It currently has more than 12,000 employees. Its management team, including the company’s founder, will remain with the business following the transaction, and the stores will continue to operate under the Five Star brand. The company chiefly sells room air conditioners, A/V, majaps and digital communication devices, and enjoyed a 50 percent increase in sales last year.
Best Buy’s expansion outside of the United States began in late 2001 with the acquisition of Future Shop, Canada’s largest CE chain. Today, the Best Buy operates 119 Future Shop stores and 44 Best Buy stores in Canada.
“Our experience in Canada is helping us to build an array of global capabilities, such as supply chain, IT and sourcing, that will assist with our expansion into China,” said Willett. “We are encouraged by the significant opportunity to leverage our recent investments for both top-line and bottom-line growth. International growth is an important part of our long-term plans.”
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