Media Markt to close stores by end of April

Media Markt China Ltd, the electronic products chain owned by Germany's Media-Saturn Holdings and Foxconn Technology Group, will close its seven Chinese stores on March 11, a senior company official said on Wednesday.

The move marks the end of the company's two-year foray into the Chinese market.

Frank Bussalb, chief executive officer of Media Markt China, said that the closures of the stores were in the best interest of the two shareholders.

The company's store on Shanghai's Huaihai Road will remain operational to serve as a customer service center before closing its doors for good in late April.

All of the company's stores are in Shanghai.

Metro Group — Media-Saturn's parent company — said in a mid-January statement that it was planning to withdraw further financing for a planned expansion of the Chinese business.

Media Markt entered the Chinese market in November 2010. It was expected to open more than 100 stores across China by 2015.

Media Markt's exit from the promising but elusive Chinese market reminds industry insiders of Best Buy Co Inc's departure a couple of years ago.

The electronics retailers' disappointing experience in China highlights just how difficult it is to build a new retail brand in the country, especially in the consumer electronics space, said Ben Cavender, an associate principal at the China Market Research Group.

There is a tremendous amount of competition from well-established domestic brands and consumers' attention is shifting very rapidly to other shopping channels, like the Internet, Cavender said.

Given the high cost of operating large footprint retail stores in first-tier Chinese cities, their decision to leave the market is not surprising, he added.

Qi Xiaozhai, director of the Shanghai Commercial Economic Research Center, said Media Markt missed the best timing to explore the Chinese market because major domestic electronics retailers had already consolidated their market shares before its high-profile arrival.

"The service and experience Media Markt provides are unparalleled in the Chinese market, but it ignored its prices, the deciding factor, the thing that most Chinese customers care about the most when buying an electronics product," said Qi.

Over the past few years, a number of foreign retail giants withdrew from China. Analysts said that these examples do not necessarily indicate a failure of Western retail models, but only show the companies' inability to better understand the Chinese market.

Understanding what Chinese consumers really want should be the companies' most important task, they said.

"Where many companies fail here is looking at the costs of operating their business. Media Markt, with a massive flagship store in Shanghai, was a good example.

"The store ended up costing a tremendous amount of money, while effectively becoming a showroom that consumers could use before buying the products online from other sources," said Cavender.

Overseas retailers have more than 20 percent of Shanghai's retail market share, and more than 80 percent of Shanghai's supermarkets are owned by brands from outside the Chinese mainland, Qi added.