Best Buy may reverse its reversal in China

  • Article by: SUSAN FEYDER , Star Tribune
  • Updated: September 23, 2011 - 9:00 PM

Best Buy closed its branded stores in China in February. Now it might reopen one.

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This Shanghai store was Best Buy’s first in China.

Seven months after taking the Best Buy brand out of China, the consumer electronics chain is considering bringing it back on a limited scale.

The Richfield-based company said Friday that it is considering reopening a store under the Best Buy banner in Shanghai, though a spokeswoman declined to provide details.

Best Buy Co. Inc. closed all nine of its branded stores in February, saying it might reopen two at an unspecified later date. At the time, the company said it would open 40 to 50 new Five Star Appliance stores in China, bringing the total to about 210 by the end of next year.

Five Star, a major retailer in China, came under the Best Buy umbrella in 2006.

CEO Brian Dunn said the move to close the Best Buy-branded stores was consistent with its strategy of "driving businesses that have earned the right to additional capital while curtailing activities that we believe will not meet our return on investment thresholds."

The news of the possible reopening comes two weeks after Best Buy reported a 30 percent drop in operating profit for its second quarter and net profits that fell short of analysts' estimates. Best Buy's stock has fallen about 30 percent since the start of the year, and earlier this month shares hit a 12-month low of $23.30.

The stock closed Friday at 24.18 a share, down seven cents for the day.

"They have enough to figure out in the United States. They have a great Chinese business in Five Star," Janney Capital Markets analyst David Strasser said in a note to clients. Strasser said he was shocked by news of the reopening, which he said "reeks of poor capital allocation."

A move to reopen in China would come as Best Buy faces hurdles in other overseas markets. The retailer recently said its international same-store sales fell 3.2 percent, with Europe and Canada dragging down both sales and profits.

The problem is especially acute in the United Kingdom, where smartphones make up a large percentage of sales. Best Buy officials have said local carriers recently switched from 18-month contracts to 24-month contracts, depriving the company of upgrade revenue.

Best Buy's struggles in the U.K. have led to speculation that it might pull back from the country. In a report published recently by the Sunday Express, the newspaper said Best Buy is conducting a strategic review of its operations.

Susan Feyder • 612-673-1723

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