Best Buy Co. Inc. might not be done with China just yet.
Despite widespread speculation on Wall Street that Best Buy will pull back from international retail, the Richfield-based company Thursday named a veteran retail executive in Asia to run its Five Star business in the world’s most populous country.
In a statement, Best Buy said Meng “Max” Zhou is the new CEO in China, replacing Nicolas Wang, who resigned in March. Zhou, a Cornell University graduate, previously served as CEO for China of Central Retail Group, the largest retailer in Vietnam, and executive vice president and chief operating officer for China Paradise Electrical Limited, the third-largest electronics chain in China.
“Five Star has built a strong presence in the world’s largest and rapidly growing consumer electronics market,” Zhou said in a statement. “Our business has great opportunities, and we are determined to drive our performance by meeting the changing needs of our customers.”
Zhou’s hire comes at a time when analysts expect CEO Hubert Joly to pull back from international markets to focus on Best Buy’s core business in North America. Last month, Best Buy agreed to sell its 50 percent stake in Best Buy Europe to joint venture partner Carphone Warehouse for $775 million in cash and stock.
Analysts had speculated that Joly will soon sell the Five Star business. But the arrival of Zhou suggests that Best Buy may stick around, especially as China’s smartphone market continues to boom.
“Best Buy wants to keep a foothold in China,” said Laura Kennedy, an analyst with Kantar Retail consulting firm in Boston. “It seems that the company wants more time to realize some potential there.”
The country has overtaken the United States as the world’s largest smartphone market. Global shipments of smartphones grew 48 percent in the first quarter to 216.3 million units, much of that going to China, according to a recent report by technology research firm Canalys. Of the top five smartphone vendors in the world, two — Huawei and ZTE — are Chinese firms selling into their home country.
With Five Star, Best Buy seems uniquely positioned to benefit from this growth. Although the company has shut down its big-box stores in China, Best Buy has continued to open Five Star stores and is testing a Best Buy Mobile store-within-a-store concept in some Five Star locations.
Best Buy will develop “our e-commerce capabilities and enhance the shopping experience in physical stores, with a focus on fast-growing categories like mobile phones,” Zhou said in his statement.
However, some observers still believe Best Buy will jettison Five Star, which has been struggling of late. A source close to Best Buy China said Zhou’s hire probably means the company wants more time to boost the value of Five Star before finding a buyer for the right price.
Since Joly joined Best Buy last September, he has launched an extensive campaign to simplify the business, removing layers of management, reducing corporate expenses and ending noncore operations like venture capital, online tech support, and outside partnerships and alliances.
He seemed particularly skeptical about Best Buy International, which never generated the returns on capital Wall Street had expected.
“Retail is not the most global of businesses by any stretch of the imagination,” Joly told investors in New York last November. “China is not a goal unto itself. If we can’t find a way to make the business successful, then we shouldn’t be in China.”
In February, Best Buy closed 15 of its 230 big-box locations in Canada. A few months later, Best Buy ended its joint venture with Carphone Warehouse, including its Global Connect initiative in which the two companies would sell their mobile store expertise to retailers around the world.
With Joly keen to focus on revitalizing Best Buy stores in the United States, pulling out of international made sense, analysts said.
“While management will be rolling out initiatives to help stabilize performance, we believe there is significant opportunity to divest or restructure noncore assets that don’t have strategic value like Europe and/or China,” Peter Keith, an analyst with Piper Jaffray, wrote in a recent research note.
China appeared to be an ideal candidate for divestment. Best Buy big-box stores never caught hold in the country and Five Star results have started to slow in recent months.
But judging from the rhetoric from Best Buy officials surrounding Zhou’s hire, China may yet find a place in Best Buy’s future.
“The size and growth of the Chinese market and consumer demand for better technology solutions requires us to have a leader with a strong vision and proven ability to adapt to a rapidly changing marketplace,” Best Buy International chief Shari Ballard said in a statement. “I know how committed [Zhou] is to moving the business forward.”