A Media Markt store in Shanghai. The electronics retailer is jointly owned by the Germany-based Media-Saturn Holdings, a subsidiary of Metro Group, and Hong Kong-listed Foxconn Technology Group. Wang Juliang / For China Daily

Metro suspends future funding of electronics unit, directs focus on wholesale arm

Media Markt China, the electronic products chain owned by Germany's Media-Saturn Holdings and Foxconn Technology Group, may have to close unless a buyer is found for the money-losing business, according to retail experts.

Media-Saturn's parent company, Metro Group, said on Wednesday it was withdrawing any further financing for a planned expansion of the business, which has opened seven Media Markt stores in Shanghai, according to a statement.

"On expiration of the two-year test phase, Metro Group has decided to discontinue strategic considerations of a further expansion of its subsidiary in China.

"With its partner Foxconn Technology Group, with whom it jointly operates Media Markt China, Metro will now agree on further procedures to be adopted," it said.

Olaf Koch, chairman of the management board of Metro Group, said the decision had been made based on lessons learned from a two-year test phase that expired at the end of December.

"After carefully analyzing all alternatives, we have decided not to continue our business activities," Koch added.

"In order to keep Metro on target, it is essential for us to concentrate on those business units and markets where we can clearly sharpen our profile and build up a strong market position.

"We will further intensify our successful commitment to Metro Cash & Carry in China. The country is key and a promising market with good future prospects for our wholesale business."

Media Markt has opened seven stores in China since 2010. The first opened in Shanghai in Nov 2010, and the company was expected to open more than 100 stores across China by 2015.

But analysts said there had been much lower-than-expected earnings from the seven stores.

Gao Boxuan, a senior analyst at CI Consulting LLC, said Media Markt China was under huge competition from e-commerce rivals.

"By September 2012, the seven stores only contributed 100 million euros ($133 million) in revenue to the group," Gao said.

He said the company set up its own B2C sales team in October last year - but it was targeted only at customers in Shanghai or neighboring provinces, which limited the company's income.

Selling only electronics products also crippled revenue growth, Gao added.

Experts said the closure of Media Markt China would represent the highest-profile retail failure since early 2011, when Best Buy, the United States-based electronic products retailer, closed its nine branded stores in China along with its Shanghai headquarters.

Some experts have also suggested that Media Markt stores occupied too much space on some of the most expensive retail streets in China, an unworkable plan when selling cheap products

Ben Cavender, associate principal of China Market Research Group, said it would not mark the failure of a Western business model, but the failure to understand the dynamics of the China market and the wider transformation of the country's retail sector.

"Local competitors Gome and Suning have built strong brand presence and market share in China, and their huge store numbers guarantee a competitive advantage," said Cavender.

"Additionally, consumers are increasingly using brick-and-mortar stores as showrooms before buying their products online, where they can save both money and time."

Media Markt's announcement did not rule out the possibility of finding a potential purchaser, and analysts believed that was highly likely.

Chen Peng, an analyst with Great Wall Securities Co Ltd, added that Gome and Suning are both keen to expand their store networks in Shanghai, and it would be much cheaper to acquire existing stores than open new ones.

"But Media Markt could still be willing to continue operating, given the early-stage investment already made," added Chen.

wang_ying@chinadaily.com.cn

(China Daily 01/17/2013 page16)