Retail Management 12th Edition by Barry Berman ,Joel Evans

Exercise 19

Case 3: Carrefour's and Best Buy's Chinese Adventures
Both Carrefour (www.carrefour.com) and Wal-Mart (www.walmart.com) were recently charged with conducting bait-and-switch tactics in China. The two retailers were accused by China's National Development and Reform Commission of attracting shoppers into their stores with massive promotions and then charging these customers more than the advertised prices. Carrefour and Wal-Mart were fined the equivalent of $76,000 for each offending store-a total of 19 stores for the two companies combined. This was the largest fine ever assessed in China against any retailer.
Carrefour's difficulties are based on an imbalance of power that exists between retailers and suppliers in China. According to a Commerce Ministry spokesperson, China has too many suppliers and too few major retailers. As a result, Chinese retailers have been able to exert their power by forcing suppliers to accept low prices based on bidding wars, stretched out payment terms, and the required payment of fees and commissions.
While fees and commissions have been customarily set at 4 percent of sales, some merchants have secured commissions of between 10 and 20 percent. As a manager of a Carrefour supplier says: "Only big manufacturers are tough enough to stop supplying Carrefour when it asks for higher rebates. Small suppliers like us just have to do as we're told if it asks us to pay more rebates." Some retail analysts familiar with the Chinese market also suggest that the pricing issue has been partially caused by the autonomy given to Chinese retail managers. In an effort to attract price-sensitive Chinese consumers, many managers sought low prices by requiring kickbacks from suppliers. Recently, Carrefour began to reduce the power of regional and individual store managers.
Carrefour and Wal-Mart, two of the world's largest retailers and among China's top five retailers, are not the only global retailers with problems in China. Home Depot (www.homede-pot.com) recently closed its sole remaining store in Beijing. Likewise, Mattel closed its Shanghai Barbie doll flagship store just two years after it opened. Best Buy (www.bestbuy.com), the electronics giant, also recently announced its plans to close all of its nine Chinese stores.
According to Barbara E. Kahn, a Wharton marketing professor, Best Buy's problems in China were largely the result of its using the same marketing strategy in China as in the United States. While Best Buy has high brand recognition in the United States, it is virtually unknown in China. And unlike the U.S. market, China's market for electronics is fragmented with a large number of small electronics retailers. In China, stores are located so close to one another that a new Best Buy store could have three competitors virtually next door.
Because Chinese customers are very price sensitive, Best Buy's U.S.-based strategy of for high customer service accompanied by higher price levels was inappropriate for the Chinese market. In contrast, to keep prices low, two Chinese competitors-Gome (www.gome.com.hk) and Suning (www.cnsuning.com/include/english)-purchase goods on a consignment basis and pay suppliers only after goods are sold. These Chinese retailers also require their suppliers to provide sales personnel for each of their stores.
1. How else could a foreign retailer exert additional power with its Chinese suppliers (and not face government restrictions)
2. How can foreign retailers successfully position themselves in China
3. Discuss the pros and cons of a retailer's use of a standardized versus a nonstandardized retail strategy throughout the world.
4. How can a global retailer exert greater oversight with the personnel in its foreign stores