Why China Doesn't Like Barbie, Best Buy or DIY

Barbie China
Barbie China

In March 2009, iconic American toy manufacturer Mattel (MAT) opened its flagship Barbie store to great fanfare in Shanghai. It spanned six floors, with a majestic staircase that showcased 875 of the company's signature dolls.

Excited shoppers deluged it on its opening day. Two years later it closed, with Mattel citing poor sales.

According to The Wall Street Journal, Chinese consumers thought Barbie wasn't serious enough and wanted a better role model for their daughters. Other reports said the doll was "sexy" rather than "cute," and was therefore inappropriate for Chinese children.

Whatever the exact reason, it's clear Mattel didn't do its consumer research.

Mattel is not the only company that took a face-plant when it tried to conquer the country of nearly limitless potential.

"We Were Stupid and Arrogant"

For some American companies, China has become the graveyard of ambition.

Big-box electronics retailer Best Buy (BBY) took the plunge into China in December 2006. Like Mattel, its first store there was also in Shanghai.

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But in February of last year, Best Buy announced it would be closing its five Best Buy-branded China stores due to poor performance, and would instead focus on its Five Star-branded stores there, which are doing well. Why the difference?
"We were stupid and arrogant," David Deno recently told The Wall Street Journal.

Until early last month, Deno was Best Buy's Asia chief and had overseen the company's rapid expansion in China. What Deno was getting at was the company's initial assumption that to be successful in China, all the company had to do was import the Best Buy model as is, with no tweaking for the Chinese market.

But Chinese consumers weren't ready for Best Buy as is. For one thing, China's middle class isn't as well-off as America's, so the store's high-end product selection -- and high-end pricing -- wasn't quite right. Also, the Chinese are used to haggling over prices, something the U.S.-styled Best Buy wasn't quite ready for.

Can't Program the Remote? Just Call Me at Home

In 2006, Best Buy bought a 75% stake in Five Star, an established Chinese electronics and appliance brand that had the pulse of the Chinese consumer from the start. Five Star salespeople, or "solution experts," are trained to spot shoppers who may buy more expensive items and offer them courtesy food and drink.

Five Star solution experts even go as far as to give customers their home phone numbers for any service problems or product questions that may crop up after the sale. This type of selling mimics Chinese culture, which is very network- and referral-based.

Five Star has also so far avoided China's big cities, focusing instead on smaller ones. Compared to those in a wealthy, cosmopolitan city like Shanghai, middle-class shopping habits in China's small cities aren't yet ingrained, so shoppers are more open-minded.

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I Don't Do Windows or DIY

Chinese consumers also put the screws to Home Depot (HD). Last year, the company closed half its stores there. In that case, the big American brand's fundamental incorrect assumption was that Chinese consumers would be as excited by the thought of "do it yourself" as American ones.

But in China, doing it yourself can mean you're too poor to have someone else do it.

%Gallery-154119%"Products are too cheap and simple at Home Depot," Tong Long, a longtime Chinese tile saleswoman, told Marketplace last year. "It's mainly for poor people."

Like Best Buy, the company will now be focusing on China's smaller cities, where there's less wealth and less revulsion at the idea of painting your own bathroom.

U.S. companies are not going to give up on the Chinese market. (Mattel says it remains committed to making the brand work in China.) But it's going to take persistence and some cultural humility to win favor with customers a half a world away. These are tough lessons, but if they're taken to heart, the payoff could be wildly profitable.

John Grgurich is a regular contributor to The Motley Fool. The Motley Fool owns shares of Best Buy. Motley Fool newsletter services have recommended buying shares of Home Depot and Mattel, as well as creating a bear put spread position in Mattel.

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