On the day of the grand opening in Shanghai, local suppliers themselves blended among the crowds. Best Buy staff were all dressed in uniform, but there were no sales promotion present. This was less than reassuring for the the suppliers.
But what the suppliers were all paying attention to was the 'pay first' policy that Best Buy uses with its suppliers. This subverts the 'quasi-financing' model relied upon by local household appliance retailers.
'Quasi-financing' is when appliance retailers pay back suppliers after a period of time. In the meantime, they use the windfalls to make other investments.
Appliance retail chain expert Luo Qingqi believes that Best Buy operates this way in order to bear management risk and create a win-win situation for suppliers, consumers, and ultimately itself. Since domestic retail chains are rapidly expanding, management risk has been transferred to the manufacturing sector, straining its financial resources.
In line with the 'pay first' policy, after supplier's products enter the store they are entirely placed, marketed, and sold by Best Buy. In order to continue to attract suppliers, this requires that Best Buy give them a higher profit margin.
Best Buy is still looking for its 'China model'. Lu Weimin, cheif of Best Buy's China operations, has suggested that the company is still in the process of understanding this market, and that once they find a good model they will rapidly reproduce it. Perhaps this is what other retail chains are most afraid of.
