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Metro, Vying With Best Buy, to Focus on China

With an aggressive plan to expand in China despite the global recession, the chief executive of Germany's Metro AG is making a bold claim about the company's future: that it can overtake U.S. giant Best Buy Co. as the world's biggest consumer-electronics retailer.

For Metro CEO Eckhard Cordes, the retailer's recently announced plans to enter China with its consumer-electronics unit, Media Saturn, mark the beginning of a growth spurt aimed at putting Metro's sales ahead of Best Buy's -- even though Metro is currently about $20 billion in sales behind the American chain.

"In the medium to long term, we have the potential to make Media Saturn No. 1," Mr. Cordes said in an interview.

Metro, the world's fourth-largest retailer measured in sales, has stores in 32 countries -- more than any global competitor including Wal-Mart Stores Inc., Carrefour SA and Best Buy, which operates in the U.S., Canada and China.

With combined sales of €19 billion ($25 billion), the Media Markt and Saturn chains are Europe's biggest electronics vendors. But sales at Media Saturn, which includes both chains, still lag behind Best Buy's sales of $45 billion in 2008.

The way to close the gap, Mr. Cordes said, is in China. With a local joint-venture partner, the German retailer plans to open a Media Markt store in Shanghai next year, rapidly followed by at least another 12 and, in the medium-term future, about 300 more in large metropolitan areas.

Best Buy currently has six stores under its own name in China and owns the Five Star chain of 165 stores in the country. Spokeswoman Susan Busch declined to comment on Mr. Cordes' ambition. "We are squarely focused on our own international growth strategy," she said.

Metro's attack shows how fiercely global retailers are competing in lucrative international markets, as growth in their already mature home countries slows with the downturn. Same-store sales at Media Saturn, long the star performer among Metro's four retail formats, fell by 1.7% in 2008.

Some analysts say Mr. Cordes' goal of dethroning Best Buy is overly ambitious. Skeptics also point to Metro's slow growth record in Asia. It took the company years to break even in China, it has struggled in Japan and opened fewer stores than initially planned in India, for various reasons, including regulations and inadequate supply chains.

The rivalry between Metro and Best Buy is also set to heat up in Europe, where Best Buy owns half of British cellphone retailer Carphone Warehouse Group PLC, which operates in nine European countries.

The U.S. retailer also plans to open Best Buy stores in Britain in the spring of 2010, although it has already postponed those plans once. By 2013, it hopes to have 100 stores across Europe.

Metro's Mr. Cordes conceded that Best Buy has a better online business than Metro, which will start Internet selling only in the small Dutch and Austrian markets later this year. At the same time, Mr. Cordes said Metro's experience in 15 different European countries -- including complex markets such as Romania and Turkey -- gave it an edge in China, which also isn't a homogeneous market."

"It's not a completely unrealistic claim," said Thomas Roeb, a retail professor at the University of Applied Sciences in Bonn Rhein-Sieg. "Best Buy's success is largely an American success, while Metro has successfully expanded abroad."

Media Saturn is currently growing slightly faster than Best Buy, measured by new stores. In 2008, the group opened 71 new consumer-electronics stores, 61 of them outside Germany.

Best Buy is planning to open 65 stores this year, 20 of them outside the U.S. Once in a new country, Metro says it typically grows very quickly: for example, the retailer first ventured to Russia in 2006 and now operates 20 Media Markt stores there.

Mr. Cordes, who previously spent nearly 30 years at car maker Daimler-Benz AG, also said the retailer's large exposure to Eastern Europe wasn't hurting the company. Metro's business in the economically troubled region makes up about 27% of group sales -- a portion that worries analysts and investors as Eastern European economies sink deeper into the downturn.

Mr. Cordes said first-quarter earnings, set to be published Tuesday would prove such worries unfounded. He said underlying same-store sales growth was positive in Eastern Europe in the first quarter. Metro is planning to open as many as 40 new stores in the region this year, including a supercenter in Ukraine and a wholesale store in Kazakhstan.

"Eastern Europe is better than its reputation," he said. "The widespread expectation that Eastern Europe is a failure isn't true, at least not for us."

Write to Cecilie Rohwedder, Wall Street Journal


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