Best Buy Co., the world's largest consumer electronics retailer, recently decided to shut all of its nine Best Buy branded stores in China and retail headquarters in Shanghai as it struggled to compete with local rivals.

"It was a difficult decision to close the stores but we are confident in our business strategy," said Kal Patel, Best Buy Asia President.

The U.S. giant entered China in 2006 by paying $180 million to take control of Jiangsu Five Star Appliance Co., the country's fourth largest electronics retailer at that time. But its Western-style business model failed to gain a solid China foothold.

Chinese retail giants like Suning and Gome lease their stores to appliance manufacturers and take a portion of the sales revenues. In striking contrast, Best Buy purchases products from suppliers and sells them at higher prices. That means it has to bear heavier costs including property leasing and labor costs of sales personnel.

"In addition, it had less bargaining power with suppliers due to a limited scale," said Han Jianhua, Secretary General of Shanghai Trade Association of Home Appliances. "It was hard for Best Buy to survive in a price-sensitive market dominated by local competitors."

Best Buy said it would instead continue expansion of its Chinese subsidiary Five Star and disclosed plans to open 40 to 50 additional Five Star stores in 2010.

"We remain committed to the Chinese markets, and are trying to figure out the business model that is going to work for us in China," said Patel.