Media Markt to close stores by end of April (2)

Given the high cost of operating large footprint retail stores in first-tier Chinese cities, their decision to leave the market is not surprising, he added.

Qi Xiaozhai, director of the Shanghai Commercial Economic Research Center, said Media Markt missed the best timing to explore the Chinese market because major domestic electronics retailers had already consolidated their market shares before its high-profile arrival.

"The service and experience Media Markt provides are unparalleled in the Chinese market, but it ignored its prices, the deciding factor, the thing that most Chinese customers care about the most when buying an electronics product," said Qi.

Over the past few years, a number of foreign retail giants withdrew from China.

In 2011, United States-based Best Buy said it would close all of its nine outlets across the Chinese mainland and its regional retail headquarters in Shanghai.

French construction group Compagnie de Saint Gobain SA also pulled out its La Maison brand from the Chinese market. And US-based Mattel Inc - the world's largest toymaker by revenue and owner of the Barbie brand - closed its six-story flagship store in Shanghai.

Analysts said that these examples do not necessarily indicate a failure of Western retail models, but only show the companies' inability to better understand the Chinese market.

Understanding what Chinese consumers really want should be the companies' most important task, they said.

"Where many companies fail here is looking at the costs of operating their business. Media Markt, with a massive flagship store in Shanghai, was a good example.

"The store ended up costing a tremendous amount of money, while effectively becoming a showroom that consumers could use before buying the products online from other sources," said Cavender.

Overseas retailers have more than 20 percent of Shanghai's retail market share, and more than 80 percent of Shanghai's supermarkets are owned by brands from outside the Chinese mainland, Qi added.