Competing in mainland China's consumer electronics market has never been easy: rampant price wars caused by overcapacity have squeezed profit margins to some of the lowest levels in the world. And as if things weren't bad enough for manufacturers, a new wave of consolidation among electronics retailers is turning up the heat.

We recently saw the acquisition of China Paradise Electronics Retail by Gome Electrical Appliances Holding, China's leading electronics speciality chain. That came fresh on the heels of an alliance struck—then put on hold—between China Paradise and Dazhong Electrical Appliance. In April, US-based Best Buy acquired Jiangsu Five Star. All this activity occured within the space of a few months.

Retail chains dominate the consumer electronics landscape: a handful of these players control as much as 40 percent of sales in first-tier cities like Shanghai and Beijing. They dominate even more in some product categories: the new giant forged from the imminent merger of Gome and China Paradise will control 60 to 70 percent of TV sales in Shanghai.

Unless consumer electronics players—whether Chinese or foreign—rethink their strategies, they risk losing the battle for the wallets of millions of mainland consumers. A lot is at stake: the mainland's consumer...