Mattel , owner of the iconic doll brand, said the bright pink, six-storey store had served its purpose of building brand awareness in the new market.
But analysts say the investment was a failure because it did not adjust to the local market.
The withdrawal comes on the heels of store closures in China by U.S. retailers Home Depot and Best Buy, which have both struggled to crack the local market.
The failure of the U.S. brands to prosper come despite efforts by the Chinese government to make boosting domestic consumption a top policy priority. Retail sales grew at more than 18 percent in 2010 from a year earlier.
“None of the three companies — Best Buy , Home Depot or Barbie — have catered to local consumer preferences and habits enough,” said Shaun Rein, managing director of China Market Research Group.
“In Barbie’s case, they chose the wrong location [for the flagship store] and they offered sexy clothes designed by Patricia Fields of Sex and the City fame when young Chinese women tend to prefer cute designs like Hello Kitty.”
As well as having the world’s biggest collection of Barbie dolls and expensive Barbie-themed clothing, the flagship store on the chic Huaihai Road boasted a beauty salon and restaurant where young Chinese could get made up like Barbie and eat her favorite food.
When the store opened with great fanfare in March 2009, Mattel said it would be the “ultimate destination for both young girls who call Barbie a best friend and women who appreciate Barbie as a fashion and lifestyle icon.”
However, a Mattel spokesperson said on Monday that the closure was “mainly due to a strategy change” in China and that the company “continues to be committed” to developing the Barbie brand in the country.
Analysts said Barbie, Best Buy and Home Depot were all seen by consumers as expensive in a price-sensitive market where Chinese competitors operate on razor-thin margins.
Many western brands, such as Nike , LVMH , Carrefour and Wal-Mart , have successfully localized in China and become hugely profitable there.
Best Buy’s business model in the U.S., where it markets itself as providing better service than competitors, did not go down well with Chinese consumers and in February it said it would close all nine Best Buy-branded stores in China.
Home Depot acquired 10 stores in China in 2006, but has closed five of them in the past two years after struggling to compete in the cut-throat home improvement market.
However, the spate of failures do not appear to have dissuaded another icon of U.S. consumer culture from investing in Shanghai.
The city’s mayor was quoted in state media on Monday saying the Chinese government had approved 24.5 billion yuan ($3.7 billion) for investment in a Disney theme park to be built by Walt Disney in the city by 2015.