Home Depot’s decision to close its big box stores in China came down to a language difference of sorts.
The Atlanta-based retailer spells home improvement DIY.
Chinese consumers? DIFM - Do It For Me.
In big cities there, where many people live in high-rise apartments, the prevailing sentiment is to hire out the work except for smaller jobs like painting and decorating. Lumber, building materials and the like aren’t big sellers.
Home Depot announced Thursday it is closing its last seven big box stores in China, pulling the plug on a 6-year-old bid to make the concept work there. It will keep two smaller, recently-opened specialty stores and also develop its e-commerce business as it continues to research, not abandon, the Chinese market, the company said.
Retail industry analysts weren’t surprised by the pullback.
“I feel it should have come a lot quicker,” said Wayne Hood of BMO Capital Markets. “When you go outside your market, there are a number of hurdles you have to cross. It creates more challenges.”
The failed foray leaves Home Depot’s international presence primarily in border nations: In addition to nearly 2,000 U.S. stores, it has 180 in Canada and 92 in Mexico. An earlier attempt to expand in South America fizzled. The company has no stores in Europe.
Home Depot entered China when it bought 12 existing stores in six cities from the Chinese retailer Home Way. Five had already been closed.
At the time, Home Depot cited the potential growth in China’s home improvement market, with hundreds of millions of people expected to move into new apartments and houses.
But, analysts said, various economic and cultural issues hampered its chances of replicating its U.S. success formula.
For one, the relatively low cost of labor in China prompts residents to pay someone else to do the work. Lately the Chinese economy hasn’t been growing as fast, dampening consumer spending.
In addition, U.S. retailers including Home Depot have been criticized for entering the market relatively late, not offering sufficiently distinctive products, and not adapting to Chinese preferences.
“There is no real do-it-yourself mentality in China,” said Steve Kirn, a University of Florida retailing expert and author of a case study of Home Depot entering China.
“In general,” Kirn said, the traditional Home Depot model honed in the U.S. “does not transfer into this culture.”
Home Depot still will employ 170 people in sourcing offices in Shanghai and Shenzhen. It has the two speciality stores in Tianjin, and is “in the beginning stages of developing relationships with several of China’s leading e-commerce websites, a combination which the company believes is more tailored to Chinese customers’ needs and shopping preferences.”
Spokeswoman Paula Drake called the specialty stores, one which focuses on painting and flooring and the other on home decorations, “a better fit,” saying, “We are pleased with them so far.”
Said analyst Hood, “They’re still in learning mode about where to go from here. The closings are a move in the right direction.”
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