Home Depot not a hit in China

Rob Schmitz Apr 8, 2011

Home Depot not a hit in China

Rob Schmitz Apr 8, 2011

Bob Moon: 2011 has been a landmark year so far for U.S. businesses in China. Companies like GM and KFC have announced that, for the first time, they’ve made more in China than they have back home.

China’s supersized marketplace hasn’t been kind to all American businesses, though. Home Depot is closing stores. It recently shut its last Beijing store, the fifth Home Depot to close in China in the past two years. Why is the world’s largest home improvement store underperforming in the world’s fastest growing property market?

We sent our China correspondent Rob Schmitz to find out.

Rob Schmitz: The Home Depot in the Chinese port city of Tianjin’s got a huge paint counter near the entrance, stacks of lumber near the exit, aisles of screws, fixtures, tools are in between. It looks exactly like a Home Depot in the U.S.

And according to Tong Long, that’s the problem.

Tong Long: Products are too cheap and simple at Home Depot. It’s mainly for poor people.

Tong says poor people are the only people in China who would bother taking on a do-it-yourself home improvement project, who cannot afford to hire China’s abundance of cheap labor to do it for them. Tong’s spent her life selling ceramic floor tiles at a building materials mall in Tianjin. She says China’s culture isn’t so much DIY. It’s more DIFM: Do it for me.

Long: All my customers are designers. I never talk to home owners. Home owners in China hire designers for all their home improvement projects, even where to put a vase.

And when designers buy tiles from Tong, she gives them a cash bonus that goes straight to their wallet. This is the system The Home Depot is up against in China, where business depends on lifelong connections and under-the-table commissions. Home Depot boasts that it’s the fastest growing retailer in the U.S. It might be one of the slowest ones in China. In five years, it’s gone from 12 stores to just seven.

Raymond Chou: I personally don’t think the act of opening stores or closing stores, that’s really the only indicator of whether we’re doing well in China.

Raymond Chou heads The Home Depot’s operations in China. Chou says the retailer has closed stores to focus on China’s lesser-known cities where much of the country’s real estate development is booming.

Chou: The Home Depot is the world’s largest home improvement specialty retailer in the world by far, and we plan to be number one in China, too. Therefore, really the task at hand is to try to figure out how do we become the largest home improvement retailer in China, whether or not we’re going to be here or not.

Paul French: I don’t know if Home Depot needs to be here. I don’t know if this is the right place for Home Depot.

Paul French is a retail analyst for Access Asia.

French: You can go around the ring roads of Beijing or you can go around the expressways of Shanghai and you see these giant warehouse places, where manufacturers just set up inside and you go in there and there’s 50 makes of toilet, 50 makes of power shower, and 50 makes of bathroom tile. Everything’s up for negotiation, you can sort everything out, it’ll all get delivered. You don’t need Home Depot.

Contractor Qiu Changfeng may not need Home Depot, but he prefers it. He stands outside one of Tianjin’s four Home Depot stores, happy with his purchase.

Qiu Changfeng: I come here all the time. It’s easy to exchange and return goods here, and I know the materials here are safe and not fake.

And if there’s anything that’ll spell success for Home Depot in China, it’ll be that: reliable products. Home Depot recently became the exclusive vendor of U.S.-made Behr Paint. It’s a strategic move in a market where paint laden with chemicals harmful to your health is the norm.

But that’s not enough to lure designer Qiu Hongtao to Home Depot. He just bought flooring at a building materials mall down the street.

Qiu Hongtao: I’ve been to Home Depot, but I wasn’t impressed. It’s an American brand, and I went there expecting new and unique American products.

But Qiu says most of what Home Depot sells is stuff made in China. Who cares about that, he says, rolling his eyes. He can buy that anywhere.

In Tianjin, I’m Rob Schmitz for Marketplace.

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