China: Home Depot packs its bags

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When in Rome, do as the Romans do. When in China, don’t import your business model from Atlanta and expect it to work.

Late on Thursday, Home Depot admitted defeat in its battle to win over Chinese home decorators, announcing the closure of all its ‘everything under one roof’ stores, and 850 job cuts.

It’ll continue to operate in China, with two small specialist stores in Tianjin, and an online retail presence.

The post-mortem shouldn’t take long: Home Depot died of Best Buy syndrome. Like Best Buy, the biggest electronic retailer in the US and the world, Home Depot thought it could do in China exactly what it did for years in America – offer scale and convenience to shoppers, rather than the choice and competition they can find on the high street.

China’s cooling housing market hasn’t helped much either.

The writing has been on the wall for a while. And rivals aren’t faring much better: UK-based Kingfisher this week reported falling sales and stubborn losses at its China unit. It is still looking for a new business model for its B&Q stores in the country.

The lessons drawn are not entirely new. The choice and competition offered by local outfits is exactly what Chinese customers seem to want. While KFC and McDonald’s may be scoring well exporting their brand of Americana, doorknobs and thumbtacks aren’t nearly so tasty. China’s retail market is also very crowded – being big and foreign doesn’t have the cachet that some once assumed.

At least Home Depot can take some comfort from its wider performance. Shares are up almost 80 per cent in the past 12 months. Best Buy, meanwhile, is down by almost a quarter.

But the message from their China experience is pretty similar: Chinese shoppers prefer to do it their way.

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