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Elizabeth Dalziel/Associated Press
Annette Verschuren, right, president of Home Depot's Asian operations in Beijing, 2006.
BEIJING – The news of Home Depot’s closure in Beijing brought up a range of emotions in me, mainly nostalgia.
In 2008, I spent virtually every day in the month-long build-up to the Beijing Summer Olympics ferrying a veritable army of NBC engineers, set-builders and producers to two local Home Depots to purchase everything from lumber to carpeting to an air compressor.
Each time, I was impressed by the store employees’ professionalism, knowledge and eagerness to serve.
Which always made me wonder: Why wasn’t anybody else in here?
The U.S. home-improvement retailer, which has more than 2,200 stores worldwide, announced late last month that it had closed its last store in Beijing. The closure cut its presence on the mainland down to one store in Xi’an and six stores in Tianjin, home to the company’s China corporate headquarters.
Last week, we blogged about one of the major issues for many American companies investing in China: their investments are based on the long-term hope that China's market will eventually catch up to the goods and services they offer.
In the case of Home Depot, it would appear that Chinese consumers never took to the company’s ethos of do-it-yourself (DIY) that has been the source of its success in the United States and elsewhere around the world.
Ideal market conditions
That isn’t to say that Home Depot misread the market. A corporate overview of the Chinese market underscored many of the compelling statistics and trends that made China a target for Home Depot and many other global home-improvement companies, most notably Britain’s B&Q.
China in the last decade has become a market of new homeowners, many of whom are buying homes that developers have left unfinished and require significant investment in home improvement. Tour a new shiny residential high-rise anywhere in the country and you will often find apartments that lack light fixtures, proper flooring and even doorbells.
These conditions paired with a rapidly growing middle-class seemed to create an ideal opening for Home Depot’s primary product: home construction expertise and quality installation services.
The problem was, while demand and need had been factored into Home Depot’s equation, one human element appeared to have not: will.
The engineers and builders I worked with from the United States and London in 2008 were experienced and motivated to design and create structures and sets. They walked into Home Depot each time knowing what they wanted to buy and the right questions to ask about the products they bought. While certainly not representative of all Americans, these men carried about them that DIY culture manifested in garages all across the United States.
Best service, lowest price?
Except that most Chinese don’t have garages, tool collections or the initiative to take on a remodeling project on their own. In a nation with a sizable pool of unskilled labor floating around cities and countless small-time construction companies available for hire, it is simply more convenient and cheaper to outsource such jobs to others.
Tina, a landlord in Beijing’s Chaoyang district, recently fixed up a new home for her parents who moved to the capital this month. She had never heard of Home Depot even though there is one a mere five-minute drive away, but she had shopped at a B&Q before. She elected to turn to a local contractor to remodel the apartment and to source supplies because of a common issue facing many western companies: price point.
“I tried shopping there once, but I felt there were more choices at eHome [a Chinese competitor] and that it was cheaper…. I could bargain there,” she said.
Alan, another landlord who has lived and worked in the United States and has been to Home Depots in both countries, suggested that while price point was a serious consideration, trust and familiarity also played a role.
“I want the best service but lowest price,” said Alan, “Home Depot in China, I think it’s not attractive to me. If I decorate again, I will probably have a friend who lives in the area introduce me to a company so I know I can trust it to give me a fair price and service.”
“I think Home Depot needs to invest money in teaching Chinese people about DIY,” he added.
Adrienne Mong/File
Will China's gradually shrinking migrant labor pool give rise to the "DIY" conditions Home Depot needs to thrive?
It’s one of the new economic realities that have come from globalization and the Sino-U.S. relationship today: more and more American businesses are seeing their growth and profits coming from China rather than the United States.
While Home Depot was unsuccessful in catching the home-improvement wave this time, the company’s epitaph has yet to be written. It still has a presence in China and is currently focused on the rapidly developing second- and third-tier cities that are transforming at unseen speeds. Perhaps with a focus on a lower price-point and greater consumer education, Home Depot could come out of this setback a stronger and bolder company than the one that cautiously stepped into the market back in 2006.
In addition, as China’s surplus labor pool continues to shrink and building prices go up, it is entirely possible that regular Chinese will be simply forced to take on the home construction projects many Americans routinely perform.
In a post that will go up tomorrow, my colleague, Adrienne Mong will address the growth of the megacity in China and whether its development bodes well for a country that is seeing the fastest urbanization rate ever.
Leave a Comment:
The real reason Chins isn't interested in having Home Depot open stores in China is that China doesn't want an invasion of Mexican illegals on its soil. How can you blame them?
DIY genes are not in city people in China you idiots! People there don't have the time to DIY on their apartments. They rather go out and entertain themselves.
Why would Mexicans fly to China for work?! Besides, homes in China are not the same as they are in the states. Most of the working class folks who own their homes, wouldn't have the time to work on home improvements. They pay others to do it for them. I've lived there for years and yes, I've hardly seen any Mexicans. I think digging a tunnel into China from Mexico under that little ocean is proving to be tough.
Brahms, that was either just a lame joke or an equally lame attempt at trolling by Paduki. People who obsess about imaginary problems have a marked tendency to twist any headline, no matter how non-existent the association, into an opportunity to push their bizarre opinions on others.
Paduki, you need to open a window and get some oxygen into that head of yours. You're goin' all goofy on us. Mexican illegals in China? WTF?
FYI, the average Mexican wouldn't take the pay cut in China. And turn off the FOX TV, it's rotting your brain.
They just require more Toilet-training.
If you were a upwardly mobile Chinese worker...why would you DIY if you could outsource it for not much more money and no need to invest the time or effort to even learn DIY skills? I know what my answer would be! Take the money saved by shopping online or in a local Chinese store and hire it out!
Price and value are very different concepts. I've many times wished that I could pay more for higher quality instead of buying the pure crap that represents the lowest price point. I think most people have bought the low quality Chinese-made junk for so long that they could no longer recognize a quality build or design.
Americans did this to themselves. Our over-the-top emphasis on getting "THE BEST PRICE" always, led to our friends and neighbors getting laid off while their manufacturing jobs went to China. Was the savings of $0.25 worth it? Hell no.
It's a circle people. Stop insisting on Price Club prices while expecting Nordstroms service. It ain't gonna happen.
I don't believe Paduki that is the problem. We let them in dummy because they r cheap labor which u probably r a fan of. U r probably the type who complains about the price of things and doesn't realize it's business here in America doing it to dummies like u by hiring illegals because it means more profit for them and the hell with America just as long a they r making profits. it's time to stop supporting China who uses r money which dummies like u spend on cheap Chinese products to build up their military whcih spies on us and now makes them a real threat to American Society. Anangryman.com has hit it right on the head. So boneheads like Paduki r the real problem in America
If I was living within 10 miles of 30 million Chinese ready to do all my home renos in a 1/10th of the time it would take me at the same price as a screwdriver at Home Depot, I would never step foot in a Home Depot again for the rest of my life...
These executives are obviously cultural-knowledge deficient. China is a pluralistic society that greatly values social strata and respect for those with knowledge. You can't just market to "the population" and think they will come running. They know that others posses the appropriate knowledge to perform certain functions in their society and will always defer to those individuals. Americans will "do it yourself", because we don't have the same strict adherence to a cultural hierarchy. Don't close the doors, just hire a new marketing company that understands the complexities of Chinese culture.
Exactly! The Chinese I've met during my business travels to China who could afford to shop at Home Depot would never even think about fixing up their own houses when they can hire someone adept at manual labor. Conversely, the people in the manual labor trades can't afford to buy at Home Depot for their own needs. Hence Home Depot needs to figure out a marketing strategy (e.g., convince the home owner their repairs should be supplied by HD, or start a DIY movement with things like the Saturday AM clinics they used to have for kids in the US. etc.)
Ironically, the Chinese with money will pay for designer/fad brands (e.g., appliances from Germany) which aren't offered at HD. HD really needs to understand and figure out the Chinese market and then get an appropriate marketing strategy.
And besides, they don't own pickup trucks. :))
Does Home Depot in China allow price bargaining? That could also be a factor since many cultures that bargain for the prices of goods & services won't go to a large store that has fixed prices for everything. In many cultures bargaining is a large part of the purchase process.
I live in Asia, it is a cultural thing.
People with the ability to pay for their 'Home Improvements', would never think about doing it themselves. It is beneath their station in life... Plus most of these people are working 10+hour days, 6+days a week. Why would they waste their little free time...
The people not working these long hours, do not want cheap copies & unskilled workmanship. They want and demand 'High End' products and Custom Detailed Work. Bragging about doing 'Manual Labor' and doing common work is unheard of.
they closed over there?GOOD stay in your own country for a change.Stop importing their crap and junk!
Of course they want the cheapest prices. They want to support their local economy by buying the cheap crap produced there.
The irony is that the products Home Depot offers are Chinese made, so perhaps the problem is that H.D. is considered a unnecessary middleman.
Everyone should take notice of how the Chinese stay loyal to local companies and avoid foreign goods when possible. It verges on xenophobia and even though no one wants to say it, this is why it's so difficult to break into that market.
There might be a billion potential consumers, but almost none of them want anything to do with foreign services or goods unless they fall into the category of being perceived as luxury items. There wouldn't be a nearly 5-1 ratio of imports/exports between the US & China if more civilians in the US could control their urge to buy all of the crap they make over there. Unfortunately, the time to have done that was years ago and production jobs will continue to leave the country as time goes by and the gap in production increases.
They are scarfing up American cars. Granted those cars are manufactured in China. I see this HD issue as cultural. We have big homes, on large lots. We drive pickup trucks just so we can go to Home Depot once or twice a month. Those ways of life are totally aline to the Chinese. We LIKE to do it ourselves. It is recreational and a source of pride in this country. Home Depot is suited to America. Maybe not so much to China.
Alien. Forgive the mistyping.
Yeah, that was the primary reason I didn't mention US car sales. I also believe, but i'm not 100%, that the cars themselves are perceived as being a luxury item too; similar to how the US views euro imports...even though they're primarily constructed in the US.
Home Depot isn't the first or last company who will utterly fail in their attempts to break into the Chinese market. Personally, I just don't see it being a problem with their lifestyle so much as it with their opinion of foreign companies.
Sono: Not really. The Chinese absolutely LOVE KFC. They love Western clothing and designer brands and beauty products. It's not a loyalty thing with them. It's about percieved value and desire to have it. Who really has a big "desire" to do home renovations?
Even if they hire out job, those materials have to come from somewhere. Maybe they just need to strategize differently to do business in China. Most everything in Home Depot comes from China anyway, so they are shopping locally!
Home Depopt should have done its research first before setting up shop in China. The Chinese would rather support a "Chinese-based" business or retailer before doing business with a retailer who is largely seen as an American company.
Asian countries are all like this. They're just not willing to risk doing business with American businesses for fear that "Chinese" businesses will close up shop and that their economy could turn sour, like what the United States is feeling right now, outsourced jobs, cutbacks on employment and a sour economy.
Asian countries are 100% devoted to businesses owner and maintained by citizens of their own country. Japan, China, Okinawa, South Korea, North Korean, Hong Kong ... do you wonder why so many American businesses fail over there? The only type of businesses that succeed over there are American companies who produce goods for the United States, that are eventually shipped back to the United States for sale.
If you're a business-oriented retailer, you can forget about it.
What does that have to do with the price of Tea?? The article stated that the people were not into diy, not that they or their govt. did not want the Home Depot. Was this just your attempt to inject some hatred into this news feed? Matter of fact, it would serve the US and its people well if we helped Mexico to build its economy. We would gain a close trading partner. The money spent on senseless wars would be better spent on securing our borders and building up our neighbors. Projecting hatred will only beget the same back onto you.
HELLO!!! Read my remark. Japanese and Chinese citizens do not support American retailers in their own country. They support Japanese-based and China-based businesses in their own economies. Asia has always been like this ...
It's no wonder that Home Depot failed to make a dent in the Chinese economy.
sorry kemcha621 that was a reply to Paduki, you are correct in your remarks, hence the statement about Mexico by me.
Thanks ... I thought you were referring to me ... it's okay, then. lolz
I wonder if they tolerate illegals loitering in their parking lots, looking for work like here in the US. I've never been to a Home Depot that did not have them.
home depot doesnt like having these people outside the store. my store constantly called the police. They would just be told to stand on the sidelwak which is public, some would run home, but they all eventually went back to doing what they were doing once the cops left
It just blows my mind that we as a country can spend billions destroying things. And we have a neighbor that is pretty much going down the tubes that could use help. If we are going to help, why not help those in our backyard to build their economy, then their people would stay home and work. And guess what?, they would slowly become a trading partner with us. Its a win win, stability there and trade with them. Who can blame them for coming here to earn money to feed their families. I humbly suggest that those who scream the loudest against them would be doing the same thing if the shoe were on the other foot.
Isn't it about time for some real solutions instead of hateful words and bigotry?
bbennetts there are non at the Paducah Kentucky store. I'm by there a lot. However I prefer Lowes
In China right now, there is no market for DIY. All construction, renovation, and handyman work in the cities is done by migrant labor from the countryside, which comes at a very low price. Also, it's a status symbol to be able to hire service workers. When I lived in Beijing a few years ago, it was common practice to hire someone to make small repairs, or hire a maid. The cost was so low, that I couldn't justify doing it myself, even though I am very much a DIY person. Unless the price of labor (or their quoted material prices) raises dramatically in China, there will be no market for DIY.
Precisely......up until 50 or 60 years ago, there was no big market for DIY in the U.S. either.
It seems to me that DIY is a reaction to expensive labor, a problem that China may not yet have.
SO many people making comments that show they don't know what they are talking about. Ever visited China or Hong Kong? I doubt it. Most people live in concrete apartment buildings. Most apartments are very tiny. They have bedrooms the size of closets. They don't have space for tools let alone most of the stuff sold by Home Depot. Has NOTHING to do with favoring who owns the store.
This shows Home Depot doesn't understand the Chinese culture. In China, if you do well, you hire maid, servants, and contractors to do your (dirty) work. Only the poor will do things themselves. And, China is a country where how you look in the eyes of others (face) is much more important than the substance. Therefore, no "middle class" people would make themselves look poor by "doing things themselves" even though the projects may cost much more. In fact, the more you have to spent, the richer you look. It is a very superficial society.
This is in sharp contrast to American culture where we pride ourselves for doing things on our own and where most of us feel ashamed of having to hire a maid, cook, or anyone look like a servant.
Way to over-generalize almost 1/5 of the world population. Sure, there are plenty of people who love to show off their economic status. But that is true for every nation.
A lot the people seems to miss the fact that most Chinese who live in urban area (where Home Depots are located) also reside in concrete apartment buildings that are usually more than 6 floors high. That makes DIY home renovation and remodeling a tad more complicated. You do not knock out walls or rearrange plumbing work or electrical layout in an apartment building unless you know what you are doing. That is one of the main reason why many Chinese favor hiring professionals for remodeling work over DIY.
I disagree the Chinese aren't interested in DIY. They buy the stuff at local companies and have the village dudes install it. There's an English company over their doing DIY that seems successful so I'm wondering about HD's cost structure. Another one that's going to fail in China is Best Buy. The prices are way ou of line compared to local prices so it's only a matter of time before they decide it's enough.
How much $ did HD lost? Another American company going in without knowing the local culture.
Having been to China many times, I don't think the biggest issue is keeping Chinese business local. Chinese barter for literally every single thing they sell. (which is a lot of fun when you're visiting) You only pay what you want to pay for something, not what a price tag says. This is true of almost every local store, chain store and even some international brands who turn the other cheek. They would rather sell a good for something than have someone walk away over a few bucks.
It sounds like Home Depot didn't allow this and as a result, the people took their business to the places they could do this at. It's not rocket science and a few trips over there from a Home Depot exec. would have noticed this instantly. Price is the top driver for purchasing a product in China.
They should have targeted the contractors and thus name it Contractors Depot. There would still be millions of contractors.
And of course, price point and quality compared to local competitors.
Quality? It's all made in China.
Seems folks who commented here didn't read the article, or misunderstood. The article stated that the folks who live there lack the "...will..." Additionally there is an abundance of workers and cheap construction companies willing to do the work. - Bottom line. we here in American (land of the free) roll up our sleeves and get 'er done ourselves and are proud to do so. We tamed a continent with that kind of attitude. We here have the we-can-do-that spirit. New Chineese home / apartment owners are younger and would much rather hire the work, than do it. That attitude may come back to bite them. I'm patient.
Funny, isn't it that the country with the "can do" attitude doesn't even manufacture tools anymore? Need a table saw? China. Air Compressor? China.
If they get mad at us, we'll be driving nails with rocks...if we can find any nails.
Why in the world do the Chinese need an American company to sell them all the stuff that's manufactured in China? Evey tool at Home Depot is made in China.
I know that we're a hollowed out shell of a country now, and that our core competencies have changed from innovation/manufacturing to retail/marketing and other "service" categories, but I don't see how those skills transfer from the American markets and American consumers to foreign markets.
It's funny though to watch our pathetic corporations try to make money in China off retail and fast food that they don't need. Meanwhile, we would be barefooted if they didnt' make us shoes. The "Global Economy". What a joke.
No, we wouldn't be barefooted. I have a nice pair of SAS shoes, which are made in San Antonio, TX. Extremely comfortable, durable, reliable..........cost $135 though.
Gee, maybe "retailing" is not a special skill that only Americans have. The idea that the Chinese are going to buy all the stuff that they manufacture from us is silly. What does Home Depot or Best Buy do that the Chinese can't do themselves? A chinese retailer could probably beat our prices just based on the money they save on the ridiculous salaries and perks paid to American management. It's just so sad that this is all we have to export........nothing.
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