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.
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.