Home Depot No Longer at Home in China
Late last week Home Depot announced that it will shutter its seven big-box home-improvement stores in China, resulting in a $160 million after-tax loss. The reasons, as stated in a recent Wall Street Journal article (Friday, September 14, 2012), were “weaker growth in the Chinese economy, and Home Depot said they reflect a shift in strategy toward specialty stores and online operations and away from the do-it-yourself model.” Subsequent commentary also indicated that do-it-for-me was preferable to do-it-yourself in China.
Having lived (and shopped) in China, my observations are that another factor is being overlooked. Chinese shopping behavior is not identical with that of North Americans. Home Depot and other firms have assumed that as China develops, its consumers will seek greater convenience. The big box, one-stop shopping model is a Western standard, but the exception in Chinese cities. Rather small shops that specialize in a single category (plumbing supplies, cleaning accessories, mobile phones, stationary) are clustered geographically in urban areas. If you need greeting cards, you go to the “stationary street,” or a broom, you go to the “broom street.” Yes, this model sounds inconvenient to Westerners, but it is the culturally ingrained approach to Chinese shopping. The process allows price and quality comparisons among competitors, personal relationships to develop between shoppers and merchants, and aggressive price negotiating. Shoppers emerge assured that they got their best deal and they appreciate and maintain every purchase. Merchants have an opportunity to know their customers and to invite future purchases.
There are some, but very few, successful large Western stores in major Chinese cities. Stores such as IKEA, WalMart and Carfours are filled with people, but may not necessarily be filled with customers or generating profit. A visit to such a retail emporium by a multi-generational Chinese family is akin to a trip to a Western museum, shedding light on products, uses and needs of Western people. Note that Best Buy, Levi Strauss, and Google dipped a toe into the Chinese economy and went elsewhere. Mattel”s “House of Barbie Shanghai”, modeled on the American Girl stores in the U.S., lasted only two years.
I cannot claim to understand all the workings of Home Depot in China, but I have made a concerted attempt to understand Chinese consumer behavior. Such insights can only be gleaned through observation and interaction on site. It is the type of learning that we realize will take place within the various residencies included in the Quinlan Intercontinental MBA program. The first and most important lesson when examining behavior in another culture may be to never to assume anything.