Home Depot's Retreat from China

Abstract:

The case discusses the entry of the US-based home improvement retailer Home Depot into China and its subsequent exit from the country. Home Depot entered China in 2002 by opening a sourcing office in the country. After studying the market, it decided to acquire the big-box stores of the fourth largest home improvement retailer in China, Home Way, in 2006. It acquired 12 stores of the company located in 6 cities. Home Depot remodeled and re-merchandized the Home Way stores and the rebranded stores were opened in August 2007.

Within a short span of time, Home Depot realized that its Do-it-yourself model was not acceptable to the Chinese, who preferred home improvement related work to be done by laborers and contractors. The Chinese lived in small houses, and could not store home improvement equipment like ladders etc. Also, instead of buying all the home improvement related things at one place, the Chinese preferred to visit several specialty stores before they finalized the products they would buy. Home Depot also found that retailers operated in a different way in China, and merely provided suppliers with a platform to sell the products; that suppliers had their own network, and even provided after sales services.

By then the Chinese economy had started to experience a slowdown, which impacted retail sales adversely. Despite its best efforts, Home Depot's stores could not generate the kind of returns that it expected. It closed five stores between 2009 and 2011, and decided to concentrate on the remaining stores.

Even by late 2012, its performance was not up to the mark. Home Depot then decided to exit the big-box retailing in the country. However, it continued to operate through two specialty stores, and planned to develop the e-commerce business in China.

The case discusses in detail Home Depot's pre-entry strategies, its entry into the market, the strategies it adopted in the Chinese market, and its subsequent decision to exit the big-box retail in China.

Issues:

» Understand the nature of problems faced by home improvement retailers like Home Depot in emerging markets like China.
» Study and analyze Home Depot's pre-entry and entry strategies.
» Examine the reasons that prompted Home Depot to exit the market.
» Analyze the home improvement industry in China.

Contents:

Keywords:

Home Depot, China, Home Improvement, Do-it-yourself, DIY, big-box retail, exit, cultural difference, home ownership, unorganized market, specialty stores, economic slowdown, housing reforms

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