Home Depot's Retreat from China

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Case Details:

Case Code : BSTR429
Case Length : 15 Pages
Period : 2006-2012
Pub Date : 2013
Teaching Note :Not Available
Organization : The Home Depot.
Industry : Retail
Countries : USA, China

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Excerpts Contd...

Problem Arise

Just after a year of being operational in China, Chen resigned and Simon Cheun, Vice President, Merchandizing, was appointed as his successor. Though reasons were not cited for Chen's exit, observers said that the slide in Home Depot's profits and revenues during the quarter ending November 2008 could be the reason. Shortly after the company's entry into the market, China experienced an economic slowdown. In the first quarter of 2012, the country recorded its lowest economic growth in three years. Retail sales were adversely impacted and grew by 13% in August 2012 as against 17% in August 2011. The impact was also felt on home improvement products...

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Closure of Big-Box Stores

In 2009, Frank Blake, CEO of Home Depot, said that they wanted to have a profitable business in China, but were facing problems due to the way stores were operated in China, the absence of the DIY market, vendor management, etc. He added, “While we're pleased with the business performance, we're still not confident we've got the right business model. We want to figure out how to make money there. We'll either figure it out or we won't be there,”

In 2011, Carol Tomé (Tomé), CFO of The Home Depot, was sent to China to revive the business and to improve its business model in the country. Though the losses that it incurred in China were miniscule compared to its overall profits, the company was keen to establish a foothold in one of the most vibrant markets in the world ....

What Went Wrong?

Market observers did not think much of the company's new business model of having a presence in the market through e-commerce. They said that the main problem, i.e; the reluctance of the Chinese to go in for the DIY model remained unaddressed. Some observers said that Home Depot had entered China too early, when the Chinese were still unwilling to spend much on home improvement and decoration. They said that the DIY concept was not relevant to China as labor was affordable and widely available.

A marketing manager of Red Star, one of the largest local home improvement chain stores in China, said Home Depot had struggled because of its ambiguous market positioning and confusing product mix. He said, “In a city like Tianjin, Home Depot does not have a strong enough brand to entice high-end customers, while their pricing is too high for mid- to low-end buyers. Compared to us, Home Depot cannot be called a one-stop retailer because it mainly sells building materials.” ...


Exhibit I: Home Depot's Statement of Earnings
Exhibit II: Home Improvement Market in China

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