Home Depot’s China Play

Sunday, December 10, 2006 23:40
Comments Off on Home Depot’s China Play

Being a big box retailer in China is not easy, especially when you main competitors got in earlier than you did.

For Home Depot, this was made even more difficult as their main competitor in China, B&Q, offers customers an experience that is not too different from their’s:

Home Depot Logo

  • Big box retail infrastructure offering building materials, tools, and other home improvement items (in China home electronics are also offered in the store)
  • Color scheme (white or orange) are the same for both stores
  • Employee uniforms are same orange apron with while logo
  • Both source a significant amount of product from China (500+ containers a month)

Their initial plans began to take shape about 3 years ago, and there were “rumors” that THD and B&Q were in talks. Then B&Q took in OBI (8 stores) form underneath Home Depot who were reportedly in final negotiations for OBI.

There have been a few other cases of where the strategy has been tweaked, and as time went on, many began to question how Home Depot would be able to effectively enter the market. After all, B&Q already had 10 stores in Shanghai alone, and getting suitable real estate is difficult. Businessweek has done a good write up on the past problems in their article Home Depot: One Foot In China

But, as is being reported in multiple sources (Reuters, CNN, Marketwatch) it looks like the wait is over and that THD will soon have their retail footprint in China with the acquisition of Homeway, a local retail group that THD has a history with (see Business

The price of 100M USD for 14 stores (7.14M USD/ per store) is sure to come into question, however the premium will be well worth it if they are able to use these stores as a platform for expansion.

For me, the biggest surprise of the announcement was that THD is only sourcing 10% of its goods from China. Given the number of tools and materials in China, and the savings we find in this area by taking out just one layer, ramping up their sourcing team in Shanghai would quickly produce savings that could be plowed back in.

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