The Home Depot Inc. entered China in 2006 by acquiring 12 stores from Home Way, a Chinese company. But by September 2012, all Home Depot stores closed in China.
While cultural differences were cited by Home Depot CFO Carol Tome for the failure, a new study found the Atlanta-based retailer could have succeeded if it catered to Chinese women.
In 74 percent of homes in North America and Asia, the woman is fully engaged in deciding what and where to shop, according to a 2008 Pew Research Center survey.
“I can’t stress the importance of how much of a missed opportunity this was for Home Depot,” said May Hongmei Gao, associate professor of communication at Kennesaw State University, and the researcher for the five-year study entitled “Culture determined business models: analyzing Home Depot’s failure case in China for international retailers from a communication perspective.”
Home Depot’s “big box” retailer concept in suburban parts of China could not take advantage of China’s rising middle class in densely populated urban cities.
“Research data indicates that Home Depot should adopt urban boutique concepts,” the study said. These stores should be placed in malls or on street corners, rather than operate as “big-box” retailers. The stores should emphasize female consumers.
“In many cultures, women are the primary purchasing agent. Especially in China, women make the final decision in buying home décor products,” said Gao. “After the one-child policy in China, women became so scarce that brides were given full control of how they wanted their house to look after marriage.”
Home Depot’s “warehouse” concept store was doomed to fail. Rather, “selling an experience for female shoppers would have worked,” said Gao.
The study recommends international retailers should take up prime retail space in malls in China. The stores should be “pleasing to the eye, in colors that appeal to women,” said Gao. Appealing to China’s “nouveau riche” by connecting American products and luxury lifestyle “has been a recipe for success for many international retailers in China,” the study found.
Instead, Home Depot (NYSE: HD) could have concentrated on making each boutique a “design center” where women would feel welcome. Home Depot’s “DIY” concept also would not work in China for two reasons, the study found. The first is because culturally, manual labor is considered to be for lower-class citizens. Instead, a “do it for me” model would have thrived in China, where Home Depot could provide a “design and build service” package for customers. Second, the DIY concept could not be geared towards women at all, said Gao. In short, Chinese customers would not want to see the paint or light bulbs, but rather a fully-designed finished product.
The study found it would not have been a stretch for Home Depot to have adopted this model. “Home Depot was once experienced in designed centers. In 1991 it established its first Expo Design Center in San Diego…[which] carried higher-end products and sold complete solutions to household models,” the study said. It recommended Home Depot could collaborate with a Chinese television station to educate Chinese consumers on home furnishing, while promoting the brand. In the mid-1990s, the retailer had a TV show called “HouseSmart” in America, in collaboration with the Discovery Channel.
The demand is definitely there -- today Chinese homeowners are eager to learn from the West about home improvement. This is one reason why Swedish home furnishing giant IKEA is popular in China, according to the study.
“But if you want to make money in Asia, especially China, you have to satisfy the women,” said Gao.
