The largest US home improvement retailer Home Depot is closing its seven remaining big box stores in China. (Internet Photo)
The largest US home-improvement retailer Home Depot is closing its seven remaining big box stores in China due to poor returns amid slowed growth in the country's economy. The retailer said it will maintain two specialty stores and an online business in China, reports our sister newspaper Commercial Times.
The company has confirmed the closure of all of its seven outlets in China but denies the move is a retreat from the country. There is still a huge potential house decor market in the country, said a spokesman.
Home Depot failed to generate expected profits even after a 35% downsizing and operational fixes, according to its CEO Carol Tome. The retailer, which has opened 12 stores in China since 2006, will lay off 850 employees, who will receive severance packages and job placement assistance.
The retailer admits that the DIY model does not sell in China. "The market trend says this is more of a do-it-for-me culture," a Home Depot spokeswoman said. Cheap labor and apartment-based living are also considered factors contributing to the failure to gain a foothold. Planning to adopt a shift in strategy, the retailer said they will maintain two specialty stores, one paint and flooring store and one home decoration outlet, in the northern city of Tianjin. It will also become involved in online business with local e-commerce retailers.
A number of American and European retailers have struggled in China despite their success in other markets. IKEA opened its first store in Shanghai in 1998 but has only opened a further 10 stores since then, while Carrefour has recently been facing difficulties despite initial success since it began to open stores in China from 1995.
Despite the experience running a successful business model, American and European retailers have not had sufficient understanding of different Chinese local markets before moving in, according to an analyst from Planet Retail, an international retail analysis firm. Taking the British retailer Tesco as an example, the analyst said, the retailer's success in Shanghai did not guarantee success outside of the city. Many Tesco branches in other cities have struggled to make money. The frustration major international retailers have encountered in China has to some degree has put put a damper on foreign investment in China, the firm said.