Big box store bites the dust

09:23, January 27, 2011      

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Home Depot Inc shuttered its last big-box store in Beijing Wednesday after the US home improvement retailer reported lower than expected earnings in the nation's capital.

The closure, the fifth outlet to go belly up in less than three years, was made public last Friday.

It has still seven stores operating in various cities including Tianjin, Xi'an in Shaanxi Prov-ince, and Zhengzhou in Henan Province.

The closure of the store, located near Beijing's western Fourth Ring Road, was made after a thorough review of the outlet's financial situation was completed, an announcement posted on the door of the closed store stated.

More than 100 employees who lost jobs due to the store's closure gathered outside the store Tuesday seeking to renegotiate the compensation package initially offered last Friday, the Beijing Times reported Wednesday.

The report quoted company human resource officials as saying that employees who signed an agreement on termination of the labor contract before 5pm Wednesday would be entitled to additional com-pensation, while those who signed after the deadline would be compensated according to China's Labor Law.

Home Depot entered the Chinese market in 2007 after purchasing 12 stores from The Home Way, a domestic home improvement chain based in Tianjin.

Foreign retailers are looking to China's booming home improvement market to boost sales, but their businesses have not developed well as expected.

Britain's B&Q, owned by Kingfisher PLC, entered China in 1999 and has had a similar experience to that of Home Depot.

The UK-headquartered do-it-yourself retailer closed 22 of its 63 stores in 2009.

Experts say foreign retailers' business models have not adapted to the Chinese market very well, where perceived high pricing and the notion of do-it-yourself prevented local consumers from purchasing.

"While consumers in the US and the UK (regularly) shop for do-it-yourself products, over 90 percent of Chinese consumers (we have interviewed) hire workers for doing installations," said James Roy, senior analyst at China Market Research Group in Shanghai.

Zhang Ren, secretary general of the Residence Decoration Committee at the China Build-ing Decoration Association, said foreign retailers' steep pricing deters consumers from buying. "China's home improvement market is highly fragmented, and customers prefer to go to inexpensive stores or the whole-sale market for cheaper materials," he said.

Roy said Red Star Macalline, a local home decoration chain, also targets the high-end market but does better than its foreign counterparts.

"It mainly depends on brand vendors to sell best-trusted items, and offers customer satisfaction policies," he said.

Though China's home improvement market has been partly affected by a slowdown in housing transactions, Roy expects the market will still see annual growth of 12-14 percent in the next five years.

"Multinational retailers still have opportunities in China, but they need to pick the right locations and better meet local customer needs," he added.

Source: Global Times
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