When of the challenges of doing woodworking in China is the severe shortage of hardware options. The institutional experience of physically searching for a little piece of metal shaped to suit a particular need on a shelf next to something that can also be picked up, handled, and compared with another piece doesn't exist in this nation that likely makes a good portion of what fills those
big box stores. Given this unmet market need, it seems worthwhile to examine how the savvy, well compensated
executives at
Home Depot failed to establish a solid beachhead in China.
There are little shops scattered around Chinese cities that are referred to as
五金店, WuJinDian, literally five metal shops. They sell various household emergency supplies like replacement showerheads, a few lightbulbs, and other consummables in a space half the size of an American garage so the selection is decidedly limited to high turnover items. There is no room for browsing with merchandise often packed in so tightly with hardly enough room for the owner to manoeuvre amid the organized chaos.
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| a common site on the Chinese urban fabric |
I am, therefore, limited to shopping at
B&Q and its own paltry selection of low quality goods. This is a rebuilding nation of megacities built of bricks, concrete, and concrete blocks. Most of the wood sold there is made to cover over the rough beton and the most nails are hardened for concrete. This British chain certainly has adapted to the Chinese consumer market but I see very little focused effort to ride the latest of interest in DIY. Much of the home furnishing product selection is a shanzhai mirror of what can be found at Ikea.
Home Depot's failure to maintain a market presence seems to have become gospel as to how the Chinese market is not ready for a 'traditional' hardware store format. What is never mentioned in such a superficial analysis is that for so many of the middle class DIYers, their first impulse is to search for what they need on Taobao. Taobao introduces its own sets of frustrations. Rather often a posted item is 'not in stock' but one is not informed of this until a day or two later. I'm also amazed at how poorly the search function works on it, necessitating thumbing through endless pages of 'promoted' items in order to find close to one is looking for. My Chinese colleague is a competent writer and speaker of the language but the problems seem to often originate with sellers who either don't really know what they are selling so they instead use general terms thereby gaming the algorithm to put their items at the top of more searches. It follows then what the Chinese marketplace truly needs now is a brick and mortar outlet to accommodate this gap of general knowledge.
For this and other reasons is worthwhile to pick apart, nay to challenge, the poor excuses that have been given to explain Home Depot's retreat. At the same time, I want to highlight some of the basic errors committed by Home Depot.
1) starting in the right place:
I seriously doubt that the big chiefs at HD did much reconnoitering before expanding their boxstore empire to include the middle kingdom. There are a few clues to indicate how the demise was seeded even before their invasion. Home Depot entered the
Chinese market with an amazing 12 stores located in the following cities: Tianjin, Beijing, Xi'an, Qingdao, Shenyang, and Zhengzhou. The most salient point to mention is which city is absent: Shanghai. The premiere city in China that is more attune to international trends and receptive to them than any other is Shanghai. It's where any international brand with intentions of succeeding enters China before attempting to advance inland. It's better to fail or succeed in Shanghai with one store and to comprehend the challenges of the PRC than to to fail with 12 stores and to have to come up with pathetic excuses. My best guess is that Home Depot was so eager to get into the mainland market that it chose 6 cities around a central distribution hub, believing that it could replicate its model from the top down and not have to build up any brand loyalty or do any market research in much the same way that every other business with grand intentions of crashing and burning approaches a new venture.
2) small and few:
It's further evidence of ossified arrogance to think that every city needed two stores. In China, one crowded store has a better chance for success than two stores with no wait at the checkout lanes. There is a strong theme in Chinese mob psychology. If a restaurant is crowded, the logic is that the food must be good. And yes, lemmings do come to mind whenever I observe this. Again, my best guess is that the big chiefs looked at the populations of these 6 cities and extrapolated expected demand based on the HD's presence in other markets. That clearly didn't work out as planned and I put forth that the cavernous, empty stores only scared aware more potential customers.
3)Teach the fundamentals and never stop:
It's a
punchline that the apron wearers in big box stores don't know much about what they are selling. That is not so critical so long as the customer base knows enough about what they need. The Chinese consumers with only slight exaggeration know nothing about anything that they didn't formally learn in school. Salespeople generally know even less than the intended consumers. As an example, I visited a showroom exhibiting ovens, some of which were high-end, imported European models. There were the usual surfeit of salesladies watching me intently, tripping over themselves, awkwardly trying to get me to buy a model by repeating the few words that they knew in English. I pulled out a tape measure to find out what the interior dimensions were when I noticed that all the oven racks were installed backwards with the 'guardrail' that prevents pans from dropping off the back positioned at the front. At first, I though this might be a fluke of one model until I realized that every oven was on display this way. This example repeats itself in China: salespeople with little to no knowledge of products new to the general market, attempting to sell items to consumers who know just as much.
From the very beginning Home Depot needed to train its Chinese staff about everything, and train them again, and do it again. And then they needed to open their doors and find creative ways to train the potential consumers. Also about everything for sale in their stores.
There was a lame excuse offered at the time of Home Depot's exit. The explanation was made that China lacks a DIY culture.
a Home Depot spokeswoman said: “The market trend says this is more of a do-it-for-me culture”(Burkitt, 2012).
Spokespersons are paid a lot of money to spin reality in order to protect the stock prices and the egos of their bosses. The aforementioned trend is not at all in this direction. The Chinese have even adopted the term, DIY, to describe this middle class phenomenon. The situation in China is so underdeveloped that as much as the burgeoning cohort wants to get involved in DIY, they don't even know how or where to begin their education. There are no home repair sections in the few public libraries that exist, nor any DIY television programs. And there are certainly no helpful
hardware men. The language barriers and internet censorship only exacerbate this situation. And so the Chinese do what every DIYer does when there is a project that is too much to tackle, (e.g. Repairing a stone chimney requiring scaffolding and a crane.) he hires a professional. Sadly, this same homeowner, therefore, is compelled to hire a professional to do just about everything. I use the term professional by the strict meaning of one who earns a living in a trade. Professional tradesmen in China are the one-eyed cobbling for the blind.
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| Relative Professionalism |
It behooves us to recall exactly how the large boxstore model of retail became so successful in North America if not much of the developed world. They plucked the low hanging fruits of a mature marketplace by offering more cheaply priced goods from the advantages of lower production costs in a recently industrializing Asian nation. They were able to take even greater advantage of a large number of adequately educated and experienced homeowners who, sensitive to price, opted to spend less money in
smaller hardware retailers that had cultivated the market for decades until their
businesses could no longer compete with the megastores' buying power and extensive floorspace. Oh, and the ample meterfree parking! The newer stores could also easily find competent sales staff due to all the smaller hardware stores that were forced to lay off employees. The trendy term of art that was meant to keep the working class in their place for this dislocation at the time and to justify the stock options was 'creative destruction.'
The highly compensated executives at Home Depot must have had short memories or fallen victims of their own B-school egos. Their failure to recognize their own keys to success, by creatively destroying smaller businesses, as they consolidated wealth certainly is the clearest sign of the need for another dose of creative destruction.
