Just because a business works well in the US provides no guarantees of success in international markets. How could a company as successful as Home Depot not be able to make a success of it in China? (the WSJ reported it just decided to close its remaining 7 stores)
The key reason is a failure to really understand the chinese customer landscape. Home depot works in the US because labor rates are relatively high and there is a strong do-it-yourself culture that leads people to take on even major renovations without professional help.
Not so in China, with a large pool of low cost labor and a frenetic work ethic most chinese would prefer to pay someone to get the work done. The neither have the time or desire to “do-it-themselves”. When you add these economics to the picture it clear the model would not work, at least for now.
An interesting contrast it provided by IKEA which has been growing successfully in China. It also has a do-it-yourself model but there appear to be two differences:
Firstly it offers customers a low cost assembly service, those customers that want the lowest possible price can do it themselves, for a little more IKEA can arrange assembly.
Secondly, according to Forbes contributor Helen H. Wang (an expert on China’s middle class) Ikea provides the new chinese home owner an education in how to furnish their home in a western style. Given the growth in new home ownership in the last 15 years there a many new consumers looking for stylish, low cost ways to furnish their new homes.
The nuances of different markets are difficult to pick up, unfortunately for Home Depot there appears to have been a major customer preferences trend against them. How could they have avoided this costly error?
If they had a customer focused culture their first approach would have been to understand the chinese consumer in a little more detail. This may have uncovered what in hindsight seems obvious and saved them significant time and investment.
Often deep customer understanding can only come from launching and operating in a market. In this case I believe they could have done a better job by testing a SINGLE store more thoroughly rather than expanding too quickly. They could have started small and built out their strategy and store expansion plan on a much stronger foundation – one that customers wanted.
If your interested in developing your skills so you don’t make the same mistakes Home Depot has we have two free online courses here that may be helpful:
Course: el001- Understanding Value
Course: el002 – Uncovering Customer Needs
What do you think? Could Home Depot have done more to have averted this costly mistake?
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