The deal gave Home Depot 12 stores in six Chinese cities--Tianjin, Beijing, Xi’an, Qingdao, Shenyang and Xhengzhou--putting it into direct competition with Kingfisher's B&Q chain, which has over 50 stores in China.
The mainland’s first “big box” home improvement retail chain, Tianjin-based HomeWay has annual sales of $400 million, according to the global investment bank Lehman Brothers. Stores average 90,000 sq. ft. in size and the chain employs about 3,000 workers.
Although Home Depot has operated a large outsourcing business in China for years, and opened a business development office in Shanghai in 2004, finding a way into China’s hotly-competitive market took time.
“Our first office was to help us understand the markets, the Chinese customers, the retail operations, and then to help us find the right acquisition,” said Annette Verschuren, president of Home Depot’s operations in Asia as well as Canada. Based in Toronto, Ms. Verschuren, 50, spends one week each month in China, and is studying Mandarin.
The Atlanta-based retail giant also needed to “evaluate various marketplace strategies," she said. "Home Depot aims to be the number one service leader in China. We’ll be focusing on installation, design and remodeling services.”
Not rushing into China helped streamline early steps in gaining a foothold in China. Strong government relationships allowed Home Depot to trim six weeks off the normal four-month procedure for state approval. Former HomeWay stores will re-open this year, converted into Home Depots.
That process shouldn’t take long, since HomeWay has patterned itself on Home Depot since the mid-1990s, when Home Depot’s founder, Bernard Marcus, shared his business ideas and best practices with HomeWay’s chairman-CEO Du Sha. The Chinese retail firm even adopted orange as the main color in its branding, from signage to employee aprons.
Chinese consumers can expect more Home Depot acquisitions, said Ms. Verschuren, as well as organic growth. The company has major expansion plans in China, one of the world’s fastest-growing retail markets.
There are about 200 “big box” retail stores in China’s home improvement industry, including rivals B&Q, Homemart and Orient Home. The home improvement market, valued at close to $50 billion a year, has been growing by 20% a year as the rising number of middle-class workers in China become first-time home owners.
Whereas ten years ago there was little private property in the mainland, about 70% of the homes in big cities are owned rather than rented, thanks to government reform of China’s housing system implemented in 1998. About 10,000 apartment buildings have been erected in Shanghai alone over the past decade.
Compared to North America, however, home improvement is very different in China, where new homes are delivered to owners as a concrete shell, lacking electricity, plumbing, floors and inner walls.
“With labor so cheap, homeowners hire contractors to complete these essentials as well as home decor and appliances,” said Ms. Verschuren.
“About 70% of home improvement spending in China is for the completion of interior space in new homes, which Home Depot sees as a solid growth opportunity, given the company’s strength in merchandise and services for finishing a home.”
Home Depot’s stores in China, therefore, won’t be duplicates of their North American counterparts, in terms of the product mix, store layout and shelf arrangements.
“We’ll leverage the fact that homeowners will find everything under one roof,” said Ms. Verschuren. “For example, there will be a wide selection of steam cookers. I’ve been in several Chinese homes and have seen the importance of gigantic kitchens and such items.”
Product lines will include lots of “good wood” and “lots of color, the Chinese really love color,” she added. Stores will also carry a wide variety of aquariums, because there is limited garden space in Chinese homes, but fish are considered symbols of good luck.
Overseeing Home Depot’s growth from Toronto isn’t easy, admitted Ms. Verschuren. “Luckily, I adapt quickly to time changes when traveling,” but the 13-hour time difference is “one of the biggest challenges. [We] really have to plan our phone calls. The key is having a very strong team in China.”
Twelve managers from former HomeWay stores recently spent two weeks in Canada, familiarizing themselves with Home Depot’s management practices, a practice that will be regularly repeated with new store leaders.
Ms. Verschuren joined Home Depot in 1996, and is credited with overseeing its rapid expansion in Canada, where it now operates 151 stores, has 27,000 employees and total sales of $5.5 billion. Expanding the company into Quebec gave her experience in a market with a different culture and language.
Her corporate and retail expertise made her the choice to head the Canadian and Asian Home Depot operations. She has held executive positions at a coal mining operation, Cape Breton Development Corp., and at Canada Development Investment Corp., which privatizes government-owned companies. She was also president and co-owner of Michael’s of Canada, a chain of arts and crafts stores.
"Annette Verschuren has an amazing resilience," said Randall Scotland, VP, communications at the
Association of Canadian Advertisers in Toronto. "When you see her on the floor at Home Depot, even though she's the president, she'll stop and talk and answer questions asked by employees or even direct customers to the right department. She connects well with individuals, and she therefore has won the loyalty of employees - and she's done it in basically what is a man's world of hardware and home renovation."
As her job takes her to China more often, she said she is struck by the “energy and passion of the people” and the “impressive customer service level. That’s what we want to use to entice our target market, the expanding middle class. I’m not saying that we won’t carry some luxury items. But most of all, we want to be known for our services to the average home owner.”
Other people news in Greater China
[shanghai] Chris Pan has resigned as Pepsi-Cola's marketing director of interactive & new initiatives for its beverages business unit in China. He joined the U.S. company in Shanghai one and a half years ago, but now plans "to lead a group of companies focused on reaching and impacting urban youth in China," he said. Mr. Pan did not elaborate, but his resignation coincides with a major shift in PepsiCo's marketing in China. Effective April 1, Harry Hui will take over as Shanghai-based VP, marketing for China, succeeding Richard Lee, who moved from that position to a global role at PepsiCo in New York.
[hong kong] TBWA Worldwide has appointed Mark Ringer as exec creative director, Hong Kong. Since last August, he has been freelancing for Saatchi & Saatchi, Singapore. Before that, he was ECD at JWT, Bangkok. He succeeds James Cheung, now creative director at TBWA, New York.
[shanghai] Manpreet Singh is the new CEO, China at Universal McCann, whose clients include Intel Corp., Microsoft Corp., United Parcel Service, L'Oreal, Mastercard, Exxon-Mobil, Johnson & Johnson and SC Johnson. For the past eight years, Mr. Singh was CEO of GroupM's divisions in Singapore, including MindShare, Maxus and Motivator. He succeeds David Liu, who recently moved to Taipei as chairman of Interpublic Group of Cos.' Magna operation in Taiwan.
[guangzhou] MTV Networks Asia has promoted Bobby Yuan to Guangzhou-based general manager of MTV China from general manager of MTV Taiwan, based in Taipei. He succeeds Flora Xie, who held the same position previously. MTV China is the only global brand with a 24-hour channel in Guangdong province, officially available to 13.1 million TV households in the mainland. In addition to the 24-hour channel, MTV also locally produces and syndicates programming in 459 cities across the nation, reaching over 181 million households.