February 08, 2011

Home Depot's China Fail

MSNBC is reporting today about the embarrassing closure of Home Depot's last store in Beijing. Instead of rapidly penetrating the vast Chinese market, Home Depot now barely has a foothold on the mainland.

It's not that Home Depot should never have tried to enter China. With a rapidly growing population of homeowners, it's a market the company simply cannot afford to ignore, but their market entry strategy was obviously flawed. Their initial focus was on establishing their brand presence throughout the country rather than first understanding Chinese consumers. They discovered the hard way that Chinese buyers are extremely price sensitive and that few homeowners are comfortable tackling repairs on their own. In short, the business model Home Depot has relied on for decades to fuel its growth led it down the wrong path in China.