US retailer Home Depot has decided to pull out of China, shutting all its stores.

US retailer Home Depot has decided to pull out of China, shutting all its stores.

This is not surprising. The retailer has closed half a dozen stores since it entered China by acquiring a local chain in 2006. The ultimate reason for Home Depot’s failure is that DIY is not for Chinese consumers.

Instead, they prefer to hire professionals to ‘do it for them”. Home Depot wanted Chinese consumers, or expected them to change, but that hasn’t happened.

It’s different from the approach taken by Kingfisher’s B&Q. B&Q has adapted to the local culture and established home decoration centres in its stores, offering design and decorating services.

However that has only kept them going. In the face of competitive local home improvement rivals, and their flexibility and low cost, B&Q has only been able to capture some wealthy consumers.

How about other international retailers? Tesco China has recently faced problems in China too. It shut some stores, restructured management, axed its freehold property development unit and plans to lay off employees and close more shops.

Walmart China has announced it is scaling back by half its planned new opening footage. Carrefour China has not seen shown any signs of revival in the last few years.

What is happening? Is the Chinese market saturated? Are international retailers are no longer popular, or have domestic retailers surpassed them?

It is true that international retailers have felt a chill in China recently but the fact is that fact, domestic retailers are going through a tough time as well. It has much to do with the general slowdown of the Chinese economy. But that is not the cause, rather it is the catalyst.

Sun Art, the holding company of Auchan China and RT-Mart, reported double-digit sales and profits growth in the first half of 2012 and  expects to open more than 40 stores this year.

Metro Group is steadily opening new stores as originally planned, as it has over the last decade, and is vigorously looking for new sites across China.

There are many other examples. Of course, they are feeling the general slowdown. But they have laid down their foundation firmly and can withstand a storm.

Carrefour is a typical ‘speculator, never having invested generously in the Chinese market.

Walmart China was following the right path but had to accelerate store openings at the expense of performance under the pressure from its headquarters in the past few years. Now the retailer is slowing down and trying to get back on track.

Tesco wanted to catch up quickly with its international rivals to the extent that it ignored the dynamics of the Chinese market in its push for growth.

It might not have mattered if the Chinese economy had kept up its miraculous pace. But now, all is revealed. These retailers are just paying back what they overdrew.

The Chinese market is far from saturated but no longer generates easy money. More than ever, retailers in China need to focus on innovation, performance and sustainability instead of merely growth.

  • Yujun Qiu is a Planet Retail analyst based in China