Home Depot sees China 'milestone'

By | Monday, August 27, 2007

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BEIJING — The Home Depot began its bid to sell to the world's most populous nation yesterday.

At a ceremony in Beijing that included drummers and dragon dancers — a traditional Chinese symbol for luck — Annette Verschuren, Home Depot's president for Asia and Canada, called the company's investment in 12 stores a "historic milestone for the Home Depot," the world's largest home-improvement retailer.

Home Depot's push into China is likely to be difficult in coming years but could produce significant long-term profits.

Since Home Depot bought Chinese home-improvement retail chain Home Way in December, executives said the company has spent "millions" of dollars to redesign stores, set up supply chains and train staff.

Home Depot has not said how much it paid for Home Way, but Chinese media have reported the Atlanta company paid the equivalent of $92.6 million at current exchange rates. Ms. Verschuren declined yesterday to say whether that figure was accurate.

Home Depot's China operations are likely to return low profits for the foreseeable future because of intense competition, low average family incomes and high distribution costs.

"With the number of people moving into apartments in China over the past few years, [home-improvement stores] should have made fortunes, but nobody has because of the low, low prices and the lack of profit margins," said Paul French, a Shanghai economist with Access Asia, a consulting firm.

Although B&Q, a home-improvement chain that is a subsidiary of Britain's Kingfisher Group, entered China in 1999, "they have only begun to see a dribble of profits over the last 18 months," Mr. French said.

Ms. Verschuren said price competition in China will be fierce.

"The discounting is much greater here than in the U.S.," she said. "If we had everyday low pricing on everything, then I think we'd be profit negative."

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