burgeoning home improvement market has emerged as one of the latest
battlegrounds for western retailers. Home Depot of the US has signed a deal to acquire China's Home Way for around $100m.
Home Way operates 12 stores in six cities, so the deal gives the US
firm an immediate presence in China's $50bn DIY market, which is
growing at 20% a year, according to the company.
Until now, Home Depot has only had sourcing operations in China, but
it has been looking to set up a retailing presence for about two years.
It previously failed to buy Chinese chain store Orient Home.
B&Q of the UK is also keenly interested in China's fast-growing
DIY market, and for the same reason — to compensate sluggish growth in
its mature home market.
B&Q bought the Chinese operations of German rival OBI in April
and plans to have 60 stores in China by the end of this year and 100 by
Its interesting that both western companies have sought to gain a
presence in China's DIY market by acquiring existing outlets rather
than building their own stores.
Best Buy, the largest US electronics retailer, adopted a similar strategy when it acquired control of Jiangsu Five Star Appliance in May.
All these companies have realised that they could miss out on the
best opportunities if they wait to grow in China organically by
building their own stores.
The obvious risk to the “buy, don't build” strategy is that, in
their rush to expand through acquisitions, western firms risk
overpaying for assets. In addition, retailers have the additional
hurdle that the task of re-branding and refurbishing the acquired
stores, and introducing western best practices can be more onerous than
Elsewhere on the consumer front:
- Tesco, the UK's leading supermarket group, is upping its stake
in its Chinese JV from 50% to 90%, reports the Independent. Tesco is
paying its local partner Ting Hsin about £180m to take almost full
control of their Hymall venture, which now comprises 44 stores. Its
first Beijing stores will open next month and, unlike the others, which
are branded as Happy Shopper, it will the first to carry Tesco brand.
Clearly, Tesco feels that after testing the waters with a conventional
JV, the time is ripe for a more aggressive strategy, although,
interestingly, it has stopped short of buying out Ting Hsin completely.
More on Tesco's China strategy in this EngagingChina story.