Chinese wake-up call to big DIY retailers

Many of the foreign furniture and home-decorations chains that have landed in China have found the market harder going than expected.

IKEA’s first store in China opened in Shanghai in 1998 and since then the chain’s expansion has been modest, given the size of the market and the company’s growth in other countries. There are now seven IKEAs across the country.

The British home improvement chain B&Q has also faced hurdles. It moved into China a year after IKEA and expanded much more briskly until its store tally reached 63.

But last year after losses of £52 million (Dh299.5m) in China the previous year Kingfisher, the owner of B&Q, announced a major downsizing of the operation.

It marked 22 stores for closure and a further 17 to be shrunk in size over two years. Officials partly blamed a contraction in the property market.

Furniture retailers from North America are also yet to reap rewards from the Middle Kingdom. Home Depot, which is based in Atlanta, entered the Chinese market in 2006 when it took over the local chain Home Way. But growth plans appear to have been put on hold.

Frank Blake, the chain’s chief executive, has said while the company’s “objective is to have a real presence in China”, it was “not going to roll out stores in China for the sake of rolling out stores”.

“It isn’t unrealistic for a country that size with a market that different from the US to take a few years to figure it out. And that’s what we’re doing,” Mr Blake said.

Such caution is in stark contrast to the furious growth overseas supermarkets have enjoyed in the country. Last year alone, the French retail giant Carrefour opened 22 new stores in China. The world’s largest retailer, Wal-Mart, opened 30. Between them, they have more than 300 stores in the country.

Li Fengjiang, the head of the local furniture and home improvement chain Orient Home, has estimated the majors enjoy only a 5 per cent share of their home improvement market, which he says is worth hundreds of billions of dollars a year.

Paul French, a retail analyst with Access Asia, says the comparative lack of success of the home-improvement chains is “one of the weirdest things”, given the vast increase in the number of private property owners in China and sharp rise in size of the average property.

The average Shanghai living space is now more than 18.5 square metres a person, compared with half that a decade ago.“None of these guys have made any significant amount of money,” Mr French says.

Foreign chains were initially perceived as being expensive and they have suffered from the competition from “aggregators”, or warehouses that sell different brands. There are thought to be as many as 40,000 these across China, plus many smaller, family-run stores where “you can negotiate price”, Mr French says.

Source : Daniel Bardsley - The National