American retail giant Home Depot has just announced it will shut down its seven remaining stores in China, amidst struggles to gain traction in the tricky Chinese market, and lower-than-anticipated economic growth forecasts.
Courtesy of The Wall Street Journal, we learn that the chain is set to pay out $160 million in penalties for closing the stores:
“The charge will be equal to about 10 cents per diluted share, and will include the impairment of goodwill and other assets, lease terminations, severance and other charges associated with closing the stores.
The largest U.S. home-improvement retailer by sales said that excluding the charge associated with the store closings, it still expects its fiscal 2012 diluted earnings-per-share to be up about 19% to $2.95 for the year, which is in line with prior guidance.
‘The market trend says this is more of a do-it-for-me culture,’ a Home Depot spokeswoman said.
Home Depot’s stores have struggled to gain traction in China, where cheap labor stunts the do-it-yourself ethos and apartment-based living leaves scarce demand for products like lumber.
Retailers are facing pressure in China, where the slowest economic growth in three years is curbing consumer spending. Retail sales in August rose just more than 13% from a year earlier, slower than a 17% climb in August 2011.
Home Depot entered China in 2006 with a 12-store acquisition, which has since fallen in number to the seven now being closed.”
It could be a sign of an overall slowdown in the Chinese retail real estate market. Reuters had more on the situation in the Far East:
“Earlier this week, British fashion house Burberry Group Plc warned a slowdown in China could hit earnings. The profit warning came as recent Chinese data signaled a further slowing of the world’s second-largest economy.
Chinese home appliance retail chain operators such as Suning Appliance Co Ltd 002024.SZ and GOME Electrical Appliances Holding Ltd, who are seen by some as China’s answer to Best Buy Co Inc, are also slowing their expansion to focus on raising efficiencies at existing stores and refining their e-commerce operations.
China’s retail sales growth in all consumer goods categories slowed to 13.2 percent year-on-year in August to 1.67 trillion yuan ($263.84 billion) from 18.1 percent in December, official data showed.”
What do you think? Should investors think carefully before jumping into China? Is online shopping the way of the future?
Read more on China, France, America and the world beyond in the latest edition of Carnet Atlantique!