Home Depot's do-it-yourself model fails in China's do-it-for-me market

(Reuters) - Home Depot Inc HD.N, the world's largest home improvement chain, will close all seven of its big box stores and cut 850 jobs in China as the retailer changes its focus in the Chinese market to online and specialty stores and becomes the latest retailer to feel the chill from China's slowing economy.

A sign outside The Home Depot store is pictured in Monrovia, California August 13, 2012. REUTERS/Mario Anzuoni

Earlier this week, British fashion house Burberry Group Plc BRBY.L 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 0493.HK, who are seen by some as China's answer to Best Buy Co Inc BBY.N, 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.

Home Depot will retain two recently opened specialty stores in Tianjin and is “developing relationships with several of China’s leading e-commerce websites,” it said in a statement late on Thursday.

“China is a do-it-for-me market, not a do-it-yourself market, so we have to adjust,” Home Depot spokeswoman Paula Drake told Reuters late on Thursday.

The company made its first foray into the rapidly-growing Chinese market in late 2006 through its acquisition of a 12-store Chinese chain called The Home Way.

However, it has struggled to expand ever since as it was a relatively late entrant into the market behind other international chains such as Britain's Kingfisher Plc KGF.L which ventured into the world's most populous country in the late 1990s.

The company expects to incur a $160 million charge in the third quarter as a result of the closures, but said this will not affect its full-year earnings forecast.

Home Depot said it will continue to employ about 170 associates in China working in the sourcing offices in Shanghai and Shenzhen. Shares of the Atlanta-based company closed up 2 percent at $58.30 on the New York Stock Exchange on Thursday.

Last week, Suning Appliance announced the launch of a network of super stores to offset slow growth in its core business in China. The super stores will sell home appliances, general merchandise, books, and daily necessities, a move that put it in direct competition with local operators such as Sun Art Retail 6808.HK and Wumart Stores 1025.HK, as well as foreign giants like Walmart WMT.N and Carrefour CARR.PA.

($1 = 6.3296 Chinese yuan)

Additional reporting by Tej Sapru in Bangalore; Editing by Matt Driskill