World-Beater: The Home Depot in China

Home Depot has entrusted Annette Verschuren with its China strategy. Does that make her CEO-in-waiting?

In Chinese, the words for Home Depot literally translate as “House of Treasures.” A coincidence, yes, but it reflects perfectly the sense of possibility that Home Depot Canada president Annette Verschuren–recently given the added responsibility of heading up the company’s new China division–wants customers to have upon walking into one of her stores. It’s also an apt way to describe Verschuren’s mission in bringing the world’s largest home-improvement retailer to the world’s most populous country: to create a trove of business riches for Home Depot that will further open the doors to global expansion.

“The great retailers of the world are multinational,” says Verschuren, 50, sitting in her office overlooking the Don Valley

Parkway in northeast Toronto. “They need to be in other countries and have an increasingly larger portion of their growth outside their home base.” As far as Verschuren, who has been named president of Home Depot in Asia, is concerned, China is just the first stop in a continent-wide business that could eventually include Taiwan, Indonesia, India and other countries.

Home Depot announced in December that it was entering China by purchasing Home Way, a 12-store home improvement retailer with outlets in six cities, including Beijing. The acquisition gives Home Depot an immediate presence in China. Still, that’s a long way from tapping the full potential of 1.3 billion people in a bustling economy that is growing by 10% a year. Verschuren figures China’s home-improvement market stands at about US$50 billion in sales annually and is expanding at the rate of 20% a year. As the economy has more fully embraced free enterprise, home ownership has jumped from zero to 70% in the cities. But big-box stores make up only about 4% of the home-improvement business in China. The rest consists of smaller independent vendors who specialize. “That represents a phenomenal opportunity for us,” she says.

Home Depot is getting into China somewhat late in the game compared to competitors. In particular, the B&Q chain, owned by U.K.-based Kingfisher PLC, has been growing rapidly in China since 1999, and plans to expand aggressively to answer Home Depot’s arrival. It already has 58 stores in 25 Chinese cities, from Shenzhen in the south to Harbin in the north. With B&Q’s sales already topping US$500 million, the company is aiming for 100 stores by 2010. Home Depot has been successfully competing against rivals like Lowe’s Cos. Inc. in the U.S., but Michael McLarney, editor and publisher of the Toronto-based home improvement industry newsletter Hardlines, says, “On a global expansion front, Home Depot has been far behind other retailers.”

McLarney adds, however, that if anyone can bring Home Depot to China, it’s Verschuren. She’s known for her enthusiasm and ability to build a business virtually from scratch. Toronto-based retail consultant Wendy Evans agrees. “She’s very hands-on,” Evans says, “but she’s also very good with people.”

Verschuren, a native of North Sydney, N.S., joined Home Depot a decade ago, cementing the retailer’s presence in Canada after it arrived here in 1994. Under her tenure, it has become Canada’s largest home-improvement retailer, with 154 stores and annual sales of $5.5 billion. The daughter of Dutch immigrants, Verschuren grew up on a farm, so she knows the meaning of hard work. She has milked cows (winning seven consecutive cow-milking championships); she’s helped build barns; she’s cleaned up after the dairy cows (her efforts even earning her the nickname “Poopie” as a schoolgirl).

Verschuren graduated with a business degree from St. Francis Xavier University in Antigonish, N.S., then spent nine years with the economic development office in Cape Breton, N.S. In 1986, she moved to Toronto to take a job divesting federal Crown assets managed by the Canadian Development Investment Corp. That was followed up in 1989 by taking the top job at the Den for Men chain, where she was “bitten” by the retail bug. Eventually, she decided she didn’t just want to run a business, she wanted to start one. So in 1993, she convinced Texas-based Michaels the Arts and Crafts Store to set up a Canadian division, building it into a 17-store chain with yearly sales of $60 million.

Verschuren’s ability to bring a new retail concept to Canada did not go unnoticed, and in 1996 she left for Home Depot to help the chain gain a foothold in its first market outside the United States. At the time, there were only 19 Home Depot outlets in Canada. Verschuren focused on better merchandising and customer service, all the while rolling out stores. “She’s always been very strong on the operations side,” says McLarney. “She knows how to put together a team, she knows how to put together stores fast and she knows how to make them run.”

Those skills will be needed as Home Depot takes the crucial step into China. “China’s a huge opportunity, but it’s also a huge challenge,” says Evans. The U.S. and Canadian markets are fast maturing, and, says Verschuren, the European market is already oversaturated with its own home-improvement retailers. So conquering Asia is vital to Home Depot’s future.

McLarney says management in Atlanta has a lot of faith in the Canadian executive. He points out that head office has turned to Verschuren before: between the summer of 2003 and October 2005, she was tasked with renovating the retailer’s struggling Expo Design Center operation in the States, which is essentially a high-end version of the original big-box chain.

Of her latest assignment, Verschuren says that Home Depot has been keeping a watchful eye on the Chinese market since the mid-1990s–even providing startup training and merchandising help to the Home Way, founded in 1996 by businessman Du Sha as the first big-box home-improvement chain in China. But the U.S. company started seriously researching the market in 2004, when it opened a business development office in Shanghai. Among the options it considered was a “greenfield” entry into the Chinese market–building stores from scratch. Another was to start a joint venture with a Chinese partner. But Verschuren settled on an acquisition strategy, similar to the way Home Depot entered the Canadian and Mexican markets. (It came to Canada in 1994 through a 75-25 partnership with Molson, which owned the Aikenhead’s chain. It bought out Molson’s stake in 1998.) Verschuren says the big advantage of having 100% ownership is that it ensures “total control” of the brand.

In developing a game plan, Verschuren says one of the most important things Home Depot learned from its research is that 70% of China’s home-improvement spending is for completing the interiors of new homes, which are typically in highrise buildings. “When you look at how people renovate homes, they get a cement box and finish it completely themselves,” she says. That can mean everything from plumbing to interior decorating. Another difference is that items like lumber, plants and patio furniture aren’t as important, but there is stronger demand for a wider selection of products like tiles, flooring, kitchen fixtures and appliances. There’s also more emphasis on the “do-it-for-me” customer, since the Chinese aren’t as interested in “do-it-yourself” projects.

As well, the heavy traffic in major Chinese cities will have a huge impact on important parts of the business, such as the supply chain and the delivery of goods. And finding good real estate in densely populated cities will be a constant challenge. As for Chinese consumers, they may be more upwardly mobile than a generation ago, but China still has “a bargaining market culture,” says Verschuren, so promotional high-low pricing might have to take precedence over an everyday-low-price strategy.

Verschuren will be tested in dividing her time and attention in her two roles. McLarney points out it’s a competitive time for the home-improvement industry in Canada, especially with the arrival of Lowe’s this year. Still, he notes, Verschuren has laid a good groundwork for the next two years, to roll out stores in anticipation of Lowe’s arrival. Home Depot is also aiming more merchandise and its presentation at women–something Lowe’s is good at, too. It may be tricky for Verschuren to spread herself between two divisions located on either side of the Pacific, but Evans figures Verschuren’s up to the challenge. “She’s not going to stop for a minute.”

Verschuren insists she would not have taken the China assignment if she didn’t feel she could leave Home Depot Canada in capable hands. She’s named Harry Taylor, the division’s senior vice-president of operations, to take over some Canadian duties, and she will soon be naming a president for China. Verschuren plans to travel to China at least once a month, staying about a week at a time. She will take lessons in Mandarin, but mostly she’ll rely on translators to communicate her strategy. As well, she’ll learn the market from existing Home Way management and employees who are staying on. “They know the China market better than we do,” she says.

Is China just the start of bigger things for Verschuren? She demurely says she is focusing on bringing Home Depot to China over the next few years while making sure Canadian operations are still on track. But already there is speculation in the business media that she’s among candidates to eventually take over the top job at Home Depot–the thinking being that new CEO Frank Blake, who succeeded Bob Nardelli after the latter’s ouster in early January, is a caretaker. To many, it seems that Verschuren’s retail management talents may well be starting to outgrow her home and native land.

by zena olijnyk