China retailers outline expansion plans - Brief Article

Home Channel News, April 16, 2001 by Brae Canlen

Four companies race to top of enormous market

SHANGHAI AND BEIJING, CHINA -- With an ambitious schedule of new store openings this year, the world's most populous country is set to become a retail player in the global home-improvement market. Four of China's biggest DIY retailers plan to add a total of 13 new home centers by the end of 2001. One company, Orient Home, is also negotiating a deal that would introduce Ace Hardware into China.

The proposed Orient Ace Hardware store would be a small-scale format located in Beijing. Orient Home's CEO and president Wang Yue told NHCN that the 2000 to 3000 square-meter unit (21,520 to 32,280 square feet) would be a "test" of the convenience-store concept. Approximately 30 percent of the inventory would come from Ace, who would also help with the store's layout and design, Wang said.

Wang and his management team were scheduled to sign a letter of intent on April 6 at Ace's spring market in New Orleans. But at press time, the group was having difficulties getting exit visas. This unexpected wrinkle may have been related to a diplomatic stand-off over the U.S. surveillance plane grounded in Beijing on April 1.

Orient Home's four other locations are located in Beijing and the mid-sized Chinese cities of Chengdu, Shenyang and Jilin. (A fifth unit is currently under construction ) The stores range from 12,000 to 15,000 square meters (129,032 to 161,400 square feet). This October, Orient Home also hopes to reopen three of the five Xin Pin stores it purchased in Shanghai last year but closed because of financial problems. The company is a subsidiary of Orient Group Limited, a publicly owned Chinese company with enterprises in finance and insurance, real estate, information technology, harbor construction and copper conductors.

Ultimately, Orient Home expects to operate 25 to 30 stores by 2004, according to its CEO. As the only multi-city chain of home-improvement warehouses in China, Orient Home has no strong competition in many of its markets, including Beijing. But the same can't be said for Shanghai, where four big-box retailers are vying for a new middle class of Chinese apartment owners. The newest -- and flashiest -- player is OBI, a German joint venture that opened two large scale stores in Shanghai on March 28. OBI's first foothold in China, a big-format store in Wuxi, has been in operation since last June. (Wuxi is approximately 150 kilometers, or 93 miles, out side of Shanghai). A fourth OBI location, currently under construction in Nanjing, is scheduled to open at the end of September.

A large contingent of OBI's German executives attended the dual grand openings, including OBI chairman Manfred Maus and company president Harald Lux, who told NHCN he anticipates sales of between 150 million to 170 million RMB (US$ 18.1 mil lion to US$20.5 million) the first year in the Shanghai stores. These units mark OBI's 100th and 101st overseas stores, and 437th and 438th in the entire OBI chain.

The Shanghai stores, which measure nearly 12,000 square meters (129,032 square feet), share a similar format based on OBI's German stores. A considerable amount of retail space is devoted to ceramic tile and hardwood flooring, the strongest categories for China's home improvement industry. OBI also put a heavy emphasis on bath vignettes, another popular remodeling project among Chinese homeowners.

OBI's tool, hardware and lumber assortment is aimed at the contractor customer, who performs most of the repair and installation work in this buy-it-yourself market. OBI also offers installation services, tool repair and rental, interior design services and free delivery. The new stores include a 3,000-square-meter glass-enclosed nursery, a new concept for Chinese shoppers.

B&Q, the United Kingdom's largest retailer that is part of the Kingfisher group and Castorama, also has serious expansion designs on China. The Chinese/British joint venture, headed by President Hansen Tian, plans to open a third Shanghai store in August. At 15,000 square meters, the new location will more than double B&Q's current China format, which averages 7,000 square meters.

Over the next nine months, B&Q will add three more units, in Suzhou, Kunming and Shenhen, according to Tian. Ultimately, he foresees 58 B&Q stores in China by the close of 2005. "In five years, we will be number one in China," Tian stated.

HomeMart, the government-backed home improvement warehouse with five Shanghai locations, plans to open six more stores this year. Three will be in Shanghai, with the remainder built in the cities of Suzhou, Nanjing and Wuhan, extending HomeMart's reach into other parts of China.

The new locations will average between 8,000 square meters and 10,000 square meters (86,021 square feet and 107,527 square feet). A newly constructed indoor nursery is set to open this month at the company's flagship store in central Shanghai, located next to a hypermarket run by France-based Carrefour. The merchandise focus will be on containerized live goods, garden decor and cut and fresh flowers, said Gloria Lu, assistant manager of HomeMart's purchasing department.