EXCLUSIVE-Home Depot looks for U.S. growth

Tue Oct 19, 2010 3:34am IST

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* Still in search of right business model in China

* Sees "phenomenal" opportunity in India

* Says ownership requirements in India a damper

* Not likely to enter mature markets such as Europe

* A deal with Britain's Kingfisher not on the horizon

(Adds background, difficulties in overseas markets, quotes)

By Dhanya Skariachan

ATLANTA, Oct 18 (Reuters) - Home Depot Inc (HD.N) thinks home is the best place to improve sales in the near-term, the retailer's chief executive said on Monday.

The home-improvement retailer will focus on the United States for growth for now as it has yet to find the right model to expand in China and other markets have either been tapped out or are not yet ripe for entry, CEO Frank Blake told Reuters in an exclusive interview.

Despite the vagaries of the U.S. economy and the stubbornly high unemployment rates plaguing its largest market, the company said it was very mindful of opportunities in the United States when a recovery takes hold.

"The U.S. market for housing-related activity particularly is under a lot of stress. As that stress relieves, that's the growth opportunity for us," Blake told Reuters.

Atlanta-based Home Depot, which faces tough competition from arch-rival Lowe's Cos Inc (LOW.N) and small private players, entered the Canadian market through its acquisition of Aikenhead's home improvement centers in 1994 and expanded in Mexico in 2001 through the acquisition of Total Home.

The focus on the United States comes as the company faces difficulty in other markets, such as China, which does not have the type of project-oriented customer Home Depot has found in other markets.

"Do-it-yourself is not as strong (in China) culturally," Blake said. "The dynamics are quite different there than in the U.S. or Mexico or Canada."

Adapting Home Depot, a retailer focused on being a destination for do-it-yourselfers in the United States to a market such as China where consumers want the remodeling and repair projects to be done for them has been challenging.

The world's largest home improvement chain 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. But the company has struggled to expand further and even closed a few China stores.

Home Depot was a late entrant to the Chinese market. Other international chains such as Britain's Kingfisher Plc (KGF.L) ventured into the world's most populous country as early as the late 1990s to take advantage of the rising population and home ownership.

On Monday, CEO Blake also addressed long-time rumors that Home Depot would acquire Kingfisher, which runs B&Q stores in China and other chains elsewhere.

"There is nothing in my contemplation that we do with Kingfisher," Blake said. "That's just not on the horizon."

HOME SWEET HOME

Home Depot currently operates 1976 stores in the United States, 179 stores in Canada, 80 stores in Mexico and 9 stores in China.

The world's largest home improvement chain also said it was "not so likely" to enter saturated markets such as Europe as the country already had a lot of home improvement retailers.

"We might wake up and go 'Gee, Poland, that's a new idea,' but it really isn't," Blake, who has led the retailer since 2007, said at the company's Atlanta headquarters.

While Hone Depot sees a market such as India, powered by the purchasing power of a burgeoning middle class, as a potential area of expansion, he worries the country is not ready yet for the company.

"India is a phenomenal opportunity," he said, but added that ownership requirements and the way the retailing industry was structured there were limiting factors.

India limits foreign holdings in single-brand retailers to 51 percent. Moreover, foreign players are not allowed into multi-brand retail.

His comments on India echoed those from Ian Cheshire, chief executive of Europe's biggest home improvement retailer, Kingfisher

"Indian retailers are still in quite early stages. Until we see hypermarkets successful there, things like home improvement probably aren't going to be coming along any time soon ... It is a few years away," Cheshire told Reuters earlier this year.

Many U.S. based retailers have looked abroad to cope with weak demand at home. For example, Wal-Mart is looking at sub-Saharan Africa and is in talks to buy South African-retailer Massmart in a $4 billion deal.

But many retailers often state challenges ranging from dealing with uncertainty over property rights to clearing bureaucratic hurdles and fighting local competition.

When asked what changes were needed in India, Marvin Ellison, executive vice president of Home Depot's U.S. stores said: "Wal-Mart is going to figure it out for a lot of us. We will just step back and see how that plays out."

(Editing by Andre Grenon)

((dhanya.skariachan@thomsonreuters.com +1 646 223 6191; Reuters Messaging:dhanya.skariachan.reuters.com@reuters.net)) Keywords: HOMEDEPOT/

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