The New York Times
September 6, 1998

          Despite Uncertain World Markets, a Big U.S. Retailer
       Bulls Into Latin America


               SANTIAGO, Chile -- Arthur M. Blank, the president of Home
               Depot, was brimming with optimism as he left Atlanta the other
          day on his way to visit his first store outside North America, a store that
          sits at the foot of the snow-capped Andes, flies the Chilean flag and
          houses a McDonald's franchise.

          This cultural hybrid is the beachhead for a planned expansion that Blank
          hopes will take Home Depot's name-tagged orange aprons, do-it-yourself
          home-improvement workshops and steady sales growth first across Chile,
          then to Argentina and eventually to Peru, Brazil and beyond.

          "We could be successful almost anywhere," Blank said. "Over the long
          haul, we are going to be a truly global company."

          But as he stepped off the plane in Chile on Aug. 28, just a day after the
          Santiago store opened, Blank was greeted by this headline in the
          country's leading newspaper, El Mercurio: "Worldwide Landslide: Black
          Thursday in Latin America's Markets."

          Only three years ago, Home Depot, which has 679 stores in the United
          States and Canada, scrapped plans to expand into Mexico because of a
          currency crisis that sent similar shivers across Latin America. Once the
          region got back on track, the company was ready to test the Latin waters
          again. But this time it turned to Chile, whose expanding middle class and
          predictable free-market Government policies over nearly two decades
          have made it a model of stability for emerging markets around the world.

          Now the economic pendulum may be swinging back again -- just at the
          wrong time for Home Depot, and underscoring the vulnerability of even
          the most stolid Latin American economies to global turmoil. Santiago's
          stock market, down more than 44 percent since Jan. 1 and at its lowest
          level in five years, plummeted 6.2 percent on the day before Blank

          Chilean consumers, taking their cues from the stock slump and the
          worsening news from Asia and Russia, are tightening their belts. Car sales
          and, more important to Home Depot, construction starts are grinding
          down quickly. Local economists predict that the unemployment rate, now
          at 6 percent, will climb to 8 percent in coming months. Politicians who just
          a few weeks ago predicted confidently that Chile could withstand the icy
          winds blowing from Asia have begun to advise consumers to take it easy
          with their credit cards.

          The Asian and Russian contagions have been racing through Latin
          America at an accelerating rate, pushing commodity prices lower and
          chasing away foreign investment dollars, trends that in turn are forcing up
          interest rates. In Venezuela, for instance, short-term bank interest rates
          have shot up to 120 percent.

          Colombia devalued its currency on Wednesday, sending Latin markets
          down sharply even as the region's finance ministers traveled to
          Washington to tell the International Monetary Fund that their economies
          were sound. Reassurances aside, J. P. Morgan has cut its prediction of
          1999 growth for Argentina from 4 percent to 2 percent; for Brazil, whose
          large economy is South America's main economic motor, the forecast has
          been cut from 2 percent to minus 2 percent. Net outflows of foreign
          exchange from Brazil were nearly $8 billion in August alone.

          So is Blank worried?

          "It does not affect our plans at all," he said. In fact, he sees an opportunity
          to pick up real estate for more stores at lower prices.

          "Over the next 40 years, 50 years, we'll be here," Blank said, thumping
          his palms on a table in his Chilean headquarters. And when he sees
          customers and employees "with smiles on their faces, I don't even have to
          work out the numbers," he added. "The numbers are going to come."

          Blank's gung-ho Yankee optimism has been reinforced by Home Depot's
          20 years of sensational growth -- the company's stock has risen fortyfold
          over the past decade.

          The growth has held up in good times and bad; after all, even when
          Americans stay home at vacation time to save on air fares and hotels, they
          often build bookshelves or paint the den. And a leaking roof or faucet
          must be repaired or replaced no matter how much the Dow Jones
          industrial average falls that week.

          Home Depot is betting that the same verities will apply to Chile, a country
          whose demographics -- one third of the country's 15 million people are
          between the ages of 20 and 39 -- fit neatly into the company's marketing
          strategies. Company executives were publicly exuberant about sales and
          customer reaction in the first few days after the Santiago store opened,
          although they refused to release any numbers.

          In the end, Home Depot's experiment in Chile -- though complicated at
          the outset by the specter of a worldwide recession -- will serve as a
          fascinating case study of whether a highly successful American
          corporation can take its winning culture abroad and make it work despite
          language barriers, long supply lines and differing customer tastes. Simply
          put, are the American middle-class values woven into Home Depot's
          image transferable to Chile, a Spanish-speaking nation half a world away
          from the company's Georgia headquarters?    ANY local business
          executives say Home Depot is pushing an open door. "Chileans always
          say if it's American, it's good," said Alexander Fernandez, president of the
          American Chamber of Commerce in Chile. "You can call it a mystique, a

          But the answer will ultimately lie with families like the Chilcumpas, who
          were so eager to shop in Home Depot on opening day that they fought
          through Santiago's heavy traffic for 45 minutes in their beat-up 1986
          Dodge Colt.

          Jimmy Chilcumpa, 35, finished graduate school two years ago and now
          teaches geology at the University of Chile. His wife, Marcela, 30, is a
          bookkeeper at a local finance company. Both dress in blue jeans and
          wear designer sunglasses.

          Their 8-year-old daughter, Mariel, says her sweetest dream is to fly to
          Orlando someday to see Disney World, as an estimated 70,000 Chileans
          do every year.

          Concerned about the slowing economy just after having a new baby, the
          Chilcumpas say they are watching their pesos. Still, they have a new
          house on the outskirts of Santiago that they need to fix up and furnish.

          Walking up and down the wide aisles of the new store, Chilcumpa
          expressed disappointment. "I thought I'd find American products at a
          cheap price," he said. "What I see is not cheap." Indeed, 70 percent of
          the store's stock is made in Chile, and prices are comparable to those of
          local competitors.

          Chilcumpa was shopping for a wall mount for a television set; what he
          found instead in the furnishings aisle was a mount intended to be
          suspended from the ceiling. He shook his head. Just then, a Chilean
          employee named Carlos came by to help, wearing a wide, inviting smile.

          "Is that all you have?" Chilcumpa asked sharply.

          "For now, yes," Carlos replied. "We're just starting, so we are strong in
          some things, weak in others."

          In other stores in Chile, or in the United States, for that matter, the
          exchange might have ended then and there. But this is Home Depot,
          where employees are trained to listen to customers. Carlos pulled out a
          pad and pen and began interviewing Chilcumpa, asking exactly what he
          was looking for. He promised to forward the information to management.

          The exchange instantly warmed Chilcumpa's mood. He slowed his pace
          and wandered about the store, taking a special interest in the displays that
          gave point-by-point instructions on topics like how to fix a toilet, solder
          pipes or lay tiles. He stopped at a display of 31-piece titanium drill sets,
          made in Taiwan, costing the equivalent of $23 each, and put one in his
          cart. A sale was made.

          "They definitely have a wide variety," his wife said. "That's what will make
          them successful."

          The Chilcumpas then drove to a nearby outlet of Sodimac Homecenter,
          a chain that is Home Depot's direct competitor here, to find the television
          mount they were looking for.

          As Home Depot moves from a 110-volt world where most houses are
          built of wood and nails to a 220-volt world where most houses are built
          of cement and metal reinforcement rods, it will have to adjust its

          "In retail, no concept is 100 percent portable," said Enrique Ostale,
          executive director of Distribución y Servicio, a leading Chilean
          supermarket and houseware chain holding company. "They will have to

          For the most part, the record of American companies is good in Chile and
          the rest of Latin America, but their success in transporting American-style
          services and products is not guaranteed. McDonald's is a hit
          everywhere, as are the mini-markets connected to Exxon stations. But
          Sears, Roebuck flopped in Chile in the early 1980's and pulled out.

          J.C. Penney made some early mistakes when it put a store in the affluent
          Santiago neighborhood of Las Condes in 1996. The company misread
          Chilean taste, which favors simple clothes, and offered expensive lines in
          the flashy colors popular in more tropical markets like Miami and Mexico.
          After a disappointing performance, the store replaced American managers
          with local talent, put greater emphasis on less expensive items and went
          after Chile's growing maternity market, offering a huge department for
          expectant mothers. Sales picked up, and Penney recently opened a
          second store.

          Home Depot has taken pains to avoid similar slips. It mixes what is
          American and what is Chilean as carefully as its employees mix paints to
          get exactly the right color.

          "It's a balancing act," said Bill Peña, 44, Home Depot's regional president
          for Argentina and Chile.

          First, the company looked for the right management combination. It
          teamed up with Falabella, an upscale Chilean department store chain,
          which has a 33 percent interest in the project. Falabella advised Home
          Depot on where to put stores, plugged the company into its public
          relations and market research firms, and, most important, provided a base
          of two million customers who can use their Falabella credit cards at Home

          The first Home Depot store is in La Florida, a sprawling
          lower-middle-class Santiago neighborhood with the fastest construction
          growth rate of any urban community in Chile. The second and third
          Santiago stores, to open over several months, will be in Maipú, a
          neighborhood similar to La Florida, and in Las Condes. The goal for
          2000 is to have five stores in Chile.

          Home Depot executives said they were opening the La Florida and
          Maipú stores first to send a message that the chain was price-conscious
          and would appeal to the lower middle class, the large majority of Chilean

          In accord with its tradition of decentralized management, Home Depot
          put a Chilean in charge of its operations in the country -- Julio Campos,
          who, as a senior Sodimac executive, led the team that adapted the
          home-center concept for Chile.

          Campos spent six months in the United States, learning Home Depot
          culture. He sometimes worked in the aisles or even as a bagger at the
          checkout counter.

          "I worked 11 years in this industry in Chile, and the first time I soldered
          anything was in a store in the United States," Campos said. "Most
          companies in Chile are very hierarchical, with executives in ties. At Home
          Depot we all wear smocks, and when an associate has a suggestion he
          speaks up," he added, using the company's term for an employee.

          With Campos as his guide, Peña spent more than six months studying the
          Chilean market. They used focus groups and research, but most of all
          they wore out shoe leather, walking through Chilean shopping centers and
          hardware stores and interviewing hundreds of contractors.

          As a result, Home Depot's shelves have a different look here than they do
          in the United States. There are fewer rugs and more ceramic tiles. Instead
          of automatic garage-door openers, there are remote-control gate
          openers. Concrete and metal are the construction materials of choice, so
          there is a large stock of jackhammers, welders and grinders for cutting
          metal. Many of Home Depot's American suppliers have opened
          operations in Chile as well, shortening supply lines as they also learn to
          satisfy Chilean tastes.

          Central to Home Depot's philosophy in the United States is sound
          employee relations, and it is no different here. "Some people think of us as
          a cult or a religion, and they are right," Peña said with a laugh.    LEVEN
          thousand Chileans applied for just over 200 positions at the La Florida
          store, and Home Depot used extensive interviews, exams on practical
          math, and psychological tests to choose people with experience and
          friendly, open attitudes. The pay scale is lower than in the United States --
          company officials wouldn't say by how much -- but Chilean employees,
          like American workers, can buy Home Depot stock at a 15 percent
          discount, and supervisors, beginning with assistant managers, receive
          stock options.

          To learn the ropes, 30 Chilean employees were sent to the United States
          for three to six months to shadow their American counterparts. Once they
          returned to Santiago, they helped train their Chilean colleagues. And a
          group of bilingual American managers came here to train workers and
          instill the company's esprit de corps.

          Two nights before opening day, the store gave a party for local
          employees and their families, complete with games and a barbecue; 1,600
          people showed up. There was also a pep rally.

          As in the United States, employees here are told that they can question
          management, but the sometimes aggressive, almost confrontational
          approach taken in American stores to hash out ideas has been softened to
          fit the more reserved personal interactions typical in Chile.

          It is too early to know whether such corporate strategies will let Home
          Depot eventually dominate the Chilean hardware market. But Sodimac,
          which modeled itself in part after Home Depot more than a decade ago, is
          taking no chances. The chain has opened more stores, lowered prices,
          expanded parking lots, improved service and updated its computerized

          "I am not afraid, but I do respect them," said Carlos Wulf Urrutia,
          Sodimac's vice president for home center operations. "Construction
          activity is decelerating, and we are much more prepared because of our
          long-term relationships with contractors. Home Depot should have come
          two years ago. They waited too long."

          Wall Street analysts are cautiously optimistic that Home Depot can
          succeed in Chile despite the economic slowdown, saying the company
          has far more to gain than to lose. As Home Depot saturates the American
          and Canadian markets over the next 10 years, they said, it needs to look
          abroad for expansion.

          "The next 8 to 12 months are iffy," said Francisco Chevez of Salomon
          Smith Barney, "but over the long haul the underpinnings for this type of
          retailing are great in Chile and around Latin America."

          Aram H. Rubinson, a retail analyst at Paine Webber, said that for a chain
          the size of Home Depot, a less-than-expected return from five stores in
          Chile "is not even a rounding error."

          "From what they learn in Chile," he added, "they are going to be able to
          attack and succeed in some of the bigger countries of the world."