The Home Depot Case Analysis

The Home Depot Case Analysis

"The Home Depot NYSE: HD, headquartered in Vinings, Georgia, is a home
improvement retailer that aims Ior both the do-it-yourselI consumer and the proIessional
in home improvement and construction. It is the second largest retailer in the United
States, behind Wal-Mart; and the third largest retailer in the world, behind Wal-Mart and
French company CarreIour. The Home Depot operates about 1,900 stores across North
America. The company operates stores in the United States (including the 50 states,
Puerto Rico, the United States Virgin Islands), Canada, and Mexico. The Home Depot
also operates EXPO Design Center stores in select U.S. markets, providing high-end
home design products and services. Its 2004 sales totaled US $73.1 billion. It was ranked
#13 on FORTUNE magazine's FORTUNE 500 The Home Depot also owns a chain oI
higher-end home decorating and appliance stores. The Home Depot employs over
325,000 people."
(http://en.wikipedia.org/wiki/Home¸Depot#The¸Home¸Depot¸today)
The company was Iounded in 1978 in Atlanta, Georgia by Bernie Marcus and Arthur
Blank, and grew rapidly, with sales topping $1 billion annually by 1986. From the
moment oI its Ioundation, HD has continued to grow constantly by targeting strong
markets with many new homeowners and young people such as New Orleans. Home
Depot managed to grow Iast by quickly adapting to change and continued to be
successIul by holding Iast to the culture and values oI the organization.
The constant renewal and the work to sustain culture that produces good products,
employees, and customers have helped Home Depot maintain its competitive advantage
and lead the retail building industry.
The company's management put a lot oI emphasis on taking care oI its employees,
encouraging an entrepreneurial spirit, treating each other with respect, and being
committed to the highest standards.
The stores and their merchandise were set up that all the stores were very similar.
Operational eIIiciency has been a crucial part oI achieving low prices while still oIIering
high level oI customer service. The company was assessing and upgrading its inIormation
to support its growth and control cost, and enable better decision making. The company
continued to see greater eIIiciency as a result oI its Electronic Data Interchange program.


Merchandising included all activities involved in the buying and selling oI goods Ior
proIit, and the merchandising strategy Ior Home Depot Iollowed a 3-prolonged approach:
(1) excellent customer service, (2) everyday low pricing, and (3) wide breadth oI
products.
To maintain its competitive advantage Home Depot employed the clustering strategy, and
it was also the only one to oIIer quality products such as Prego laminate Ilooring, Ralph
Lauren paints, etc. Home Depot's customer service also diIIerentiated it Irom its
competitors.
SWOT Analysis
Strengths:
To my opinion Home Depot has manged to succeed and lead the home improvement
industry only through its numerous and unique strengths. Some oI the most important
ones are:
Company culture-The orange-blooded culture emphasized individuality, inIormality,
nonconIormity, growth, and pride.
Taking care oI its people-Providing excellent wages and beneIits, superior training, and
advancement opportunities.
Excellent customer service-This is the key to the company success.
Operational eIIiciency-Home Depot was achieving operational eIIiciency by upgrading
its computerized systems and implementing the satellite communication. All oI these
investments would help in reducing cost, support growth, and enable better decision-
making. Operational eIIiciency is very crucial in achieving low prices while still oIIering
the same customer service.
Television Network(HDTV)-Money saving device that allowed HD's top executives to
get instant Ieedback Iorm local managers, and allowed training and communication
programs to be viewed in the stores.
Advanced inventory management system-It allowed and increases in the inventory
turnover.
Electronic Article Surveillance-Preventing theIt.
Continuous experimenting and testing in technology and business strategies-A company
can grow and be successIul only iI it invests money and time on its Iuture development.
Advertising-Home Depot maintained an aggressive campaign using various media Ior
both price and institutional policy. Also sponsored the Summer Olympic Games in
Atlanta, which can have a great impact on the generation-X, and Y who are going to be
Iuture customers oI HD.
Reacting with speed and catch trends early- This can assure a Iirm's success.
Merchandising Strategy-It provided excellent customer service, low prices, and wide
variety oI products.
Workshops-Can attract more do-it-yourselI customers.
No unions-The company has never suIIered a work stoppage.
Foresee Iuture problems-The year 2000 problem.
Strategic Planing-Planing in advance how many stores would be opening in the next Iour
years and how many employees they would be needing to keep the business going.
Weaknesses:
The strong management team oI Home Depot has leIt very less space Ior weaknesses but
has not eliminated all oI them. The greatest weakness that I noticed was the rapid
expansion into unknown territories. For example, when Home Depot moved to Houston
and Detroit. Both these terrain were less hospitable and the company lost money. I can
say that this was not a well-studied move. Home Depot repeated the same mistake when
it bought the 9-store Bowater Warehouse chain, and also when it implemented the Cross
Road Strategy which didn't turn as proIitable as HD expected. So all these moves were
the result oI not well-planed strategies and could lead to a disaster iI not prevented.
Another weakness is the Iact that HD is not doing a great job in targeting the women
customers. The rack-type displays and the non-elegant stores deIinitely don't attract
Iemales like myselI, Lowe's is even better at that.
Opportunities:
Being the only big-box retailer to oIIer a number oI other exclusive, high quality products
such as Prego laminate Ilooring, Ralph Lauren paints, and Vigoro Iertilizers gives Home
Depot the competitive advantage.
Serving primarily to do-it-yourselIers, which is a largely recession-prooI market. So,
even during a recession Home Depot can survive and even make money.
OIIering a broad line oI products that can lead to an increase in the number oI customers.

Threats:
The biggest threats that I see Ior Home Depot are its competitors such as Lowe's, which
are trying to emulate or even take a step Iurther every strategy used by Home Depot.
Wholesale outlets can also aIIect Home Depot by oIIering lower prices to proIessional
business customers.
Serving to the DIY industry can also be a threat because it is a very competitive industry
and the proIit margin is very low. So, iI the DIY industry is not managed properly, a
company might end up selling it oII, like Kmart with Builders Square.

INDUSTRY ANALYSIS
Threats oI New Entrants-LOW
I think that this industry is close to reach maturity and the existing companies such as
Home Depot and Lowe's have been around and successIul Ior a long time in this industry,
so it would be very costly and risky Ior a new entrant to compete against these
"monsters".
Rivalry among Existing Firms-HIGH
Lowe's, Payless Cashways, Menard's are very aggressive competitors, which are trying to
emulate or even take a step Iurther every strategy used by HD.
Threats oI Substitute Products-LOW
The chances oI substituting lumber, glass, plastic, etc, are very low. II they cannot Iind a
substitute raw material how can they substitute the lumber used to build houses.
Bargain Power oI Suppliers-LOW
With the increased advancements in technology, suppliers are being able to produce
products more easily at more eIIicient costs. So, in order to keep their competitive
advantage these suppliers will have to keep their bargain power low.
Bargain Power oI Buyers-MEDIUM but increasing
Since the products oIIered by Homed Depot are very standardized and alternative
retailers such as Lowe's can provide the customers with the same products, the bargain
power oI buyers is considerably high. Changing suppliers is not very costly, especially
Ior the DIY market.

Threat oI Other Stakeholders-MEDIUM but increasing
Because the government regulations about environmental issues are growing, the cost oI
producing the products traded by Home Depot can increase. For example, companies that
produce metals have to dispose all their wastes Iar away Irom populated areas.
What can Home Depot do to Maintain Its Competitive Advantage?
AIter analyzing in details this case and Iinding the major strengths, weaknesses, threats,
and opportunities, my suggestions are as Iollowing:
Home Depot will have to continue to manage the business by using the same strengths,
eliminating the weaknesses, increasing its opportunities, and lowering its threats. More
speciIically, Home Depot should target more the DIY market since it is economic
recession prooI. By doing so, Home Depot can protect itselI Irom any Iuture economic
catastrophe. Home Depot can target more the DIY market by doing more workshops,
selling products that are easy to be installed without being a proIessional constructor.
Home Depot should increase barriers Ior its competitors by applying more the clustering
strategy, decreasing cost, increasing eIIiciency, and keeping up with the latest trends.
Wherever there are stores that experience high volumes oI sales, Home Depot can
practice the clustering strategy which can resolve not only the problem oI long lines and
waiting time, but can also serve as a barrier Ior competitors. Who would want to open a
business in an area where two Home Depots already exist? Home Depot can decrease
cost and increase eIIiciency by continuing to do what it has been doing so Iar; using
advanced technology in inventory systems. Knowing exactly where the inventory is at all
times, when orders need to be placed, etc, can help in keeping the cost oI doing business
very low, thus increasing the competitive advantage.
Home Depot should also start looking more seriously into targeting the Iemale market,
which can become a very potential one because the number oI single households and
same-sex marriages are continuing to grow. I will give Lowe's as an example, which
seems to attract me more as a Iemale buyer than Home Depot does. The shelves seem to
be more organized then HD's, the stores are brighter, more light is used, the products
seem to be more reachable, there are not as many products hanging around as there are at
HD. A lot oI times it is diIIicult to move around with a cart because oI the enormous
number oI items that are on the Iloor between the isles at Home Depot. So Home Depot
should try to use the same strategy that Lowe's is using in trying to target the Iemale
market. Home Depot should also have more people in the store to help Iemale buyers to
take the products Irom the shelves to their carts and their cars. All these suggestions will
make it easier and more Iun Ior Imales to shop at Home Depot.