HomeBase, Inc (HBI)
A
Case Study
Peter F. Drucker Graduate School of Management
02 ·17 · 01
Group Members:
Anindya Chatterjee , Atul Mundada
Chona Bunaguen, Stephen Meade
HBI: A failure
Demise of an inefficient organization
 High cost of sales
 Abysmally low net profit margin
 Poor inventory management
 Sub-normal productivity
 Below-average shareholder return- no trust
 Poor corporate image
The Idea: House2Home




Targeted customer: Women, age 35-54
Higher-margin business
Less seasonal
Offer consumers unique shopping
experience…emphasis on a wide range of
price points, special conveniences and added
services, as well as customer service
(HomeBase Press Release, January 2001)
Threats, Opportunities
Strengths, Weaknesses
Creation of Strategy
Evaluation and
Choice of Strategy
Implementation of
Strategy
Threats, Opportunities
Strengths, Weaknesses
Creation of Strategy
Evaluation and
Choice of Strategy
Implementation of
Strategy
H2H SWOT Analysis
•Existing Infrastructure
•Business Know How
•Financial Capacity
•Differentiation
•First Mover Advantage
– New Niche
•Inefficiency
•Mgmt Lack of Vision
•Size
•Lack of Aggressiveness
•Timing (Economic
Recession)
•Competition
•Buy Out
H2H SWOT Analysis
•Existing Infrastructure
•Business Know How
•Brand Recognition (?)
•Financial Capacity
•Differentiation
•First Mover Advantage
– New Niche
•Inefficiency
•Mgmt Lack of Vision
•Size
•Lack of Aggressiveness
•Timing (Economic
Recession)
•Competition
•Buy Out
Porter’s Five Forces for H2H





Barriers to Entry is High for New Entrants
Bargaining Power of Buyers is lower in this
Industry
Bargaining Power of Suppliers is low for this
industry
Threat of Substitutes – Neutral
Threat from Existing Competitors
1. No Direct Competition
2. Disaggregated Competition
Intra Industrial Analysis
High Cost
Home Depot
Expo
Stroud's
Linens N
Things/Bed,
Bath & Beyond
House2Home
Target
Low Cost
Limited
Offerings
Broad Mix
Conclusion: H2H will not
succeed


Good Idea (targeted marketing)
Need to address other core deficiencies
H2H SWOT Analysis
•Existing Infrastructure
•Business Know How
•Financial Capacity
•Differentiation
•First Mover Advantage
– New Niche
•Inefficiency
•Mgmt Lack of Vision
•Size
•Lack of Aggressiveness
•Timing (Economic
Recession)
•Competition
•Buy Out
Broad Target
Narrow Target
Competitive Scope
Why diversification alone will
not work
Cost
Leadership
Cost
Focus
H2H
McKenney & McFarlan Quadrant Analysis
Differentiation
Differentiation
Focus
H2H will
not
manage
to move
up
We recommend: Change in
business practice


Customer Focus
Efficiency Drive with right Alliances
and Partnerships
Threats, Opportunities
Strengths, Weaknesses
Creation of Strategy
Evaluation and
Choice of Strategy
Implementation of
Strategy
Attacking H2H’s Core Problems




Inefficiency
Effective IT investment will improve
efficiency
Shift in management focus and strategythe willingness to do it (IT)!
Trust of Shareholders / Low Corporate
Image
Transparency and effective communication
Customer focus
Strategic impact of existing IT systems
H2H: Business Strategy
Integration of
Business Chain
Strategic
Support
Turnaround
H2H
Strategic impact of IT applications under development
McKenney & McFarlan Quadrant Analysis
H2H: Learning from Past
Mistakes


Home Depot installed Mobile ordering
platform and strengthened direct SCM
link with manufacturers
HBI lacked in efficiency drive – IT focus.
1998/99 were years where competitors
could cash on it like never before.
More Efficient P.O.S.
Architecture



We recommend a Linux-based system
Front / Back-office integration - ‘one face
to the customer’
Effective implementation of a CRM
strategy
Systems Integration- ERP
focus
Identify, and design a streamlined eProcurement chain
 Configure a supply integration
matrix- value chain
 Select the right package/vendor
 Integration

H2H: Web Interface
Strategy
Reasons why customers go to website
 Compare costs
 Company Information
 Browse product mix
 Gain product knowledge
Difficult to sell online
H2H: Web Interface
Strategy
Suggestions for a good website
 Dynamic section for Q & A and
Customization concept
 Data mining and Customer profiling
 Push and Pull Marketing Strategy
Threats, Opportunities
Strengths, Weaknesses
Creation of Strategy
Evaluation and
Choice of Strategy
Implementation of
Strategy
H2H Business Strategy: Cost
and Benefits
With the right efficiency drive:
Reduce SG&A by 10% & 20% in 1st & 2nd yr increase sales by
2% in 2nd yr (2004)
+
Tighten Inventory cycle by 7-10 days
Raise IT budget by $50m over 2yrs
=>
3yrPV of DEPS improves from –0.82c to –0.08c
H2H: The Alternatives
H2H- assumptions announced by
management
 In total, the company currently expects a
net loss for next fiscal year of
approximately $80 million, or $2.13 per
diluted share
 $0.50 per diluted share in the fiscal year
ending January 2003
 $1.00 per diluted share by January 2004
H2H: The Results
H2H EPS will jump to $2.55 by 2004
 H2H can reap advantage of being the
first mover
 Collecting and processing information
will play a key role
 An effective CRM will be easy to
implement once the systems integration
is in place
 The whole process may easily take 18
months
Threats, Opportunities
Strengths, Weaknesses
Creation of Strategy
Evaluation and
Choice of Strategy
Implementation of
Strategy
H2H: Focus on People
Proper Implementation needs:
 Management Adaptability and
Willingness
 Proper training of workforce
 Flow of information from bottom to
top
 Ownership
Conclusion





The success of the H2H concept lies on
effective marketing
H2H can reap advantage of being the first
mover
Collecting and processing information will play
a key role
An effective CRM will be easy to implement
once the systems integration is is place
The whole process may easily take 18 months
HBI: Cost Inefficiency
% of Total Revenue
Cost of Sales (5yr MA)
78.15
79
77
75
72.01
71.65
73
71
69
HomeBase
Industry
Comparison
market.forbes.com, Financials
Home Depot
HBI: Less Profitable
Net Profit Margin (5yr MA)
10
9
8
7
6
5
4
3
2
1
0
4.87
5.14
1.01
HomeBase
Industry
Comparison
market.forbes.com, Financials
Home Depot
HBI: Poor Inventory
Management
Comparison
Home Base Industry Home Depot
Quick Ratio
Current Ratio
Receivable
Turnover
Inventory
Turnover
market.forbes.com, Financials
0.2
0.22
0.24
2.21
1.53
1.55
53
60.4
60.59
2.97
5.02
5.19
HBI: Low Productivity
Gross Revenue/Employee
250,000
228,538
221,139
230,000
210,000
190,000
170,000
152,589
150,000
HomeBase
Industry
Comparison
market.forbes.com, Financials
Home Depot
HBI: Poor Returns to
Shareholders
% chg YoY
Sales - 5 Yr. Grow th Rate
EPS - 5 Yr. Grow th Rate
25.23 27.6
24.46 26.27
30
25
Return On Equity - 5 Yr. Avg.
18.31
18.93
20
15
10
-16.01 -31.1 3.23
5
0
-5
-10
-15
-20
HomeBase
Industry
Comparison
market.forbes.com, Financials
Home Depot
HBI: Lack of Aggressiveness
Capital Spending - 5 Yr. Grow th Rate
% chg YoY
30
25
20
15
10
5
0
-5
-10
-15
-20
20.14
18.58
-23.9
HomeBase
Industry
Comparison
market.forbes.com, Financials
Home Depot
Shareholder’s nightmare
Point of
divergence
as IT
started
having
greater
impact on
the bottom
line
www.finance.yahoo.com
www.finance.yahoo.com
9-Feb-2001
2-Feb-2001
26-Jan-2001
19-Jan-2001
12-Jan-2001
5-Jan-2001
29-Dec-2000
22-Dec-2000
2.50
15-Dec-2000
3.00
8-Dec-2000
1-Dec-2000
24-Nov-2000
17-Nov-2000
$/Sh
10-Nov-2000
3-Nov-2000
27-Oct-2000
20-Oct-2000
3.50
13-Oct-2000
6-Oct-2000
29-Sep-2000
22-Sep-2000
15-Sep-2000
8-Sep-2000
1-Sep-2000
HBI: Current Movements in
Shares
HBI Closing Price
Sep 09, HBI announces
new strategy (H2H)
Dec 8, HBI
announces
Qtly Results
2.00
1.50
1.00
0.50
0.00
Management and employees bought HBI
shares, shareholders giving benefit-of-doubt
The Porter Value Chain
Support Activities
Firm Infrastructure
Human Resource
Management
Technology Development
Procurement
Inbound
Logistics
Operations
Outbound Marketing
Logistics Sales
Primary Activities
Service
H2H: The Alternatives
$mn
Income After Taxes
Diluted EPS
Diluted EPS
150
3
Alternative
Projected
96
100
Alternative
50
22
16
19
2
38
1
25
11
-60
0
0
-0.683
HBI
HBI
-50
-1
HBI
-82
-100
-2
Alternative
-102
-150
-3
25-Jan-1997
30-Jan-1999
30-Jan-2001
31-Jan-2002
1-Feb-2003
www.forbes.com, HomeBase press releases, Our research
2-Feb-2004
H2H: The Alternatives
$mn
Income After Taxes
Diluted EPS
Diluted EPS
150
3
Alternative
Projected
96
100
Alternative
50
22
16
19
2
38
1
25
11
-60
0
0
-0.683
HBI
HBI
-50
-1
HBI
-82
-100
-2
Alternative
-102
-150
-3
25-Jan-1997
30-Jan-1999
30-Jan-2001
31-Jan-2002
1-Feb-2003
www.forbes.com, HomeBase press releases, Our research
2-Feb-2004
Look
Navigable
Content
Know ledge given
e-commerece
12
10
8
Relative
score
(subjective
1 to 10
scale)
6
4
2
www.forbes.com, HomeBase press releases, Our research
Strouds
Target
Expo
Peir1
Linens&Things
BB&B
0