I.
Current Situation
A. Current Performance
The company continued to expand and topped many company records in 2005 including
earnings per share, operating margin and net earnings records. They retained the spot
as the world’s largest home improvement retailer and the second largest retailer in the
United States behind Wal-Mart.
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Opened more than 900 stores from 2000-2005
Sales increased from $45.7 billion in 2000 to $81.5 billion in 2005
Earnings per share more than doubled in the same time
Employed 345,000 associates
Average sales per customer ticket reached 57.98, an all-time high
1,832 Home Depot stores (This includes all 50 states and the District of
Columbia, Puerto Rico, and the Virgin Islands, plus 143 stores in Canada and
57 in Mexico. The average Home Depot store had approximately 105,000
square feet of indoor selling space with an additional 23,000 square feet of
outside garden center space.)
Went from 0 to number 3 in the core appliance market share (They began
to offer many Home appliances.)
B. Strategic Posture
1. Mission:
(The mission of Home Depot is clearly stated in its mission statement but is also
implied by its strong business code of conduct and ethics and also their
performance as a company.)
The Board of Directors (the "Board") of The Home Depot, Inc. (the "Company") is
committed to maximizing long term shareholder value while supporting
management in the business and operations of the Company, observing the highest
ethical standards and adhering to the laws of the jurisdictions within which the
Company operates.
Strong Business Code of Conduct and Ethics (Stated in short that acting with
integrity and doing the right thing are the driving forces behind The Home Depot’s
extraordinary success. That they are committed to conducting its business in an
ethical manner and all that they do must be consistent with the values of the
company. They believe in doing the right thing, having respect for all people building
strong relationships, taking care of our people, giving back, providing excellent
customer service, encouraging entrepreneurial spirit and providing strong
shareholder returns.)
2. Objectives:
(There are many objectives that the company has as you can see but these
objectives are strongly supported by the company’s strategies which will be
verbalized in the next section.)
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Enhancing the Core, extending the business and expanding the market.
Maintain and grow its leadership position in the home improvement retail
worldwide.
Become the nation’s largest diversified wholesale distributor
Become number one in services (currently have more than 11,000
installations per day and expect to continue their growth through 2010)
Become the largest home improvement retailer in both Canada and Mexico.
Increase direct-to-consumer channels
Compounded annual sales growth of 9%-12%
Compounded earnings per share growth of 10%-14%
Open 400-500 new stores (which will create an additional 40-55 million
square feet of new selling space.)
Increase operation margin
Have a cumulative operating cash flow of $50 billion
Cumulative capital expenditures of $17-20 billion
Grow Home Depot Supply sales
Increase efficiency
Increase number of customers applying for credit
3. Strategies:
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Introduced self checkout, Back End Automation and Re-engineering and
centralized automated replenishment. (These advancements in automation
helped to successfully improve the efficiency of Home Depot’s operations.)
Acquired 21 companies (These companies were acquired in an attempt to
increase the amount of installations that Home Depot could perform. One
of the major companies that Home Depot purchased was Hughes Supply.)
Remain prepared for weather phenomenon such as hurricane Katrina. (Two
days prior to Katrina making landfall maintenance teams battened down
stores in the projected path of the hurricane and electrical generators and
hundreds of extra workers were moved into place.)
Served both the Do-It-Yourself (DIY) and Do-It-For-Me (DIFM) customer.
Better serve the professional customer. (To do so, Home Depot acquired the
previously stated 21 stores while the Home Depot Supply distributed
products and sold installation services primarily to professional business
contractors, businesses and municipalities. 1. They focused on three main
areas. Supplying maintenance, repair and operating products to multifamily
housing, hospitality and lodging facilities, 2. Builder provided products and
arranged installation services for production homebuilders and 3. Providing
specialty hardware, tools, and materials to construction contractors.)
Modernize the stores while updating their product lines. (This strategy is in
place to meet the objective of Enhancing the Core of the company. In order
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to enhance the company it must be able to adjust to changing customer
needs.)
Expand into multiple channels. (The objective to extend the business is met
by expanding to channels such as homedpot.com and various catalogs and
also by selling new products and services.)
Expand into new markets. (The company plans on expanding into new
markets with new products to better serve existing customers and to attract
new ones.)
Use technology to increase efficiency examples in clued computerized point
of sale system, electronic bar code scanning system, and a UNIX server. (In
so doing the associates will be able to spend more time serving and focusing
on the customer. It will also help with the store-based inventory
management, rapid order replenishment and item movement information.)
Become Sustainable. ( In order to achieve sustainability Home Depot plans
on selling products that are manufactured, packaged, and labeled in a
responsible manner, that take the environment into consideration and that
provide greater value to its customers.)
Differentiate itself from its competitors through customer service.
Employ only highly qualified and helpful employees. (This along with helpful
in-store displays is done in an attempt to cultivate customers.)
Demonstrate methods and techniques of performing a job safely and
efficiently to the customer. (Instead of just recommending appropriate
products, tools, and materials employees are urged to go the extra-mile and
provide tips.)
Offered credit programs and reduced charge card approval process time.
(The approval process time had been reduced to less than 30 seconds to
increase the number of customers applying for credit. In 2005
approximately 4 million new Home Depot credit accounts were opened,
bringing the total number of Home Depot account holders to about 16
million. The credit card sales accounted for around 26% of store sales.)
4. Policies:
Main Policies
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Improve everything we touch (The company adopted this slogan and policy
after Nardelli became CEO and he stated that you can improve everything
you touch whether you’re a lot attendant, store manager, or chairman of
the company.)
Superb Service
Be a good corporate citizen
Behave Ethically
Act with integrity
Prior to Bob Nardelli in December of 2005
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Decentralized management and decision making.
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Entrepreneurial innovation and risk taking.
High levels of employee commitment and enthusiasm.
Bond with customers and the communities
Orange-blooded culture which emphasized individuality, informality,
nonconformity, growth and pride. (This allowed for ideas from employees
to be heard by upper management because of the ease of information
communication. Instead of conforming to other organizations Home Depot
employed a bottom-to-top type of training sequence in which they trained
the carryout people first because they believed that the last person to come
in contact with the customer makes a huge impact and they wanted the
contact to be positive.)
(These policies were formed by the founders of the company. Some of the
policies prior to Nardelli are still applied by the company but he changed it
to a more centralized, military standard type of company. He did this
because he believed it was partially responsible for the firm’s stagnation in
sales growth.)
After Bob Nadelli
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Centralized management
Organize the company
Emphasis on military efficiency
Hire veterans
Disciplined manager corps (This is done in an attempt to produce managers
that follow orders, operate in high-pressure environments, and execute
with high standards.
(The new policies prohibited the constant flow of ideas and suggestions from
employees in the organization and replaced it with major decisions and goals
that flow down from top management. Some people used to the old way of
doing things felt a “culture of fear” because instead of just using their
experience to sell at their maximum the company set forth exact goals for each
store. Customer satisfaction fell off in 2005 and some say it was because
Nardelli tried to measure good customer service instead of inspiring it. In 2006
the customer satisfaction was improving.)
II.
Strategic Managers
A. Board of Directors
1. The following is a list of Home Depot’s Board of Directors.
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Robert Nardelli- Chairman & CEO The Home Depot, since 2000. Previously
was President & CEO of GE. Owns 5.3 million shares of stock.
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John L. Clendenin- served as a director since 1996, retired Chairman,
President & CEO BellSouth Corp. Member of four other others, including
Equifax, Kroger. Chairs the Audit Cmte. Owns 38,832 shares.
Gregory D. Brenneman – served as a director since 2000. Chairman & CEO
of Burger King. Also served as CEO of Continental Airlines. Owns 33,500
shares.
Claudio X. González – served since 2001. Former Chairman & CEO KimberlyClark de Mexico, S.A. de C.V. Also member of boards of GE, Kellogg’s,
Kimberly –Clark and Investment CO of America. Owns 64,450 shares.
David H. Batchelder- Principal Relational Investors LLC. No further info.
Kenneth G. Langone- Co-founder and served a director since 1978.
Chairman, CEO & President Invemed Associates, Inc (banking & brokerage).
Also board member of ChoicePoint, Yum and Unifi. Chairs Nominating an
Corp Governance Cmte. Owns 16.5M shares.
Angelo R. Mozilo - Served as since 2006. Chairman & CEO Countrywide
Financial Corporation. Owns 800 shares.
Thomas J. Ridge- Served since 2005. Former Secretary of Homeland Security
& Governor of Pennsylvania. Also a board member of Exelon Corp. Owns
no shares.
Laban P. Jackson, Jr. – Chairman Clear Creek Properties, Inc. Served since
2004. Chair of Clear Creak Properties. Board member of JP Morgan Chase
CO and IPIX. Owns 7400 shares.
Lawrence R. Johnston- Served since 2004. Former Chairman, CEO &
President Albertson’s, Inc, and Pres and CEO of GE appliances. Owns 5000
shares.
Helen P. Johnson-Leipold -Chairman & CEO Johnson Outdoors, Inc. No
info.
Bonnie G. Hill- Served since 1999. President B. Hill Enterprises, LLC- a corp
governance specialist and also CEO of Icon Blue Inc, a brand marketing CO,
and Times Mirror Foundation CO. Member of five other boards- Albertsons,
Hershey and Yum. Chairs Leadership Development & Compensation Cmte.
Owns 22,370 shares.
Milledge A. Hart, III- Served since 1978. Chairman of DocuCorp. Chairs the
board‘s Info & Tech Advisory Cmte. Owns 3.558M shares.
2. A substantial majority of the Directors on the Board (nine of the eleven) are
independent and each Director serving on the Audit, Leadership Development and
Compensation, and Nominating and Corporate Governance Committees is
independent.
a. Home Depot’s stock publicly traded stock. Nardelli’s stock included restricted
stock, deferred, and nonqualified options. Restricted stock of a company that is
not fully transferable until certain conditions have been met. Conditions are
based on hitting economic targets for the year. Upon satisfaction of those
conditions, the stock becomes transferable by the person holding the award.
Preferred stock / shares or preferreds, is a special equity security that has
properties of both equity and a debt instrument. There are several directors
that have international experience which suits the company well for its
American Ops and expansion to Asia. Each non management director receives
an annual retainer of $130,000, the majority in deferred stock, a portion in cash
or stock, and the remainder in non-qualified stock.
b. During the 2006 AN meeting, the Board was strongly accused of lacking
independence and indeed did not participate in person. The board contracted
the audit capacity of KPMG LLP, an independent registered public accounting
firm and received a passing and fit grade. The board followed Nardelli’s lead to
allow him to lead the meeting cycle alone. It was overwhelmingly rejected by
the shareholders and Nardelli pledged to return to the previously accepted
format in 2007. There is no mention of the board’s environmental evaluation
capacity other than a pledge to comply with environmental rules.
B. Top Management
1. The case and the 2006 Annual Report list the following as the managers of Home
Depot. The majority had greater than three years with the corporation.
a. Management experience came from diverse external backgrounds such as; R.
Adams GM’s senior level advertising, F. Blake’s GE R&D / Production and
governmental post as Sec of Energy, T. Crow’s merchandising with K-Mart, J.
DeAngelo’s customer services for tools (Stanley) and GE financial section, R.
DeRodes high tech work with Delta Airlines and customer interface support with
the Sabre Reservation systems, M. Ellison with corporate / retail security from
Target, C. Menear’s hardware merchandising and geographical savvy, C.
Salvidar’s experience in a broad range of Mexican business operations, C.
Tom’es experience in the consumer packaging.
b. The internal experience base has been selected from medium to long term
managers such as; B. Merino has ten years w/ HD, has merchandising, Expo
Design Center roles and regional mgmt roles, P. Raines had six years of
experience in store Ops and Labor relations, Ms. Tom’e has 10 years of HD
financial management positions and Ms. Vaneschen has ten years of HD
operational and senior management experience as the President of HD Canada
and recently appointed Asian President.
c. Top management’s has established a strategic approach to corporate
management. Nardelli has stated that they will enhance the core, extend the
base and expand the market, his 3E’s (enhancements). That meant they would
continually modernize their stores, update their product lines, and increase
sales to the current customer base. They also intended to expand into other
channels such as online, catalogs and with new products such as flooring and
home improvements and mishap cleanup and greater professional market
involvement. They have designed a five year expansion plan to add 400-500
stores, to include greater exposure in the national and international markets of
Canada, Mexico and on the Asian mainland (Shanghai). Currently nearly 10% of
stores are international. Existing market saturation and slowing industry growth
projections prompted Wall Street to question if their projections matched likely
real near term prospects.
d. Nardelli was empowered to bring on like minded upper level managers to match
his vision. Historically, it had often hired outside talent for senior positions.
Therefore currently, there are few with more than three years on board
experience. There is no indication to suggest the present, albeit current (new)
managers, disagreed with Nardelli, or managed to convince him or the Directors
that his direction wasn’t going to succeed. Tellingly, 98% of the senior
management left the company from 2001 – 2006. The present management has
completely supplanted the former company / store operations style by 180
degree shift on preferred behavior characteristics. It shifted from an all
professionally trained/experience store labor pool to a majority of part-timers
brought on to reduce employee costs and organizational strength with orders to
run in a ‘military manner’.
e. Home Depot’s future as the industry leader was openly questioned by Wall
Street after the strong negative reaction to the nearly 100% executive turnover.
The question whether the ‘Orange Blooded’ culture, which customers loved,
could survive and drive profitability. The street also questioned corporate
strategy when its best and only true retail expert departed in 2006. Starkly, HD
had fallen to last place in the sector’s customer satisfaction rating scale. On
Nardelli’s direction, it also withdrew from the retail industry standard of
reporting ‘same store sales’ or those opened at least a year- also drawing
serious questions as to its full and open reporting criteria. Nardelli’s pay and
compensation raised analysis concerns when Fortune called him and others out
in an article about excesses in executive compensation.
f.
No information revealed the amount of executive stock held, with the
exception of Nardelli. Simplified compensation rules are as follows. Top
executives are compensated in three way, base salary, annual bonus and long
term incentives. Base is determined by total compensation, scope of
responsibilities, years of experience, and the competitive marketplace. Merit
increases were base on an individual’s performance over the year and potential
for development. All executive took part in the Management Incentive Plan
(MIP). It is cash based bonus plan for performance for reaching tactical goal set
in the beginning of the year. Executives stock ownership guidelines, were
required to hold share of common stock over the only term to keep their
attention off the short perspective. Multiples were X6 for CEO’s, X4 for Exec
VP’s and X3 for Division Presidents and Sr VP’s. The X variable is based on
another internal employee’s pay versus ‘industry standard’. Nardelli’s pay in
2005 was $2.225M, with a bonus of $7M, 380,000 shares of restricted stock
175,000 of deferred, and 90,000 nonqualified options. It was also noted Nardelli
received what was noted as a ‘large amount of loan forgiveness’ and ‘tax grossups’ regarding those forgiven funds. Pay was based on a 20.4% earnings and
11.5% net share growth for the year. No other executive pay was revealed in
the case or in the ‘06 AN Rpt.
g. During FY 2006, six uncertified, class actions were filed by current and former
shareholders against the Company and current and former officers and
directors in the U.S. District Courts, alleging misrepresentations in violation of
the Securities Exchange Act and alleging breach of fiduciary duty, abuse of
control, gross mismanagement, waste of corporate assets, and unjust
enrichment in connection with the Company’s return-to-vendor, stock option,
and compensation practices. Stock holders also were angered by his heavy
handed manner during stockholder meetings. Therefore, they were driving
towards changing corporate guidelines of majority versus plurality voting rules
to better address stockholder rights and desired direction. There was no
conclusion to the cases but Nardelli did agree to reverse some of his positions
regarding interactions with the share holders, board operations and return to
the customer centered culture.
h. The company has longed been known for its good corporate citizenship. It has
supplied disaster relief supplies during Katrina, employee volunteers for Habitat
for Humanity, other non-profits and outreach organizations- to its neighbors
and employees in need. The Depot management’s CRM includes principals that;
sell products are sourced and manufactured sustainably and environmentally
compliant. It pledges to train it employees to minimize ecological impacts and
encourages its customers to increase their environmentalism.
2. The annual report identifies the following as management for Home Depot. It also
lists a separate listing of what it calls the Home Depot Leaders.
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ROGER W. ADAMS, (3+yr) age 50, Sr VP & Chief Marketing Officer since Oct
2006. From Feb 2005 through Oct 2006, he served as the Company’s Sr VP –
Marketing. Mr. Adams previously served as Exec Director of Corp
Advertising, Marketing and CRM of General Motors Corp (GM) from June
2004 to Jan 2005. From March 1996 to June 2004, he served as General
Manager of GM’s Buick, Pontiac and GMC Division.
FRANCIS S. BLAKE, (3+yr) age 57, has been Chairman and CEO since Jan
2007. From Mar 2002 through Jan 2007, he served as the Company’s Exec
VP –BD and Corp Ops. He was formerly the Deputy Secretary of Energy from
June 2001 until March 2002. From June 2000 until May 2001, he was a Sr VP
at General Electric and was VP of GE Power Systems from February 1996
until July 2000. Mr. Blake serves as a director of The Southern Company.
TIMOTHY M. CROW, (3+yr) age 51, has been Exec VP – HR since Feb 2007.
From May 2002 to Feb 2007, he served as Sr VP, Organization, Talent and
Performance Systems. Mr. Crow previously served as Sr VP – HR of K-Mart
Corp, a mass merchandising company, from 1999 through May 2002.
JOSEPH J. DeANGELO, (<3yr) age 45, has been Exec VP and COO since Jan
2007. From Aug 2005 through Dec 2006, he served as the Company’s Exec
VP – Home Depot Supply. From Jan 2005 through Aug 2005, he served as Sr
VP – Home Depot Supply, Pro Business and Tool Rental, and from Apr 2004
through Jan 2005, he served as Sr VP – Pro Business and Tool Rental. Mr.
DeAngelo previously served as Exec VP of The Stanley Works, a tool mfgr’ing
company, from Apr 2003 through Apr 2004. From 1986 until Apr 2003, Mr.
DeAngelo held various positions with GE. His final position with GE was as
President and CEO of GE TIP/Modular Space, a division of GE Capital.
ROBERT P. DeRODES, (3+yr) age 56, has been Exec VP – CIO since Feb 2002.
He previously served as President and CEO of Delta Technology, Inc. and
CIO for Delta Air Lines, Inc. from Sep 1999 until Feb 2002. From Feb 1995 to
Sep 1999, he served as Sr Technology Officer at Citibank for the Card
Products Group. From Feb 1993 to Feb 1995, he was President of Sabre
Development Services for the Sabre Group Holdings, Inc., a subsidiary of
American Airlines, Inc.
MARVIN R. ELLISON, (3+yr) age 42, has been President – Northern Division
since Jan 2006. From August 2005 through Jan 2006, he served as Sr VP –
Logistics and from Oct 2004 through Aug 2005 he served as VP – Logistics.
From June 2002 through Oct 2004, he served as VP – Loss Prevention. From
1987 until June 2002, Mr. Ellison held various management and executive
level positions with Target Corp, a general merchandise retailer. His final
position with Target was Director, Assets Protection.
CRAIG A. MENEAR, (<3yr) age 49, has been Sr VP – Merchandising since Oct
2006. From Aug 2003 through Oct 2006, he has served as Sr VP –
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Merchandising, for the Hardlines Corp. From 1997 through August 2003, Mr.
Menear served in various mgmt and VP level positions in the Company’s
Merchandising department, including Merchandising VP of Hardware,
Merchandising VP of the Southwest Division, and Divisional Merchandise
Mgr of the Southwest Division.
BRUCE A. MERINO, (10+yr) age 53, has been President – Western Division
since May 2000 and President, EXPO Design Center since October 2005.
From October 1996 through May 2000, he served as Merchandising VP.
PAUL RAINES, (6+yr) age 42, has been President – Southern Division since
February 2005. Prior to he served as Regional VP – Florida from Apr 2003
through Jan 2005. From Jan 2002 through Apr 2003, Mr. Raines served as VP
– Store Ops, and from Jan 2000 through Jan 2002, Mr. Raines served as
Director of Labor Mgmt.
RICARDO SALVIDAR, (5+yr) age 54, has been President – Mexico since 2001.
From 1980 to 2001, Mr. Salvidar held various management and executive
level positions with Grupo Alfa, a Mexican conglomerate. His final position
with Grupo Alfa was President and CEO of Total Home.
JAMES C. SNYDER, JR., (3+yr) age 43, has been VP – Secretary and Acting
General Counsel since Feb 2007. From Mar 2006 to Feb 2007, Mr. Snyder
served as VP – Legal, Risk Mgmt. From Mar 2004 to Mar 2006 Mr. Snyder
served as VP – Legal. Prior thereto Mr. Snyder served as Director, Legal from
Nov 2002 to Mar 2004. Mr. Snyder joined the Company in Mar 2001 as Corp
Counsel.
CAROL B. TOM´E, (10yr) age 50, has been CFO since May 2001 and Exec VP –
Corp Services since Jan 2007. Prior thereto Ms. Tom´e served as Sr VP –
Finance and Accounting/Treasurer from Feb 2000 through May 2001 and as
VP and Treasurer from 1995 through Feb 2000. From 1992 until 1995, when
she joined the Company, Ms. Tom´e was VP and Treasurer of Riverwood
International Corp, a provider of paperboard packaging. Ms. Tom´e serves
as a director of United Parcel Service (UPS), Inc.
ANNETTE M. VERSCHUREN, (10yr) age 50, has been President, The Home
Depot Canada since Mar 1996 and President, The Home Depot Asia since
September 2006. From Feb 2003 through Oct 2005, she also served as
President, EXPO Design Center.
3. The following is an additional listing taken from the Annual Report but not clarified
in the text, consisting of Ms. Diane S. Dayhoff- Sr VP Investor Relations and Mr. Brad
Shaw- Sr VP Corp Comm & External Affairs. No historical or biographical
information was published.
III.
External Environment
A. Natural Physical Environment: Sustainability Issues
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The elimination of unnecessary packaging, along with recycling, has helped
Home Depot in their bid for sustainability. They have also worked with
training employees and customers to educate them on the importance of
conservation and resource efficiency as well minimizing environmental
health issues and safety risk associated with them. They are definitely trying
to be a leader on the forefront when dealing with sustainability.
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The reaction to Hurricane Katrina’s devastation shows how the natural
environment could affect Home Depot business and it’s relation with the
local community in particular. This is just one example from the text.
Imagine if a tornado ripped through a town or a volcanic eruption disturbed
Seattle area as it did in 1980. Home Depot would be affected by any of
these natural disasters.
B. Societal Environment
a) Economic
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Economic models established by company helps determine direction of
industry (O)
Near record level in home ownership increases demand for DIY projects (O)
Expansion into Canada & Mexico offers new stakeholders/consumers (O)
Sales changed seasonally, winter being a low-growth quarter (T)
b) Technological
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Installation of self checkout kiosk decrease time in store and minimize
person to person contact (T)
Internet became another channel for consumers to purchase products (O)
Addition of point-of-sale system, electronic bar code, and a UNIX server
assisted in efficient tracking a buyer trends (O)
A second technology center was opened in Mexico (O)
Overall upgrades to financial services in Mexico, call centers, and websites
help advance sales and revenue tracking (T)
c) Political/Legal
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CEO are compensated up to 50% bonuses annually (T)
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Managerial level employees receive at a minimum 25% incentive pay (T)
Floor workers and lower level employees receive no bonuses (T)
d) SocioCultural
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Employees have opportunity for a cradle to the grave job (O)
Train employees based on a bottom-to-top sequence (O)
Informality among employees prior to Nardelli (T)
Huge contributor during Hurricane Katrina relief (O)
CommUnity Grants cleaned up play ground for children (O)
Even though Home Depot has expanded outside the US borders, they still haven’t left
North America. These factors have not been tested elsewhere.
C. Task Environment
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IV.
Threat of new entrants – Low
Bargaining powers of buyers – Medium
Threat of substitute products or service – Low
Bargaining power of suppliers – Medium
Rivalry among competing firms – High
Power of unions, government, special interest groups – Medium
Internal Environment: Strengths and Weaknesses
A. Corporate Structure
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Management consists of a 13 member leadership team. These 13 Executive
Officers work together to successfully manage the company.
CEO Robert Nardelli is very involved in every managerial decision. He gives
the final word on what percentage of full time and part time employees he
wants and where he wants them.
B. Corporate Culture
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Home Depot emphasized an “orange-blooded culture” that emphasized
individuality, informality, nonconformity, growth, and pride. This was
promoted by to of the company founders, Bernard Marcus and Arthur
Blank.
The senior executives recognize the amount of young people that work for
the Home Depot and they want these employees to feel comfortable,
relaxed, and secure in their positions.
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When Bob Nardelli took over, he did away with the former concepts of this
decentralized entrepreneurial venture. He brought a more rigid structure to
his employees.
Staff strongly opposed the changes made by Nardelli and 98% of the top
executives left the company.
C. Corporate Resources
1. Marketing
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Offer a wide array of high-quality goods at low prices, while offering help
from knowledgeable and helpful employees.
They used sponsorships that were viewed by millions including: NASCAR,
U.S. Olympics team, and ESPN College Gameday.
Offered service to three primary customer groups: DIY (Do IT Yourself)
Customers, DIFM (Do It For Me) customers, and Professional Customers.
2. Finance
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In 2005 sales increased almost 100% from 2000 to reach $81.5 billion.
Since 2000 nearly $13 billion was returned to shareholders in the form of
dividends and share repurchases.
Average ticket sale hit an all time high in 2005 reaching $57.98 per
customer.
Common stock actually dropped by 30% since Nardelli took the company
over.
Nardelli is amongst six other CEOs who Fortune magazine identified in an
article entitled, “The Real CEO Pay Problem”. He had given himself pay and
benefits exceeding $13 million in value annually.
3. Research and Development
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In 1990 Home Depot tested a new Store Productivity Improvement program
designed to improve storage and merchandise replenishment on the floor.
They tested renovations that would enhance customer access, reduce
customer shopping time, and streamline merchandise stocking and delivery.
4. Operations and Logistics
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Service objectives were focused around the Do It Yourself idea.
Management wanted the customers to feel confident in themselves to do
the job through the guidance they receive from the employees.
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They offer power tool and truck rentals, Do It Yourself plans, Do It For Me
plans, Commercial customer sales, and skillful and knowledgeable
employees at the customers disposal.
5. Human Resources Management
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As of January, 2006, Home Depot employed 345,000 people. 68% of these
employees are full time and the rest are part time.
There are no unions, as the employee relations with the company are very
good.
Company goal is to maintain employee turnover at no more than 20%.
6. Information Technology



V.
Each store contains the typical point-of-sale system, bar code scanning
system, and a UNIX server.
The charge card approval waiting time was recently reduced to less than 30
seconds to speed up customer check out time.
Home Depot continuously searches for updates to its information systems
to accompany its growth and reduce its control costs.
Analysis of Strategic Factors
A. Situational Analysis (SWOT)
1. Strengths










Brand Awareness
Rapid Deployment
Predictable and profitable growth
 Strongest balance sheet
Number 3 in the core appliance market share
 Secured 10% of the U.S. Market
Largest home improvement retailer
 Canada & Mexico
Served three primary customers
 Do-It-Yourself
 Do-It-For-Me
 Professional customers
Store Productivity Improvement (SPI)
Concern for Environment
“Recession proof”
No single supplier


Management and employee relations
Brand Awareness
2. Weaknesses




Carpet Installation
Didn’t inspire customer service
Negative comparable store sale figure
Product Recalls
3. Opportunities








Introduce new products
Maintain and grow leadership position
Become the Nation’s largest diversified distributor
Become number one in services
Increasing direct-to-consumer channels
New operational Initiatives
Tremendous potential for future growth
International Expansion
4. Threats



Reorganization Initiatives
Increase demand for power tools
Growth in online purchasing
B. Review of Current Mission and Objectives
Mission Statement

To provide the best customer experience in home improvement retail,
the best place to work for our associates and the best place to invest
Objective


VI.
Cannibalize
Attend to customer
Strategic Alternatives and Recommended Strategy
A. Strategic Alternatives
Nardelli’s Three Es



Enhancing the Core
Extending the Business
Extending the Market
Research and Development



Sell new products
Levering technology
Use of recyclable material
Information Technology Strategy (LINUX)


Line sale tracking
Trend data analysis
B. Recommended Strategy

Convert Existing Stores:

Upgrade Existing Employee Skills

Upgrade Employee Motivation

Establish and Maintain a Reputation Comparable to their current goals for
Quality and Value
VII.

Compete for Financial Resources

Increase Home Depots in Developing Markets

Implement State of the Art Technology
Implementation
A. Alignment and Enhancement of its core business
1. Initiated superior information and computerized technologies
2. Top level management is in charge however




Subordinates must be considered
“Orange Blooded” experience should be maintained
Must develop an integrated management plan
Local managers should be trained, empowered and incentivized to execute
the master plan in a manner which best serves their customer base.
B. Programs are financially feasible
C. New SOPs must be developed
VIII.
Evaluation and Control
A. Is the current information system capable of Providing Sufficient Feedback on
Implementation Activities and Performance? Can It Measure Strategic Factors?

(Information)
B. Are Adequate Control Measures in Place to Ensure Conformance with the
Recommended Strategic Plan?

(Information)
Exhibit #1
D. Summary of External Factors
Weight
Rating
Weighted
Score
Record-level home
sales
0.2
4
0.8
Addition of UNIX
0.05
2.8
0.14
Employee training
0.1
3.6
0.36
Katrina relief
0.15
3.2
0.48
Expansion across
borders
0.1
2.5
0.25
Self-checkout kiosk
0.1
3
0.3
Employee
compensation
0.15
4.5
0.675
Change in seasonal
sales
0.05
2.8
0.14
Informality among
employees`
0.1
2.5
0.25
Totals
1
External Factors
Opportunities
Threats
Exhibit #2
3.395
Comments
EXHIBIT 2
Internal Factors
Rating
Weighted
Score
0.15
0.10
0.20
0.15
0.15
4.00
3.00
4.50
3.50
3.40
0.60
0.30
0.90
0.53
0.51
Want to help
Important
Wide variety
DIY, DIFM
Widely viewed
0.10
0.05
0.10
3.50
2.00
3.00
0.35
0.10
0.30
Original employees unhappy
High turnover rate
Public is unhappy with this
Weight
Strengths
Skilled, happy employees
Involved senior management
Product selection
Service options
Good advertising
Weaknesses
New CEO management method
Employee Retention
Overpaid CEO (public issue)
Total Scores
1.00
Comments
3.59
Exhibit #4
Liquidity Ratio
Current
(Current Assets/Current Liabilities)
Quick
(current Assets-inventory/current
liabilities)
2005
2006
1.3
1.18
0.401
0.306
Leverage Ratio
Debt to Total Assets
(Total Debt/Total Assets)
6.00%
Debt To Equity
(Total Debt/Total Assets)
1%
1.37%
Activity Ratios
Inventory Turnover-sales
(Net Sales/Inventory)
8.08%
6.40%
Average collection (days)
75.7
76.8
(Inventory/COGS divided by 365)
Fixed Asset Turnover
(Sales/Fixed Asset)
Total Asset Turnover
(sales/total asset)
1.87%
1.83%
Gross Profit Margin
(Sales-COGS/Net Sales)
33.50%
32.80%
Net Operating Margin
(Net Profit After taxes/Net Sales)
10.70%
Profitability Ratios
Profit Margin on Sales
1-(COGS/Sales)
32.8
Return on Total Assets
(Net Profit After Taxes/Total
Assets)
12.00%
13.00%
Return on Equity
(Net Profit After
taxes/Shareholder’s equity)
21.00%
20.00%
Exhibit #5
Exhibit #5A
FY Ends each January(amounts in $M)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings
Reconciliation of Net Earnings to Net Cash Provided by Op Activities:
Depreciation and Amortization
Impairment Related to Disposition of EXPO Real Estate
Stock-Based Compensation Expense
Changes in Assets and Liabilities, net of the effects of acquisitions:
Decrease (Increase) in Receivables, net
Increase in Merchandise Inventories
(Increase) Decrease in Other Current Assets
Increase in Accounts Payable and Accrued Liabilities
(Decrease) Increase in Deferred Revenue
(Decrease) Increase in Income Taxes Payable
Increase (Decrease) in Deferred Income Taxes
(Decrease) Increase in Other Long-Term Liabilities
Net Cash Provided by Operating Activities
Tows Matrix
2007
2006
2005
5,761 5,838 5,001
1,886 1,579 1,319
0
78
0
297
175
125
96
(358) (266)
(563) (971) (849)
(225)
16
29
531
148
645
(123) 209
263
(172) 175
2
46
(609) 319
(51)
151
119
7,661 6,620 6,632
Internal Factors
Strengths:




External Factors
Opportunities:





Become largest
distributor
Become #1 in services
International expansion
Potential for growth
New operational
initiatives
Threats:



Reorganization
initiatives
Demand for power
tools
Growth in online
purchasing








Weaknesses:
No single supplier
Strong growth
Concern for
Environment
Serves 3 primary
customers
Brand Awareness


Continue to add more
suppliers and products
Use fast growth rate to
internationally expand
Extend excellent service
to all 3 customer types
Carry more brands than
the competition

Stay organized as
company expands
Provide what is in
demand for all 3
customer types
Offer excellent service
to deter customers
making online
purchases elswhere








Carpet installation
Don’t inspire customer
service
Product recalls
Employee/Management
relationship
Start doing carpet
installation
Push the initiative to treat
customers better
Be picky about what
products you carry by
offering only good quality
Grow not only in size but in
manager/employee
relationships
Expand option to purchase
online from Home Depot
Involve floor employees in
product selection for sales
Allow employees and
managers to work together
to best organize the
operations of the stores