An Analysis Of The Home Depot
Using Strategic Management
Presented by:
Geordan Hull,
Dave Rosu,
and Jason Steinberg
DEFINITIONS
• Strategic Management
– A comprehensive and ongoing management
process aimed at formulating and implementing
effective strategies; it is a way of approaching
business opportunities and challenges
DEFINITIONS
• Depot*
– A place of deposit for the storing of goods; a
warehouse; a storehouse
– The headquarters of a regiment, where all
supplies are received and distributed,
[workers]s are assembled and instructed… and
all the wants of the regiment are provided for
* = Definition provided by Webster’s Revised Unabridged Dictionary
HD IN A NUTSHELL
• The first Home Depot store opened in Atlanta on June 22,
1979
• First locations were attached to Treasure Island stores
– In its first five years, The Home Depot expanded into Florida,
Louisiana, Texas, and Alabama
• World’s largest home improvement retailer
– Currently, there are more than 1,700 stores in the United States,
Canada, Mexico, and Puerto Rico, and two sourcing offices in
China
• Sells a large assortment of lumber, building materials,
home improvement, and lawn and garden products
– The average Home Depot store is 109,000 square feet and offers
about 40,000 products
HD IN A NUTSHELL
• Second largest retailer in the United
States
• Bob Nardelli is the current Chairman,
President, and CEO
• Traded on the NYSE under the symbol
HD
MISSION STATEMENT
The Home Depot is in the home
improvement business and our
goal is to provide the highest
level of service, the broadest
selection of products and the
most competitive prices
BUSINESS
• Great shopping experience
• Service
– Knowledgeable associates
• Merchandise
– Endless possibilities for improving and
repairing your home
– High quality
• Shoppability
– Clearly printed signs
– Conveniently placed displays
PRODUCTS
Paint & Decor
Electrical
Plumbing
Kitchen & Bath
Lawn & Garden
Flooring
Lighting & Fans
Tool Rental
Building Materials
Lumber
Millwork
STRUCTURAL UNITS
• Business Development
& Corporate
Operations
• Marketing
• Information
Technology
• Human Resources
• Merchandising
• Global Logistics
• Regional
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Eastern
Central
Western
Northwest
HOME DEPOT’S
MANAGEMENT
• Bob Nardelli
– Chairman, President, & CEO
– Joined in December 2000
– Elected Chairman of the Board of
Directors as of January 1, 2002
– BS in Business from Western Illinois
University, MBA from University of
Louisville
– Came from GE Power Systems where he
was President and CEO
– Was selected by President George W.
Bush to serve on the President’s Council
on Service and Civic Participation in
January of 2003
HOME DEPOT STORES
• Home Depot stores are designed to suit the needs of the communities
they are located in
• How-to-clinics
– Offer step-by-step instructions on do-it-yourself projects
• Specialty product assortments, credit programs, and delivery programs
– Options available for professional customers
• At-Home Services
– Offers installation on select products
• National Brands
– Account for nearly 90% of store merchandise
• Designer/Exclusive Brands
• Tool Rental Centers
– Over 600 stores carrying more than 200 types of tools and equipment
• Load ‘N Go Truck Rental
– Allows customers to take large purchases home with them
CORE BUSINESS
• Do-It-Yourself Homeowners (DIY)
– Account for 70% of all Home Depot sales
ENHANCING BUSINESS
• Improve Store productivity & Enrich inventory
– At Home Services
• Caters to Do-It-For-Me (DIFM) customers
• Installation service
– PRO Program
• Professional-specific services
• Expanded to over 1,100 stores
– Appliances
• Expanded appliance showrooms, targeted at the professional customer
– Tool Rental Program
• Customer can try a tool before buying it
• Customer can rent tools
– Urban Store Format
• “Neighborhood friendly” stores focused on local needs
• Store format is smaller and more compact
DIVERSIFIED BUSINESS
• EXPO Design Center
– One-stop home decorating and remodeling resource
– Products here were previously only available to professionals
• The Home Depot Supply
– Geared specifically to the needs of professional customers and
large companies
– Areas devoted to electrical, paint, plumbing, millwork, hardware,
lumber, and building materials
• The Home Depot Landscape Supply
– Serves anyone from the professional landscaper to “do-it-yourself”
garden enthusiasts
DIVERSIFIED BUSINESS
• The Home Depot Floor Store
– Offers the most comprehensive selection of flooring
products and services available
• Styles range from basic and durable to high-fashion decorator
• The Home Depot Mexico
– Acquired Mexico’s second largest home improvement
retailer, Total HOME, in June of 2001
• Georgia Lighting
– Specialty lighting designer
• E-Commerce
– Routes web-based orders through existing stores
– Enables regional items to be offered across the country
EMPLOYEES
• Home Depot associates are put through a
two-week “intensive” training program
EMPLOYEE INITIATIVE
PROGRAMS
• Store Leadership Program
– Home Depot is actively recruiting leadership candidates
– Associates are able to manage a store after two years of extensive
training
• E-Learning
– Web-based curriculum
– Teaches product knowledge with two terminals per store
• Human Resource Professionals
– 1,400 new members (on-staff human resource professionals)
– Ensures that every store is an employee-centered workplace
STRATEGIC PARTNERSHIP
• National Hiring Partnership
• U.S. Department of Labor
– Recruit, screen, refer, and prepare unemployed
or dislocated workers for job opportunities
COMPETITIVE ENVIRONMENT
• The Home Depot operates in an environment
characterized by monopolistic competition
– Many firms (retailers) in the industry
– Well-differentiated products are exchanged
• Products can be differentiated from competing offerings on the
basis of price, quality, or other features
• All participants have some control over price
– Firms involved can easily enter and exit the market
without restriction
– The success of sellers often attracts new competitors to
the market
COMPETITION
• Lowe’s, Inc.
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2nd largest home improvement retailer in the world
More than 1025 stores across 45 states
$30.8 billion retailer
Fortune Magazine’s 2003 and 2004 Most Admired
Specialty Retailer
• Sherwin-Williams Co.
– Stores in 50 states, Canada, and parts of Latin America
– A global producer with a core business in the sale of
coatings and related products*
– One of the world’s leading companies in the
manufacturing, distribution, and sale of core business to
various customers*
* = Architectural coatings, industrial finishes, and associated supplies; professional, industrial, commercial, and retail customer
INTEGRATION STRATEGY
• Vertical Integration
– Forward Integration
• Increased openings of their own freestanding homedécor stores
– Home Depot plans on opening 200 EXPO Design Center
stores by 2005
• Web sites used to sell products directly to customers
– Home Depot warned its suppliers not to compete with
them in selling products online
INTENSIVE STRATEGY
• Market Penetration
– Home Depot is attempting to further increase
its market share for its products and services in
the current market through greater marketing
efforts
• Attempting to attract an international client base
ADAPTATION STRATEGIES
• Innovation
– NextGen
• Technology used to manage customer home improvement jobs
• Market Development
– Pro Set
• A desk for contractors staffed by licensed plumbers,
electricians, and other professionals
– New Store Formats
• Refashioning stores
– Brighter lights
– Fewer products stacked
– Better signs
ADAPTATION STRATEGIES
• Acquisitions (recent)
– Total HOME
• Acquired in 2001
– Georgia Lighting, Inc.
• Acquired in 1999
• Corporation Transformation
– Home Depot does not plan on changing its
form of business
CORPORATE LEVEL
STRATEGIES
Retrenchment
Stability
FINANCIAL INFORMATION
• December 6, 2004
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Open: $41.59
Close: $42.00
Change (from yesterday’s close): + $0.20
High: $42.18
Low: $41.586
FINANCIAL INFORMATION
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P/E Ratio: 18.90
Earnings/Share: $2.21
Dividend/Share: $0.34
52 Week High: $44.30
52 Week Low: $32.34
FINANCIAL INFORMATION
• Financial Summary for 2003 (in millions)
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Net Sales: $64.8 billion (11.3% increase from 2002)
Net Earnings: $4.3 billion (17.5% increase from 2002)
Gross Profit: $20.6 billion
Diluted EPS: $1.88
Assets: $34 billion
Cash: $2.9 billion
• 1st Quarter FY2004 Performance
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Revenue: $17.6 (16.2% increase from2003)
Gross Profit: $5.8 billion
Earnings: $1.1 billion (21% increase from 2003)
Cash: $4.3 billion
Total Assets: $38 billion
Customer Transactions: 316 million
New Stores: 33
FINANCIAL INFORMATION
Information from December 6, 2004
FINANCIAL INFORMATION
Information from most recent quarter (last three months)
FINANCIAL INFORMATION
Information from most recent year (12/2003 through 12/2004)
FINANCIAL INFORMATION
Information from the last five years
GROWTH TARGETS
• 2004
– 10%-12% sales growth
– 13%-16% earnings growth
– Overall capital spending forecast of $3.7
billion
– Plan to spend $1 billion to support Home
Depot’s Modernization Program
REPUTATION
• Media
– Good community relations
• Charitable contributions
• Financial Community
– Consistently has solid balance sheets
– Favorable ratings
– Is expected to significantly outperform the
market over the next six months with very low
risk
SWOT ANALYSIS
• Strengths
– World’s largest home
improvement retailer
– Second largest retailer in
the United States
– Ranked 13th on the
Fortune 500
– $64.9 billion company
– In the Fortune 500, ranked
5th in Growth Sales out of
the Top 13 Companies
• Weaknesses
– Relative inexperience of
current CEO, Bob
Nardelli, in this market
– First time in history that it
is without any of its
founding fathers
– Company’s size (1,740
stores and a new one
opening every 43 hours)
SWOT ANALYSIS
• Opportunities
– Advertising
– New distribution centers
• Positions high-velocity oversized
products closer to stores
• Shipments will move direct-to-store
without burdening the existing
warehouse network
– Implementation of new operating
practices
• SOAR (Strategic Operating and
Resource Planning Process)
– Focuses on expanding growth
horizons by integrating industry and
economic data into the business
model
• SPI (Service Performance
Improvement)
– Serve customers while store is open,
and unload and restock after hours
• Threats
– Competitors
• Lowe’s
• Sherwin-Williams
TURNAROUND
STRATEGIES
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Quality versus Quantity
Temporary retrenchment
Better trained staff
Improve overall organizational structure
Remember humble beginnings
Surveys
Marketing Mix
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Product
Price
Promotion
Place
• Physical Distribution of products