home depot analysis

Home DepotBy: Marcus Gadson

Natalie HillTerri MenserJosh Nichols

Payal PatelHarris Weinstein

Overview

• Introduction: Harris

• Internal Analysis: Terri

• External Analysis: Natalie

• Recommendations: Payal & Josh

• Conclusion: Marcus

About Home Depot

• Founded in Marietta, Georgia in 1978

• Operates 2,300 large ‘big box’ stores across 50 states, Mexico, Canada and China

• Offers 40,000 products and can specially order up to 250,000 other products and building materials upon request

About Home Depot

• Sold ownership of EXPO Design Center and Home Depot Landscape Supply– Still offers some services such as

pre-screened contractors for installation and home repair services

About Home Depot

• Largest retail home improvement store in the United States

• Has 55% of the market cap in home improvement industry

• HD had $66.18 billion in revenues in 2009– Largest competitor, Lowe’s, had

$35.8 billion

Internal Analysis

• EXPO, THD Design Center, and Yardbirds stores-2008 – upscale group of home design and

hardware stores targeted at remodels

• In 2009 7,000 jobs / additional positions will be shed as well as close more stores and

• In 2010, growth will continued to be curtailed

Internal Analysis

Positioning:• As the country slowly climbs out of

recession, Home Depot plans to reposition itself as a bargain-priced DIY store. – reduced prices on its best-selling items– cleaned up stores to attract a larger female

demographic– increased customer service training

Internal Analysis

Sales 2009:• Home Depot- $71,288 million • Lowe’s- $48,230 million in

company can boast of • Home Depot- 322,000 employees • Lowe’s- 229,000 employees. • Gross Profit Margin for 2009-

33.77%

Internal Analysis

Current Plans:• “Free cash flow rose to near $2 billion, a level not seen

since 2007. This enhanced liquidity allowed the Company to finish the year with more cash-on-hand (about $1.4 billion) and lower total debt.”

• Saturated markets creates pressure to mine growth with new merchandise offers, services, formats and markets:– Store Modernization—Improving the Experience– Merchandising—New Products, New Appeals– Services—A Do-It-For-Me Focus– Formats—Tapping New Markets– Non-store—Extending Multichannel Reach– Pro Market—Moving Beyond Retail Core– Capabilities—Enhancing Efficiencies– International—Getting Serious Overseas

Internal Analysis

Assortment, Price and Service= Strategic Guide:• “To say that Home Depot (grew) fast is an

understatement. Second only to Wal-Mart in the retail category, the company brought in more than $73 billion in sales in 2004 and added 20,000 employees – bringing the total number of associates to 325,000.”

• Frank Blake: “We're committed to being the company that helped set the standard for customer service excellence in home improvement. Please continue to hold us accountable.”

External Analysis: PESTEL

• Political: – Government policy that affects the housing

market• Economic:

– The current recession• Social:

– Changes in income have resulted in consumers shying away from discretionary items

– Lower availability of credit to consumers has adversely affected sales

– The baby boomers

External Analysis: PESTEL

• Technological: – Home Depot has transformed its supply chain– 24 Rapid Deployment Centers

• Environmental: – The “green” movement – Home Depot is committed to conducting business in

an environmentally responsible way

• Legal: – Employer/employee disputes, product liability

disputes, workers’ compensation claims – Foreign trade issues

External Analysis: Five Forces

• Rivalry of Existing Competitors:– Lowes, Sears, and Ace Hardware – Home Depot’s competition runs a range of lumber

yards, specialty interior stores that concentrate on one aspect of the home, i.e. kitchens, lighting, flooring, etc

• Threat of New Entrants: – The barriers to entry are high: large product

selection, highly trained employees, large startup capital, prime real estate, strong regional recognition, and customer loyalty

• Bargaining Power of Suppliers: – Price concessions

External Analysis: Five Forces

• Bargaining Power of Buyers: – Since inception, primarily focused with the do-it-

yourself customers– Redefined the market by opening up the buy-it-

yourself and professional customers • Threat of Substitute Products:

– People will always have/need houses and the desire to improve one’s home

– It is hard to create a substitute that can compete with Home Depot’s low costs

– A substitute to Home Depot’s in store home improvement classes is the Internet

Recommendations

• Key is to transform HD into an aggressive first-mover in the market– Already making some moves in the

right direction– Be more aggressive by focusing on

commercial sales and taking advantage of potential acquisitions

Recommendation: Focus on Execution

• Already making steps in the right direction– Women identified as weak point and

added “Martha Stewart Living” line of home décor and associated products

– International expansion strategy– Emphasis on improvement of supply

chain

Recommendation: Focus on Execution

Targeting Women:• Capitalize on visit to store

– Transition from Martha Stewart line to typical HD assortment

• Women are growing force in household decision making– Make sure women realize their capabilities

• In-store signage• Project seminars• TV specials

Recommendation: Focus on Execution

International Expansion:

• China poses greatest challenge– Dramatically different culture and

logistics

• “The Home Way” HD store with Chinese corporate culture- easier and safer way to break into the market

Recommendation: Focus on Execution

Supply Chain:• HD is mocing distribution into RDC’s (Rapid

Distribution Centers)– Serves about 100 stores each (By end of 2010, 20

RDC’s for US)

• HD struggles with management of inventory levels– Inventory manager should have power to make

changes to stocking levels– Communication between department manager,

inventory manager and vendor reps to account for seasonality and special events

– Audit program to track reasons for stock outs

Recommendation: Scripps Networks

Scripps Networks:• Expand business by moving into

advertising industry– Competitive advantage no competitor can

easily imitate– Corner important target audiences:

• Do It Yourself Network• Home and Garden TV• Food Network• The Travel Channel• Fine Living

Recommendation: Scripps Networks

Food Network:• Cooking shows targeted towards those

most interested in cooking– Ties into kitchen remodeling (one of HD’s

most common projects sought out by the “Do-It-For-Me” consumer

– Travel Channel and Fine Living cater to more affluent customers with the financial means to pursue most home improvement projects

Recommendations:Commercial Sales

• Market Home Depot has entered and exited

• Customers– Very Demanding

• Deliveries• Stock Outs

– Long Term / Relationship selling– Cost Conscious

Recommendations:Commercial Sales

• HD Strengths – Buying Power– RDC’s / Supply Chain– Credit Department– Existing Resources

• HD Weaknesses – Customer Service– Sales Tactics

Recommendations:Commercial Sales

• HD Supply– Conquered the commercial sales

“mountain”• Service• Lower price

– Separate locations lead to loss of efficiency

– Overhead costs • Lower margins

Recommendations:Commercial Sales

• Create new “sales force” within HD– Mobile, commission based salesman– Manager equal with store manager– Separation from retail culture– Low / No overhead

• Sales contribute to the individual store revenues

• Utilize existing resources / facilities / equipment

Recommendations:Sherwin Williams

• Facts:– Painting and associated products:

20% of revenue– Painting #1 rated project

homeowners are willing to tackle themselves

– Sherwin Williams has the lowest consumer market penetration

– Sherwin Williams is the #23 rated retail brand in the US (HD is 3)

Recommendations:Sherwin Williams

Reasons for acquisition: • Marketing Aspect

– Drive consumers to the store– Create a destination within a product

segment• Sears Craftsman• Target / Wal-Mart in home furnishings

• Profit Aspect– Eliminate the “middle man” within the paint

industry – SHW revenues– Potential higher return

Recommendations:Sherwin Williams

Implementation:• Move SHW representatives into HD

stores• Maintain existing SHW business model

– Commercial / Industrial focus– Drives image

• Maintain separation– Efficiency and Service are key drivers– Possible service of existing clients on

limited basis through new locations

Recommendations:Sherwin Williams

Financials:• SHW

– Market Cap: 7.8 B– Revenue: 7.1 B– Net Income: 6.1%

• HD– Market Cap: 56.3 B– Revenue: 66.1 B– Net Income: 4.0%

Wrap-Up

• Recession=Decreased Sales• Beat Lowe’s 66-36• Maintain Strong Brand

Image/Consumer Loyalty• Thriving without the Stock Market

Soaring– Execution– Sherwin Williams – Marketing-Scripps Network

Questions?