Home Depot, Case Study Example

Introduction

Home Depot was started in 1978 by Bernie Marcus and Arthur Blank. They had a unique vision over the industry – creating large stores, where the customer could pick up whatever needed for the home redecoration or remodeling. The idea focused on creating large stores that would be warehouses at the same time. This allowed providing access to greater variety of goods than the competitors and provoked a fast expansion.

Home Depot is one of the youngest retailers and yet the largest in its market and with the greatest development pace. In only about 25 years the company grew from 1 store to a line of over 2000 stores throughout world. It is the youngest retail company on the Fortune top 500 list and the fifth retailer in the world (History – Home Depot.com).

Company started with a very strong set of values, making the customer satisfaction a number one priority. The staff at Home Depot was exceptionally polite, knew the products perfectly and we eager to demonstrate the customers how this or that material or tool could be used. This saved customers’ time and money, building a strong positive image for the company.

Management Issues

Home Depot has been experiencing significant problems in its further growth and development due to a number of economic issues. The entire market of the building materials has matured, which means that the times of exponential growth are over.  The competitors have already occupied most of the market and further expansion is associated with greater costs and efforts. As the building materials sector kept developing, a number of general trends could be observed: large department stores have been constantly outperforming minor enterprises, forcing them out of business. Smaller vendors were focused on very narrow type of products, so in order to purchase a set of materials and tools necessary for the construction or redecoration, consumers had to visit a number of stores, which definitely was rather inconvenient. Large retailers, able to afford great squares and massive goods storage eventually succeeded in gaining most share of the market.

Overall, the economy was slowing down in 2001, with the consumer confidence unstable and the probability of a coming recession. Construction sector of the economy is especially vulnerable to the overall economic state, being the first to boom in the times of economic relief, but also easily stagnating as the growth halts. Home Depot already acquired a leading position in the building materials sector, but was forced to search for new tactics and strategies, as the industry remained highly competitive. An expansive strategy was eventually chosen, which involved building new stores throughout the country, which increased the operational areas y 25%. Sales, however, increased by only 19%, which indicated that Home Depot started attracting less customers per square meter. This indicator forced the Home Depot’s shares down to $30 dollars from the high level of $53 in 2001. CEO Robert Nardelli is often blamed for such poor stock performance (Schneiderman, R.M. 2007).

Home Depot SWOT Analysis – Strengths

A number of strong points I operations allows Home Depot remain one of the major retailers in the US and the largest Do-it-Yourself, Buy-it-Yourself and Professional stores. To begin with, Home Depot operates the largest chain of the construction supermarkets in the world, the overall number of stores exceeding two thousand, with most of the Located in the US and Canada. It allows reaching for all the potential customers throughout the country and even outside. Such a location diversification is definitely a strong point, as the drop of construction activities in one area wills not influence the operations of the entire company.

The second major strength of Home Depot is the ability to benefit form the economy of scales. Being a huge company, some types of costs are equally dispersed on the large operational budgets, making the costs insignificant. Having great operational volumes allows investing into solutions that might intensify the entire operational pattern, while the cost of such research is still bearable. Close focus on one type of operation also allows outsourcing of some non-core activities, which could cut the cost further on.

Recognizable brand name is also a great strength, as the consumers are already familiar with it and a have a feeling of security while shopping with Home Depot. And finally, great growth rates are also signs of strength within an organization. Significant annual increase in both operational volumes and profits is an assuring point for the investors, which allowed the shares of the retailer soar to their highest up to 2000. After that the growth in volumes somewhat slowed down, but the figures remained encouraging any way. In fact, few enterprises of such size demonstrate such great results as Home Depot.

Weaknesses

Though being a leader in the house redecoration, rebuilding and construction goods retail, Home Depot still has a number of weaknesses that may potentially either turn into opportunities, or threaten the company. The first major weakness of the retailer is the outcome of the main strength – the great speed of expansion. As the company builds new department stores, moves to the foreign market and broadens the variety of goods, the operations become increasingly complicated and hard to manage.

Moreover, the fast expansion is threat to the corporate culture. Previously, Home Depot was known to be an enterprise focused on the personal achievement, high employee motivation, and fanatical customer assistance. The entire idea floated around the perception that the customers have to feel maximum comfort – as if they were at home. Nardelli’s changes were focused on optimization of the processes and maximum efficiency. As a result the corporate culture was virtually ruined by introduction of the new middle managers from GE and rapid expansion.

Great employee turnover is also a major problem at Home Depot. In order to hold such a huge enterprise together, stable staff is required to meet al the customers’ needs. Unfortunately, Home Depot is experiencing a lack of stable, reliable, and trustworthy employees. A somewhat stagnant advertising campaign can also be considered a weakness. Home Depot is changing its slogans from time to time, but they have nothing innovative and capturing. This may serve as the sign of an established brand, but still fails to attract more customers and outperform the competitors.

Opportunities

Based on the strengths of the company and on features the entire industry, Home Depot still has a number of opportunities for further expansion, growth, and development. To begin with, the set of products offered by the retailers can be expanded, while the qualities of some goods still can be developed to suit the modern realities better. For example, energy-efficient materials are of a great importance these days. Therefore, new plastic windows, electricity-saving light bulbs and a broad variety of similar products enjoy a steady growth in demand. Home Depot could also focus on the products from recycled materials as a growing and very popular sector of do-it-yourself and buy-it-yourself sectors.

Home Depot is also highly popular among the professionals in the construction and reconstruction fields. Demand from such consumers is rather stable and presents a great opportunity to capitalize on. Being able to offer a broad variety of goods of different types, Home Depot is valued by the professionals, which offers greater stability.

Possessing significant financial resources, the America’s second largest retailer has a variety of chances for further improvement of its services. Home depot is currently not using internet marketing broadly, as well as underperforming in the online part of the business. Greater attention to the online-shoppers could increase the company’s profit margins and the volume of sales.

While run by Robert Nardelli, Home Depot managed to establish a competitive advantage that could become one of the main assets for the years to come. While ruining the company’s culture to some extent, Nardelli still managed to use his experience in General-Electric for the great benefit. It refers to optimization of the storage accounting processes. Home Depot started using newest IT solutions to track the logistics, storage, delivery, and accounting procedures.

Threats

Any US retailer is heavily dependant on the consumer spending pattern. It reaches two thirds of the overall size of the economy. Consumer spending is also dependant on the overall economic stability. Any negative signs, like the possible recession, political instability, etc. scare the potential customers and force them to save rather than spend. As a result, the entire retail industry becomes highly vulnerable to the economic cycles. Moreover, home improvement and construction sector is rather seasonal, which makes stable operations somewhat complicated. Large retailers like Home Depot have to be highly sustainable to endure all the risks of the unstable markets and other economic fluctuations. Specialty retailers (Home Depot being one of the brightest examples) are also considered especially vulnerable to season highs and lows, generating vast profits during the holiday season. Let one hot season fail and the financial stability of the entire enterprise is under great threat.

Financial policy of the state is also a potential threat for the company. Federal Reserve rate predetermines the availability of the funds in the economy, influencing the construction business to a great extent. High Federal Rates urge for more expensive mortgage loans, which force the activities in the industry.

Intense rivalry in the market is also a potential threat to the Atlanta-based giant. Though Home Depot is currently the largest player on the market, its nearest rivals are following rather closely behind. Moreover, fast growth of the internet and other communication technologies has provoked a boom of e-commerce. Numerous websites, offering home redecoration and construction goods have emerged. These start-ups are rather small to create any real competition so far, but their growth is nevertheless fast (Bloomberg News, 1999). Moreover, Home Depot sometimes fails to outperform its direct competitors on certain markets. For instance, its emergence in Milwaukee did not result in any serious changes, as the local firms seem to be holding a firm position (Demaster, S. 1999).

SWOT Sum up and Actions to Be Taken

Overall, Home Depot seems to be a strong company with great future. After all, the construction and remodeling industry is one of the largest ones and will be popular forever. And as long as the will be demand for the construction materials and other similar goods, Home Depot will remain afloat. Speaking of the directions and actions to be taken they are clear after studying the SWOT analysis presented above:

1. Work to improve the corporate culture (should decrease the employee turnover)
2. A strong advertising campaign is needed to reposition the company as dynamic and innovative one
3. Further expansion in the foreign markets is to be performed to diversify the operations further on

Today’s State

The global financial crisis hit Home Depot rather hard. The recession originated in the housing market – the cornerstone of the retailer’s business. A dramatic drop in the construction business devastated the demand for the building and reconstruction materials and tools. Weakened economy also experienced a serious decline in the consumer confidence, which forced American spends much less than before. The projected decline in Sales for the Home Depot is estimated to be $20 billion, as the sales volumes decreased to $65 billion after the record $85 billion in the prosperous 2007 (Barbaro, M. 2009). CEO Blake realized that the financial position of the company is not as strong as it used to be and decided to reject the fast-expansion strategy. Instead, the company took course at increasing the profit margins in the existing stores. Such a decision could lead to the two possible results:

1. Home Depot emerges out of the crisis as a the strongest competitor with a refreshed brand and a strong corporate culture
2. The company looses its lead and surrenders to Lowe’s – the nearest powerful rival.

Only time can show, which of the two scenarios occurs. Right now Home Depot is taking efforts at restructuring and cutting costs. A decision was made to cut 7000 jobs and close the entire EXPO branch, which has been underperforming financially for quite a while now (Kavilanz, P. 2009).

References

Barbaro, M. “Home Depot Inc.”  New York Times, May 2009. Retrieved July 24, 2009 from: http://topics.nytimes.com/top/news/business/companies/home_depot_inc/index.html

Demaster, S. “Depot’s entry did not shake rivals in Milwaukee market” – Bnet.com publications. Retrieved July 23, 2009 from:           http://findarticles.com/p/articles/mi_m0VCW/is_9_25/ai_54629165/

Kavilanz, P. “Home Depot cutting 7,000 jobs. No. 1 home improvement retailer exiting its EXPO high-end business” – CNN Money, January 2009. Retrieved July 24, 2009  from: http://money.cnn.com/2009/01/26/news/companies/Home_depot/?postversion=20090  12609

Schneiderman, R.M. “Nardelli Bails On Home Depot” Forbes online – 2007. Retrieved July 23, 2009 from: http://www.forbes.com/2007/01/03/hd-nardelli-update-markets-equity-cx_rs_0103hd.html

“Competition building as Home Depot, Lowe’s plan Web sites” – Bloomberg News, 1999   CNET News.com. Retrieved July 23, 2009, from: http://www.zdnetasia.com/news/hardware/0,39042972,13019993,00.htm

“History” – Home Depot.com website. Retrieved July 24, 2009 from: http://corporate.homedepot.com/