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Home Depot

Industry: Home Improvement

Full Case Report

BUS 800 Strategic Management

April 17th 2015

Pritpal Sandhu

500-456-795

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INTRODUCTION

The home improvement industry is comprised of firms offering products and services to different

types of buyers who are looking to renovate their homes. Two large companies, Home Depot and Lowe’s,

dominate the industry and account for 88 percent of total revenues. Home Depot is the industry leader and

has revolutionized the home improvement industry. They offer a wide selection of products and services

at prices that competitors cannot match and the company's name has become synonymous with home

improvement. Despite the success of the company, Home Depot is facing some challenges. One of the

biggest challenges their facing is the significant increase of competitive pressure from Lowe’s in the past

several years. Another issue is how to react if poor economic conditions arise because the home

improvement industry is highly correlated to the housing market and economy conditions.

ANALYSIS

Front Burning Issue: How to remain competitive and maintain growth as top home improvement retailer

despite increased competitiveness, concern of poor economic conditions, and targeting women and family

segment.

Home Depot is faced with multiple serious issues that need to be addressed as soon as possible in order to

stay competitive as an industry leader and maintain same growth rates as the past several years. The first

issue concerns the increased competitive pressure from Lowe’s in the past several years. By analyzing the

strategic map group, we observe that the most attractive place on the map is the bottom-right, where

Home Depot is located. However, we also see that Lowe’s is very close to the bottom-right as well which

indicates increased competitive pressure (E.5.0). Another indication of increased competition from

Lowe’s is the increase in their revenues in the past few years. Lowe’s revenues have grown over 12

percent from 2012 to 2014. Furthermore, the Lowe’s stock price has risen from $20.64 in July 2010 to an

all-time high of $76.25 in 2015 (I.1.0). The second issue Home Depot and the home improvement

industry is faced with is how to react when poor economic conditions arise. The industry is highly

correlated to the stability of the housing market because when uncertainty arises in this market,

consumers are more likely to delay or not purchase home improvement products and services (E.1.2).

Moreover, the industry relies somewhat on residential construction market as well because if homes are

not being built as much, then less products and services are needed, thus decreasing demand for home

improvement materials. Lastly, other factors such as high unemployment and interest rate fluctuation can

further adversely affect demand for home improvement products & services because consumers are less

likely to focus on improving their homes when their unemployed or when the cost of credit is too

expensive for them (E.1.2). The last issue that Home Depot needs to address involves their retail stores.

Home Depot stores at time can be hard to navigate with its narrow aisles and overwhelming clutter

displays which makes it very unattractive for most females, families, and even some men because most

consumers prefer a more appealing and easy to navigate retail store (I.3.4). This is a very important issue

because Lowe’s retail stores are more appealing and easier to navigate which is one of the reasons why

Lowe’s has increased competitive pressure on Home Depot over the past several years.

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ALTERNATIVES

1) International Expansion

Home Depot currently only operates in North America with vendors around the world but they need to

consider expanding internationally because it will be extremely beneficial for the company and help solve

multiple issues that they are currently facing. Home Depot should expand internationally to emerging

countries where demand for their products and services would be high. Plus, as the industry leader of

home improvement, the company’s name has become synonymous with home improvement and is a very

recognized company worldwide.

2) Redesign Retail Stores

Home Depot’s retail stores need to be redesigned since many consumers, mostly women and families, are

intimidated when entering the facility. This is due to the fact that Home Depot, at times, can be hard to

navigate because of its narrow aisles and overwhelming clutter displays which makes it very unattractive.

Home Depot needs to resign their retail stores so it is easier to navigate for consumers and give a more

appealing look.

PROS CONS

Diversify the company from

economic risks that might arise in

North America due to poor

economy conditions.

Increase company revenues, sales,

and net income that will help them

remain industry leaders and fight

off the increased competition from

Lowe’s.

Build a stronger reputation because

HD will be helping emerging

countries and consumers prefer

companies that are socially

responsible to companies that are

not.

Will allow Home Depot to cover

even more geographical locations

than Lowe’s thus increasing

competitiveness.

Poor economic conditions in the

U.S. can impact economic

conditions in other countries.

Investors might be frightened due to

the increase of debt that will needed

in ordered to finance the expansion.

Political risks such as

nationalization, the seizure of

assets, war, terrorism, and the

failure of local authorities to

enforce contracts in the region.

Regulatory risks such as

environmental risks because most

countries outside the U.S. have

higher environmental standards.

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3) More Green Products

Home Depot has over 1000 products and services that are more eco-friendly and as the world continues to

head towards that direction, Home Depot needs to offer more economic-friendly products which will help

them increase their competitiveness and build a stronger reputation.

PROS CONS

Build a stronger image of the

company, which will attract

consumers that are environment

sensitive.

Help save the environment.

Greener products tend to be more

expensive than conventional

products.

RECOMMENDATIONS

How to remain competitive and maintain growth as top home improvement retailer despite increased

competitiveness, concern of poor economic conditions, and targeting women and family segment.

In order to stay completive and maintain growth as top home improvement retailer, Home Depot needs to

expand internationally to emerging markets where demand for home improvement products and services

are high. International expansion will allow the company to maintain its spectacular growth it has been

achieving in past recent years and increase overall competitiveness. This is an excellent opportunity

because Lowe’s has been experiencing significant growth over the past several years and placed pressure

on Home Depot. Thus, a well executive international expansion strategy can help Home Depot defend

itself from increased competition from Lowe’s and increase competitiveness. Furthermore, since Home

Depot’s business and the industry is highly correlated to economic conditions international expansion will

help diversify the company from economic risks that may arise in the United States and North America.

Lastly, Home Depot should also execute a retail redesign strategy that gives the stores a more appealing

look to attract more women and family segments because many female consumers prefer to shop at

Lowe’s instead because their stores are easier to navigate and more appealing. Also, this strategy will

steal women segment from Lowe’s because they cannot complete with Home Depot’s price and overall

increase competitiveness and stay as industry leader.

PROS CONS

Makes it easier for consumers to

find the products their looking for

and overall more enjoyable

experience.

Appealing stores will attractive

more females and families, which

will increase sales.

Also, redesign of stores will steal

female segment from Lowe’s and

negatively affect their business.

Redesigning stores will be very

costly.

HD can possibly experience loss of

profits in the short-term.

Since redesigning is costly this will

increase company debt if they

choose to finance through debt

(most likely will).

Some consumers do not like change

and may not like the new design.

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External Analysis

1. PETSEL ANALYSIS

1.1 Political

- The home improvement stores industry is subjected to various federal, state, and local

laws & regulations that govern numerous aspects of their business.

- Government policy that affect the housing markets can adversely impact industry.

1.2 Economic

- The industry’s financial performance significantly depends on economic conditions

including changes in GDP. It also relies on stability of housing market, residential

construction, and home improvement markets.

- Uncertainty in these markets impact consumer confidence causing them to delay

purchase or determine not to purchase home improvement products & services.

- Other factors such as high unemployment, interest rate fluctuation, fuel & energy costs

can further adversely affect demand for home improvement products & services.

1.3 Social

- Changes in income impact the industry because consumer shy away from discretionary

home improvement products and services.

- Lower availability of credit to some consumers has an unfavourable affected sales.

1.4 Technological

- Companies in the home improvement industry have taken a large step in e commerce

production by heavy investing in company websites.

- Many customers research products online and then go into stores to view the product or

talk to an associate before making the purchase.

- Customers can access product ratings & reviews, compare prices, purchase product, and

more.

1.5 Environmental

- The home improvement stores industry is subjected to seasonal influences.

- Highest volume of sales occurs in May-August and lowest volume of sales occur in

November-February

1.6 Legal

- The industry has recently experienced a large number of legislative & regulator initiatives

and reforms, as well as increased enforcement of existing laws & regulations.

- Changes in regulations governing minimum wage can increase costs for companies.

- Healthcare reform under the Patient Protection and Affordable Care Act, Heath Care, and

Education Reconciliation Act of 2010 has also increased labor costs.

Conclusion: Overall, the U.S. home improvement industry is not very attractive. It is highly

depends on economic conditions and highly correlated to housing market. Industry is subjected

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to interest rate fluctuation, high unemployment rate, and fuel & energy costs. Furthermore, there

have been an increase in law and regulations, which have increased costs. Moreover, if

economic growth was to accelerate, interest rates will increase and also negatively affect the

industry.

2. ECONOMIC FEATURES

2.1 Market Size & Growth Rate:

- Home improvement market is relatively medium-sized

- Industry experiences slight growth rate over the years but can significantly increase or

decrease since its highly correlated to housing market

- Highly concentrated with two large companies accounting for 88% of total revenues.

2.2 Buyer Needs & Requirements

- Three types of buyers in this industry; Do-It-Yourself, Do-It-For-Me, and professional

contractors

- Buyer needs are changing, as consumers prefer environmentally friendly products.

2.3 Number of Rivals

- Industry is dominated by two large companies. (Home Depot & Lowe’s)

- Since industry is cyclical, when housing market is performing well it attracts attention of

opportunity-seeking new entrants.

2.4 Scope of Rivalry

- The geographic are over which most companies complete against is multinational.

2.5 Degree of Product Differentiation

- The product of rival sellers are middling differentiated with rivals becoming more

differentiated

2.6 Production Capacity

- The industry is not overcrowded with competitors, thus profit margin and prices are

slightly above average.

2.7 Pace of Technological Change

- Advancement of technology has caused companies to heavily invest in ecommerce and

is almost mandatory to stay competitive

2.8 Vertical Integration

- Most industry members are partially integrated. (Parts & components, wholesale

distribution)

- Can result in competitive advantage for the firm

Conclusion: The industry’s has three main types of buyers with their preference towards

products relatively changing. Due to the change in demand for more environmentally friendly

products, firms need to quickly react to trend to stay competitive. Also, with technology

advancing, companies need to heavily invest in ecommerce because many consumers want to

access product information without physically having go to the store.

3. PORTER’S FIVE FORCES

3.1 Competition from Rival Seller: WEAK

- Competition among the home improvement industry is weak because two firms dominate

the industry

- Industry members products weakly differentiated and costs to switch brands are low.

- Firms of this industry have high fixed costs and high storage costs.

3.2 Competition from Potential New Entrants: WEAK

- Competition from potential new entrants in this this industry is weak.

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- Certain entry barriers are imposed by the industry such as entry barriers, tariff rates, high

capital requirement, and distribution channels.

- New entrants have to comply with government regulations.

3.3 Competition from Producers of Substitute Products: WEAK

- Not many substitute products in the home improvement industry.

- The internet is one of the few substitute products because with a few clicks of a button, a

customer can find “How To” instructions as well as plans for a project.

3.4 Competitive Pressure from Supplier: WEAK

- Since two large companies dominate the home improvement industry, suppliers are forced

to offering discounts because they make up such a large portion of their sales.

- This helps firms decrease purchasing price and increase profit margins.

3.5 Competitive Pressure from Buyer: WEAK

- Do-It-Yourself customers have no buying power when it comes to purchases.

- Do-It-For-Me customers also have no buying power.

- However, professional customers such as electricians, plumbers, landscapers, and

contractors are able to get purchase discounts due the large volume of purchase.

Conclusion: The five forces model has displayed that the home improvement industry is not very

competitive but it is very difficult for entrants to enter. Certain entry barriers are imposed by the

industry, which makes it extremely difficult and expense for newcomers to enter. There are not

many substitute products in this industry, which makes it attractive. Furthermore, since the

industry is dominated by a few large players, competitive pressure from suppliers is weak. Lastly,

competitive pressure from buyers is also weak because many consumers cannot negotiate prices.

4. DRIVING FORCES ANALYSIS

4.1 Changes in the industry long-term growth

- Since economy is heading towards more economic-friendly products, more

environmentally friendly products are going to be in demand, especially down the road.

4.2 Emerging new Internet capabilities and applications

- Internet shopping & Internet applications have impacted the home improvement industry.

- Consumers want to be able to research product, read reviews, and view ratings online

before spending time and going in stores to purchase.

4.3 Changes in who buys the product and how they use it

- Baby Boomers already established and less-likely to reallocate, thus decreasing housing

market.

- However, “Millennial” generation will soon want to start family’s thus increasing

housing market and ultimately increase home improvement demand.

4.4 Technology change and manufacturing process innovations

- Although barely any substitute products in this industry, the internet has allowed

consumers to find “How To” instructions.

4.5 Product and marketing innovations

- The introduction of environmentally friendly products in this industry has rejuvenated

industry growth and allowed product differentiation.

4.6 Changes in cost and efficiency

- Certain commodity products, including lumber and other raw materials, are historically

volatile and subject to fluctuations.

4.7 Reduction in uncertainty and business model

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- Uncertainty in the home improvement industry because it’s highly correlated to the

housing market and other factors. Also, commodity prices subject to fluctuations.

4.8 Regulatory influences and government policy changes

- Increased government intervention to protect consumers.

Conclusion: Based on the driving forces analysis, the industry demand for its products are

usually increasing because consumers are able to access production information with just a few

clicks. Also, when new ecofriendly products are released, consumers drive demand up because

these products will be more efficient and save money. Also, the driving forces are making

competition less intense because of entry barriers and high storage costs. Overall, because this

industry is dominated by a couple large companies, the driving forces will increase profitability.

5. STRATEGIC GROUP MAP

- Two main factors of

competition in home

improvement industry

are product selection

& price.

- Firms closer to the right

side of map are smaller

companies in the industry

and companies

towards the bottom

right are much larger.

- Retailers towards the

bottom right enjoy better

position because they are

able to sell products for

less due to economies

of scale.

Conclusion: In summary, the best place on this map is the bottom right because companies have

a wide selections in products and they are able to sell them for less compared, which results in

competitive advantage. Home Depot and Lowe’s will prosper due to their position because they

can attract more consumers. True Value and Ace Hardware likely struggle because they don’t

offer variety of product selection and are more expensive. The reason Home Depot and Lowe’s

can charge less for products is because they are very large and enjoy economies of scale.

6. FRAMEWORK OF COMPETITOR ANALYSIS

Framework Indicators

Lowe’s Home Improvement Ace Hardware True Value Corp.

Current Strategy

6.1. i) Position

ii)Competitive Advantage

iii) Investment

i)- strategic framework comprised of three key initiatives: Customer Service, Product Authority, and Disciplined Capital Allocation ii)- low prices & product selection iii) 1,300 stores in 2007 and 1,700 in 2011

i) – heavily investing ecommerce - relatively medium to high prices and some product selection ii) strong customer loyalty

i)-increase brand recognition through national marketing and advertising - high prices and narrow product selection ii) N/A iii) national marketing and advertising

Ace Hardware

True Value Corp

Lowe’s

Home Depot

PR

ICE

L

OW

H

IGH

PRODUCT SELECTION LOW HIGH

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iii) created WebFOCUS Application and reached over 10,000 users

6.2 Objectives

Meeting objectives -overall has seen 35% increase in past year

Not meeting objectives -revenue declined by over 22% from 2007-2010

Not meeting objectives -steady growth from 04-06 but then declined in 07-10

6.3 Capabilities i) Strengths ii) Weaknesses

i) strong power over suppliers & buyers ii) Opened up too many retail stores

i) strong customer loyalty ii) Cannot reach majority of market due to small size

i) N/A ii)N/A

Assumption No information No information No information

Conclusion: The home improvement industry is very competitive and analyzing the chart above

we can see that Lowe’s is enjoying the industry compared it its competitors. Ace Hardware and

True Value are struggling to come up with strategies to compete with the larger companies.

7. KEY SUCCESS FACTORS ANALYSIS

7.1 Relative Price of Products & Product Selection

- This is the most important key success factor in the home improvement industry because

most consumers are very price sensitive.

- Wide range of product is vital to stay competitive in this industry.

7.2 Distribution Network

- Strength of a company’s distribution network extremely important because the company

that has the most stores can get the product to customers quicker.

7.3 Technology

- Retailers need to adapt to advancing technology because many customers prefer online

shopping or want to be able to research product before purchasing it.

7.4 Customer Service

- Companies need to have outstanding customer service in order to gain repeat customers.

Conclusion: To stay competitive in the home improvement industry, companies must be able to

offer low prices because consumers are very price sensitive. Having a wide variety of products

will lead to more competitiveness as well. Due to advancements in technology, consumers want

to have instant access to product information and unable to deliver this can hurt company

competitiveness. Lastly, by having many retail stores, firms are able to get the product to the

consumer quicker, which makes it more competitive.

8. INDUSTRY OUTLOOK

In terms of economics, U.S. home improvement industry is not attractive for many reasons.

Firstly, the industry highly depends on economic conditions and highly correlated to the housing

market. The industry is harshly impacted if economy worsens. Secondly, the industry has

recently experienced increase in regulations and increase in enforcement of existing laws and

regulations. Thirdly, changes in consumer income can impact industry because consumers shy

away from discretionary products. Lastly, government policy affecting housing market can have

significant impacts on the industry. Thus, future profitability is unstable for companies.

Weak competitive forces are increasing profitability for existing companies but profitability

for new entrants are highly unlikely due to entry barriers and high capital requirements imposed

by industry. The industry is dominated by two companies which gives them power over suppliers

and buyers and ultimately increases profit margins. Also, not many substitute products exist in

the industry making it even more profitable for existing firms.

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Industry profitability will be favourably affected by the prevailing driving forces in this

industry because technology has enabled consumers’ instant access to products and service

information and option to purchase online. The introduction of ecofriendly products has

rejuvenated the industry and increased profitability.

Home Depot occupied a stronger market position than their rivals and this is unlikely to

change because they offer lower prices than their competitors and have a wider selection of

products which results in a competitive advantage. They can offer lower prices because they are

very large and enjoy economies of scale. The company’s strategy is working very well to deliver

on the industry key success factors.

1. FINANCIAL ANALYSIS

1.1 Common Sized Income Statement

(Figure 1)

- COGS, Gross Profit, and Net Income all

improving throughout the years of 2010-

2014.

1.2 Key Financial Ratios (Figure 2)

- Profitability: Recovering since

recession, net profit margins improved by

0.5% over past five years.

- Liquidity: Improving liquidity position, current ratio was 1.34 in 2010 and increased to

1.42 in 2014Figure 1 - Common Sized Income Statement

- However, high growth of liquidity is a signal of not being able to convert cash into

meaningful investments.

- Solvency: Debt-to-asset ratio has been constant over the past few years but increased ten

percent from 2013-2014.

- Debt-to-equity ratio has also been constant except in 2014 when it doubled.

- Activity: Average collection period improved from 68.65 days to 56.37. Inventory

turnover also increased by 0.35.

Key Financial Ratios Year

2014 2013 2012 2011 2010 CAGR

Liquidity

Current 1.42 1.34 1.55 1.33 1.34 1.2%

Solvency

Debt-to-Asset 36.3% 26.3% 26.6% 21.7% 21.2% 11.4%

Debt-to-equity 1.2% 0.61% 0.60% 0.58% 0.57% 15.5%

Profitability

Income Margin 34.8% 34.6% 34.5% 34.3% 33.9% 0.5%

ROA 13.3% 11.0% 9.6% 13.1% 9.7% 6.4% Figure 2 - Key Financial Ratios

Year

Year

2014 2013 2012 2011 2010 CAGR

COGS 65.2% 65.4% 65.5% 65.7% 66.1% -0.3%

Gross Profit 34.8% 34.6% 34.5% 34.3% 33.9% 0.5%

OPEX 23.1% 24.1% 25.0% 25.6% 26.6% -2.8%

Other Exp 0.8% 0.7% 0.8% 0.8% 1.2% -8.4%

Taxes 3.9% 3.5% 3.1% 2.8% 2.0% 14.3%

Net Income 6.8% 6.0% 5.5% 4.9% 4.0% 11.2%

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2014 2013 2012 2011 2010 CAGR

Inventory Turnover 4.65 4.57 4.47 4.21 4.30 1.6%

Average collection period 56.37 53.59 56.54 62.67 68.65 -3.9% Figure 3 – Activity Ratios

1.3 Stock Price

- In the past five years has seen significant growth in stock price.

- Share price has over 300% growth since 2010.

- Stronger share price means Home Depot can distribute high dividend returns.

- Dividend payments increased from 22.5 cents to 47 cents from 2010 to 2014.

Conclusion: Overall, Home Depot seems to be

in a heathy financial position, as their revenue has been increasing and COGS have been

decreasing. Also, in the past five years they have been able to decrease operating expenses which

increased net income. Home Depot is relatively liquid as their current ratio has been inclining

which allows them to respond to unplanned events without significant impact. The company’s

average collection period decreased which is a good sign because they are able to collect money

from consumers much quicker than in the past. The company has been solvent in the past few

years but have significantly increased debt in 2014 which might frighten investors and

shareholders. However, looking at the share price of Home Depot in the past five years, it’s quite

clear they don’t have much to be afraid of. Quarterly dividends has nearly double in the past five

years.

2. PRESENT STRATEGY ASSESSMENT

2.1 Vision, Mission, Objectives

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- Vision/Mission Statement: offer the highest level of service, the broadest selection of

product, and the most competitive prices.

- Financial Objectives: Building shareholder value through higher returns on invested

capital.

- Strategic Objective: company focuses on interconnected retailing based on the view of

providing seamless shopping experience across multiple channels.

2.2 Competitive Approach

- Business: advantages include largest market share in home improvement industry, wide

section on products, and competitive prices.

- Superior interconnected retail.

- Functional: Known for excellent customer service, superior quality, and good supply

chain management.

2.3 Key Performance Indicators

- Financial: Balance sheet position illustrates improving liquidity and profitability but in

recent years, shows company is less solvent than before.

- Income statement shows increases in revenue and net income while decrease in operating

expenses.

- Company collects accounts receivable in less days than previous years

- Strategic: In the past several years company has displayed superior profits compared to

industry indicating successful implementation of strategy.

How well is the current strategy working?: Home Depot has demonstrated excellent execution

of its strategy, as they are achieving faster growth compared to industry rivals and have greater

market share than any competitors. Specific indicators show Home Depot is succeeding through

strong KPI’s in constant CAGR growth in revenues, net income, inventory turnover and more.

The company also has exceptional level of service, larger selection of products and offer prices

that industry rivals cannot match. The industry is highly correlated to the housing market and in

2008 the industry experienced hardship. However, since Home Depot is the industry leader they

were able to minimize losses and remain profitable. Few years after the economy and housing

market picked up, Home Depot soared back to top performance as reflected in their stock price.

3. SWOT ANALYSIS

3.1 Strengths (Completive Assets)

Product Authority

- Offers good quality products at lower prices.

- Competing companies struggle to match their low prices.

- Lower prices attracts a larger customer base because most people are in the low-to-

middle class income class.

Brand Recognition & Quality

- Home Depot name has become synonymous with home improvement.

- Many other companies carry same products from same brands but Home Depot has many

exclusive well-known brands unavailable at other retailers.

- Brand exclusivity of respected products increase customer footfall, creates new demand,

and improves activity ratios such as inventory turnover.

Business Model

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- First of its kind in the home improvement industry & revolutionized the way customers

shop.

- Focus on selling home improvement products & services to do-it-yourself, do-it-for-me,

and professional customers with variety of products

- Since the company is very large, the enjoy economies of scale and have strong bargaining

powers over suppliers and buyers.

Customer Service

- Uses sophisticated selection of criterial to select people with customer-friendly

orientation

- Provides strong focus during the training of their employees on safety.

3.2 Weakness (Competitive Deficiencies)

- Home Depot focuses on male and professional segment of market but should consider

women and families as well.

- Many general contractors choose not to purchase material from Home Depot due to their

“Wal-Mart” approach. GCs more likely to purchase from specialty suppliers.

- Loop holes in return policy such as being able to return product within 90days of

purchase without check product condition.

- HD puts little effort in store appearance which drives many female customers away along

with others.

- Operates in only North America

3.3 Potential Market Opportunities

- International expansion leads to more financial stability because while one country may

suffer economically, other countries may not. Also, leads to increase in growth and

profits.

- Market research from Freedonia Group, Inc. projected 11 percent annual growth in green

building materials in 2013 which translated into a demand of estimated $86.6 billion in

2017.

- Partnered with U.S. Green Building Council to make more LEED-certified homes and

neighbourhoods.

3.4 External Threats

- Heavily relies on economic conditions and highly correlated to the housing market and

residential construction

- Home Depot’s business can be impacted by unemployment rates, fluctuating interest

rates and exchange rates

- Home depot at time can be hard to navigate with its narrow aisles and overwhelming

clutter displays

o Negatively impacts female demographics because women prefer a more appealing

and easy to navigate retail.

- Consumer fraud major threat for HD as two men were charged with stealing over

$300,000 worth of inventory by switching out UPC codes on expensive item switch UPC

codes from less expensive items.

- Subjected to seasonality where sales are very low during winter and high in

spring/summer.

- Increase in competition with Lowe’s in the past few years.

Conclusion: Based on the SWOT Analysis, Home Depot is an attractive company because their

competitive advantages overshadows their competitive delicences. Home Depot is the industry

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leader and is able to offer competitive prices on a wider selection of products. With brand

exclusivity, they can differentiate themselves by offering products not available elsewhere.

However, Home Depot approach to the home improvement industry is very “Wall-Mart” like

and this is driving their professional contractors segment away. Also, their stores can be hard to

navigate and with narrow aisles can be intimidating especially for women and families. Due to

Home Depot size, they have some interesting opportunities such as expansion into emerging

economies and internationally markets. Plus, this will diverse the company since it heavily relies

on economic conditions and housing markets in country they operate in.

4.

Conclusions: Through the company’s primary and secondary activities the customer value offered is high in comparison to the industry’s performance. Through the vast factors presented, Home Depot is able to deliver on its customer value proposition with continued success on service.

5. COMPETITIVE STRENGTH ASSESSMENT

1.1 Value Chain Analrimary Activities

4.1 Value Chain Analysis Primary Activities

Inbound Logistics Operations Outbound Logistics Sales and Marketing Service

-computerized and integrated

warehousing, inventory control, and purchase

order

- integrated information exchange

-point of sale bar code scanning

- electronic data interchangeable with

vendors

Online sales: website and ecommerce

-professional advice in selecting and using

products

-convenient store location to reach more

customers

- regional buying linked to the corporate

communities network

-recognized brand -offers installation services

Pleasant shopping environment

- Satellite communications

for both data and video

transmission

Steadily growth of sales in past several

years

-emails newsletters containing advice and

announcements of events in their local

stores

4.2 Secondary Activities

Product R&D, System Development and Technology

Human Resources Management General Management

High investments in e-commerce

-Empowers associates to deliver excellent customer service through Customer FIRST training program

-employed 356,000 associates with

22,00 salaried and remainder hourly or temporarily

- subjected to various federal, state, and local laws & regulations that govern

numerous aspects of their business

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Conclusion: Based on the assessment, Home Depot is clearly competitively stronger than key

rivals in the industry. They are able to outrank their competitors in every category and enjoy

being industry leaders with an overall rating of 8.2. However, the strategic implantation from this

assessment for Home Depot is that they need more improvements because Lowe’s is not far

behind. With strong financial resources, they can invest and create better quality

products/services.

6. STRATEGIC ISSUE FOR MANAGERIAL ATTENTION

Issue: How to remain competitive and maintain growth as top home improvement retailer

despite concern of poor economic conditions, increased competitiveness, and targeting

women and family segment.

Question: How will we react if poor economic condition arise? How will we increase

competitiveness to remain industry leader? How can we attract a more women and family

demographic?

Strategic Implication: The issue that Home Depot faces is maintaining their growth if poor

economic conditions arise because the home improvement industry is highly correlated to

economic conditions. With increase competitiveness from Lowe’s, Home Depot needs to

rediscover other methods to remain industry leaders. They need to attract more women.

7. Relevant Facts that Support the Strategic Issue

External

1.2 - Financial performance significantly depends on economic conditions, stability of housing

market, residential construction, and home improvement markets.

1.3 - Changes in income impact the industry because consumer shy away from discretionary

home improvement products and services

SR=Strength Rating WS=Weighted Score

Home Depot Lowe’s Ace Hardware

Key Success Factors Importance Weighs SR WS SR WS SR WS

Quality/product performance

0.3 8 2.4 7 2.1 5 1.5

Customer service capabilities

0.2 8 1.6 8 1.6 7 1.4

Reputation/image 0.3 8 2.4 6 1.8 5 1.5

Financial resources 0.2 9 1.8 7.5 1.5 4 0.8

Overall weighted competitive strength

rating

1 8.2 7 5.2

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1.5 - The home improvement stores industry is subjected to seasonal influences

1.6 - experienced a large number of legislative & regulator initiatives and reforms, as well as

increased enforcement of existing laws & regulations

2.1 - Industry tends to highly cyclical, since it’s highly correlated with housing market

2.2 - Buyer needs are changing as consumers prefer environmentally friendly products

2.5 - product of rival sellers are middling differentiated with rivals becoming more differentiated

2.7 - Advancement of technology has caused companies to heavily invest in ecommerce and is

almost mandatory to stay competitive

3.1- Competition among the home improvement industry is high.

4.1 - Home improvement industry is cyclical & highly correlated with the housing market

4.2 - Internet shopping & Internet applications have impacted the home improvement industry

4.4 - Although barely any substitute products in this industry, the internet has allowed consumers

to find “How To” instructions

4.5 - introduction of environmentally friendly products in this industry has rejuvenated industry

4.6 - Certain commodity products, including lumber and other raw materials, are historically

volatile and subject to fluctuations

7.1 - most important key success factor in the home improvement industry because most

consumers are very price sensitive

7.4 - Companies need to have outstanding customer service in order to gain repeat customers

Internal

1.1 COGS, Gross Profit, and Net Income all improving throughout the years of 2010-2014

1.2 Recovering since recession, net profit margins improved by 0.5% over past five years

1.3 Share price has over 300% growth since 2010

2.2 advantages include largest market share in home improvement industry, wide section on

products, and competitive prices

2.3 Balance sheet position illustrates improving liquidity and profitability but in recent years,

shows company is less solvent than before

3.2 focuses on male and professional segment of market but should consider women and families

as well

3.4 Home depot at time can be hard to navigate with its narrow aisles and overwhelming clutter

displays

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References http://www.forbes.com/sites/mikepatton/2013/05/28/the-u-s-housing-market-home-improvement-is-

real/

https://finance.yahoo.com/q/co?s=HD

http://www.forbes.com/sites/greatspeculations/2015/01/23/home-depot-key-trends-in-housing-

impacting-the-home-improvement-market/

https://corporate.homedepot.com/OurCompany/GlobalPresence/Pages/default.aspx

https://logisticsmgeps.wordpress.com/2010/04/16/home-depot-strategic-internal-organization-

financial-analysis/

http://callisto.ggsrv.com/imgsrv/FastFetch/UBER1/304344_GDRT35137FSA

http://www.123helpme.com/home-depot-swot-analysis-view.asp?id=165420

http://www.forbes.com/sites/greatspeculations/2012/11/16/why-lowes-is-one-for-the-future/

http://www.informationbuilders.com/applications/acehardware

http://www.truevaluecompany.com/About-Us/About-True-Value

https://www.google.ca/finance?fstype=ii&q=NYSE:HD

https://www.stock-analysis-on.net/NYSE/Company/Home-Depot-Inc/Ratios/Short-term-Operating-

Activity#Average-Receivable-Collection-Period