THE HOME DEPOT
1. 2. Questions Home Depot’s Stock Price Dropped 23% between January 1985 and February 1986. What Were the Reasons for this Decline? Should the Company Change its Strategy?
THE HOME DEPOT
Strategic Analysis The Home Depot Pioneered the Concept of Warehouse Retailing in the Home Centre Industry. The Company’s Strategy Consists of: Focusing on the Do-It-Yourself Segment of the Market; 1. Keeping Costs through Low Overhead, Purchase Discounts, and High Turnover; 2. Attracting Customers through Aggressive Advertising and Competitive Pricing; 3. Providing High Service to the Target Customer Group through Well-Trained Employees 4. and Well-Stocked Stores;
THE HOME DEPOT
Financial Analysis (1) 1. The Home Depot Is
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This Could Become a Competitive Liability for The Home Depot if There Is a Price War in the Industry;
THE HOME DEPOT
Cash Flow Analysis (1) • The Company Has a Negative Cash Flow from Operations in Each of the Three Years: This Need Not Necessarily Be Alarming as the Home Depot Is a Growth Company; However What Is Potentially Alarming Is the Huge Increase in the Negative Cash Flow from Operations between 1984 and 1985, Primarily Due to a Large Inventory Increase; The Negative Cash Flow from Operations Is Exacerbated by the Decline in Margins; The Significant Investment in Property and Equipment Was a Second Reason for the Company’s Cash Deficit: In 1985, the Company’s Expansion Required an Investment of $90m; Since the Company’s Operations Generated Negative Cash Flow, this Investment Had to Be Funded through External Sources; Most of the Company’s Cash Needs Are Financed through Long-Term Debt: In 1984, the Company Borrowed $120m, and an Additional $92m Was Borrowed in 1985; The Company Used Convertible Debt in Both Years, which Is Unlikely to Get Converted into Equity Any Time Soon; In Contrast to the Home Depot, Hechinger Had a Positive Cash Flow from Operations in Each of the Three Years; Hechinger Did Not Rely on Debt
The growing trend of home improvement has perpetuated a larger demand for box store home improvement shops such as Home Depot and Lowe’s. There are several types of companies that contribute to the booming renovation industry. Home Depot and Lowe’s provide all the
This allows Home Depot to better utilize resources by targeting demographic categories that are likely to be interested in home improvement or contracting services. Home Depot advertises a low price guarantee, including beating competitors’ prices by 10% (The Home Depot, 2016). Home Depot’s current marketing slogan is “More Saving, More Doing”. Home Depot markets to both the inexperienced homeowner as well as contractors for its products and services. The company’s marketing strategy, slogan, and price match guarantee all fit the current corporate strategy of growth through increasing sales at existing retail locations and online to both contractors and homeowners. As an organization within an industry where low price is likely necessary due to lack of differentiation, Home Depot’s marketing strategy focused on low price is necessary. The low-cost without focus strategy at the business level is also aligned with this marketing focus. Since Home Depot is looking to gain customers in the broader market, focusing on both do-it-yourself customers and contractors is
Retailing building supply stores have become a popular retail industry sector due to increased public awareness and the need of many homeowners for the home improvement products. Back in the 1970s, long before warehouse stores ruled home improvement land, do-it-yourselfers shopped at “home centers.” These 30,000 square foot stores offered cheaper prices and wider selection of products, about 25,000 more than local hardware stores and eliminated the extra trip to the lumberyard. The dependence of many of these retailers upon the homebuilding industry for much of their business has also been reduced and the warehouse superstores, such as Home Depot, have become more important. The smaller companies in the
More savings. More doing. Now that’s the power of Home Depot (homedepot.com). “ The Home Depot was founded in 1978 by Bernie Marcus and Arthur Blank, along with investment banker Ken Langone and merchandising guru Pat Farrah” (corporate.homedepot.com). The founders envisioned a “one-stop shop” for the do-it-yourselfer. The first Home Depot opened June 22,1979 in Atlanta, Georgia. The first stores had around 60,000 square feet that dwarfed the competition stocking over 25,000 SKUs much more than any other hardware store at the time (corporate.homedepot.com). As a facade to look like there was an abundance of merchandise The Home Depot would stack empty boxes on the shelves. Home Depot has come a long way since their humble beginnings.
From its roots as a vision in 1978 of a home improvement superstore The Home Depot has become a giant in this sector. Influenced by the “do-it-yourself” customer or the corporate contractors each policy and business plan is developed with a consumer stake holder emphasis. As its founders stated “We’re in the people business” (Planning), and this is maintained in its business structure today. Set up as a direct to consumer warehouse of home improvement and building products
Home Depot is the fastest growing retailer in the U.S. by some accounts. It has a fascinating history of innovation and entrepreneurship. The company had some difficulties in the mid-2000s that some attribute to cultural clashes. However, during this period the company was able to take full advantage of the housing boom. Yet when the bubble burst, Home Depot was forced to claim substantial losses. Despite these loses Home Depot has weathered the storm fairly well and is in prime position to take advantage of an economic recovery; if it ever comes.
* Failure of key information technology or process; including customer facing and privacy disruptions and disruptions in the interconnected retail strategy.
Lowe’s has entered into the Canadian and Australian market in attempts to gain unclaimed market shares. It has not gained enough traction in the Australian market but has done well in Canada. Lowe’s should focus more on expansion in Canada because of the strong need for Home Improvement stores. Lowe’s has the opportunity to gain more market share by developing a mobile application that allows users to view all items offered and what deals are taking place. Customer service is a top priority in any retail industry, Lowe’s needs to improve this dramatically. Lowe’s needs knowledgeable, friendly-staff that go beyond just showing a customer where a product is in the store. By doing so, Lowe’s will retain more customers and its competitors will lose shares of the market.
Lowe’s is the 14th largest retailer in the United States and is presently planning aggressive expansion, opening a new store on average every three days. Lowe's revenue growth is primarily a function of penetration of the market increase resulting from a burst of new locations instead of the same store sales. Although Lowe’s has grown tremendously, it remains half the size of Home Depot and has serious debt burden that increases its risk level drastically. Lowe’s is Home Depot’s largest competitor because both companies have the same products, services, and enormous warehouse formats. In this major retail market Lowe’s and Home Depot stores go toe
To analyze the home improvement warehouse store competitive environment, we use the Five Forces model to evaluate five crucial competitive aspects: selling rivalry, supplier resources, buyer power, outside industry substitutes, and the threat of new entrants to the marketplace.
Home Depot and Lowe's believe in big warehouse space, an informal atmosphere and low prices. They are able to offer the lower prices to consumers due to their purchasing power. Inventory differs depending on the story type, home centers typically sock more lumber and building supplies, as their biggest customers are contractors. They pay their floor employees minimum wage, and keep overall costs down by keeping them as part time employees.
However, in 1999, Lowe’s recorded very high sales growth alongside its expansion in preparation for the new millennium. From 1999 to 2001, Lowe’s began to assert itself as a worthy competitor for Home Depot, embodied in its significantly better margins and turnover ratios despite the recessionary economic environment. This improvement in ratios is indicative of positive change in the management of the
The first company that will be analyzed is Home Depot. Home Depot's total assets increased to $40,518 million from $40,125, an increase of 0.9%. These figures, however, are lower than the value of total assets on the books for HD for the prior three years. The 2008 fiscal year was the point where Home Depot had the highest asset levels at $44.324 billion. The recession has been the biggest culprit for the decline in the size of Home Depot. All of the firms in the building supplies industry have a strong relationship between their sales and the strength of the housing market, as home purchases are a major impetus for home renovation projects. Home Depot's size declined with the onset of slowness in the housing market, and it is expected that its size will not begin to increase until the housing market recovers. Home Depot management has noted that there are signs of life in the US housing market, and that this should be taken as an encouraging sign for the company (Isidore, 2012). Indeed, the company's balance sheet has grown in size throughout the 2013 fiscal year, so that the latest Q3 total
1. Williams-Sonoma has experienced strong growth in the past year, but this is on the back of a strong economy and in particular a strong new home market. The furniture business is strongly correlated with the strength of the real estate market. In this respect, the company's strategy is largely irrelevant, because within the next five years the real estate bubble will burst and Williams-Sonoma will suffer a major downturn in its own results as a consequence. However, this reality shows that the company perhaps lacks sufficient differentiation, and can only be expected to perform roughly in line with the housing market. It is neither outperforming competitors nor is it underperforming. W-S has sufficient differentiation within the furnishings and home products segment, and has a fairly strong brand name in the segment. The company's status as a mass-market premium company allows it to grow strongly in strong economic times, but also makes it particularly vulnerable to economic downturn, because not only do consumers redecorate at greater intervals, but they will trade down to more affordable stores when they do.
Home Depot 's target market is individual homeowners/small contractors. Even though the traditional ideology is that cost leadership and product differentiation business strategies are mutually exclusive, Home Depot was successful at using a combination strategy. First, Home Depot optimized the cost leadership strategy by offering low and competitive prices to its customers by emphasizing higher sales volumes with lower margins, while instituting a high inventory turnover. Home Depot successfully offered a warehouse product strategy to the individual consumer for the first time. Previously, this type of price discounting was only available to professional contractors who earned product price