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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 Lowes,
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 Lowes 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 Lowes 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 Lowes is very close to the bottom-right as well which
indicates increased competitive pressure (E.5.0). Another indication of increased competition from
Lowes is the increase in their revenues in the past few years. Lowes revenues have grown over 12
percent from 2012 to 2014. Furthermore, the Lowes 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 Lowes retail stores are more appealing and easier to navigate which is one of the reasons why
Lowes 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 companys name has become synonymous with home improvement and is a very
recognized company worldwide.

2) Redesign Retail Stores


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

PROS
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
Lowes.
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 Lowes thus increasing
competitiveness.

CONS
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.

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.

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PROS
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 Lowes and
negatively affect their business.

CONS
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.

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
Build a stronger image of the
company, which will attract
consumers that are environment
sensitive.
Help save the environment.

CONS
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 Lowes 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 Lowes and increase competitiveness. Furthermore, since Home
Depots 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
Lowes instead because their stores are easier to navigate and more appealing. Also, this strategy will
steal women segment from Lowes because they cannot complete with Home Depots price and overall
increase competitiveness and stay as industry leader.
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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 industrys 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 & Lowes)
- 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 industrys 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. PORTERS 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 familys 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 its 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.
True Value
- Firms closer to the right
Corp
side of map are smaller
companies in the industry
and companies
Ace Hardware
towards the bottom
right are much larger.
- Retailers towards the
Home
bottom right enjoy better
Depot
position because they are
Lowes
able to sell products for
less due to economies
of scale.
LOW

PRICE

HIGH

LOW

PRODUCT SELECTION

HIGH

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 Lowes will prosper due to their position because they
can attract more consumers. True Value and Ace Hardware likely struggle because they dont
offer variety of product selection and are more expensive. The reason Home Depot and Lowes
can charge less for products is because they are very large and enjoy economies of scale.
6. FRAMEWORK OF COMPETITOR ANALYSIS
Framework
Indicators
Current Strategy
6.1. i) Position
ii)Competitive
Advantage
iii) Investment

Lowes Home Improvement

Ace Hardware

True Value Corp.

i)- strategic framework comprised of


three key initiatives: Customer
Service, Product Authority, and
Disciplined Capital Allocation

i) heavily investing
ecommerce
- relatively medium to
high prices and some
product selection

i)-increase brand recognition through national marketing


and advertising

ii)- low prices & product selection

ii) strong customer loyalty

- high prices and narrow product selection

ii) N/A
iii) 1,300 stores in 2007 and 1,700 in
2011

iii) national marketing and advertising

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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

6.3 Capabilities
i) Strengths
ii) Weaknesses

i) strong power over suppliers &


buyers
ii) Opened up too many retail stores

Assumption

No information

Not meeting objectives


-revenue declined by over
22% from 2007-2010
i) strong customer loyalty

Not meeting objectives


-steady growth from 04-06 but then declined in 07-10

i) N/A
ii)N/A

ii) Cannot reach majority


of market due to small size
No information

No information

Conclusion: The home improvement industry is very competitive and analyzing the chart above
we can see that Lowes 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 companys 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 companys strategy is working very well to deliver
on the industry key success factors.
1. FINANCIAL ANALYSIS
1.1 Common Sized Income Statement
Year
(Figure 1)
2014 2013 2012 2011 2010 CAGR
- COGS, Gross Profit, and Net Income all
65.2% 65.4% 65.5% 65.7% 66.1% -0.3%
COGS
improving throughout the years of 201034.8% 34.6% 34.5% 34.3% 33.9% 0.5%
Gross Profit
2014.
23.1% 24.1% 25.0% 25.6% 26.6% -2.8%
OPEX
1.2 Key Financial Ratios (Figure 2)
0.8% 0.7% 0.8% 0.8% 1.2% -8.4%
Other Exp
3.9% 3.5% 3.1% 2.8% 2.0% 14.3%
- Profitability: Recovering since
Taxes
recession, net profit margins improved by Net Income 6.8% 6.0% 5.5% 4.9% 4.0% 11.2%
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.
2014

2013

Year
2012

2011

2010

CAGR

1.42

1.34

1.55

1.33

1.34

1.2%

36.3%
1.2%

26.3%
0.61%

26.6%
0.60%

34.8%
13.3%

34.6%
11.0%

34.5% 34.3% 33.9%


9.6% 13.1% 9.7%

Key Financial Ratios


Liquidity
Current
Solvency
Debt-to-Asset
Debt-to-equity
Profitability
Income Margin
ROA

21.7% 21.2% 11.4%


0.58% 0.57% 15.5%

Figure 2 - Key Financial Ratios

Year
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0.5%
6.4%

Inventory Turnover
Average collection period

2014
4.65
56.37

2013
4.57
53.59

2012
4.47
56.54

2011
4.21
62.67

2010
4.30
68.65

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 companys
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, its quite
clear they dont 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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CAGR
1.6%
-3.9%

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 KPIs 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-tomiddle 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 Depots 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 Lowes 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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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

integrated
warehousing, inventory
control, and purchase
order

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

- regional buying linked


to the corporate
communities network
- Satellite
communications
for both data
and video
transmission

-recognized brand

-offers installation
services

Steadily growth of
sales in past several
years

-emails newsletters
containing advice and
announcements of
events in their local
stores

-convenient store
location to reach more
customers
Pleasant shopping
environment

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.

4.2 Secondary Activities


Product R&D, System
Development and Technology

High investments in ecommerce

General Management
Human Resources Management
-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

Conclusions: Through the companys primary and secondary activities the customer value offered is high
in comparison to the industrys 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

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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
SR=Strength Rating
WS=Weighted Score

Home Depot

Lowes

Ace Hardware

Key Success Factors

Importance Weighs

SR

WS

SR

WS

SR

WS

Quality/product
performance

0.3

2.4

2.1

1.5

Customer service
capabilities

0.2

1.6

1.6

1.4

Reputation/image

0.3

2.4

1.8

1.5

Financial resources

0.2

1.8

7.5

1.5

0.8

Overall weighted
competitive strength
rating

8.2

5.2

assessment for Home Depot is that they need more improvements because Lowes 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 Lowes, 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
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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 its 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-isreal/
https://finance.yahoo.com/q/co?s=HD
http://www.forbes.com/sites/greatspeculations/2015/01/23/home-depot-key-trends-in-housingimpacting-the-home-improvement-market/
https://corporate.homedepot.com/OurCompany/GlobalPresence/Pages/default.aspx
https://logisticsmgeps.wordpress.com/2010/04/16/home-depot-strategic-internal-organizationfinancial-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-OperatingActivity#Average-Receivable-Collection-Period

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