The Home Depot Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The Home Depot, Inc., a large American retailer specializing in home improvement products, claims to be the largest retailer of its type in the world. Their stores offer building materials, home improvement supplies, and lawn and garden products that are sold to do-it-yourself customers, do-it-for-me customers, home improvement contractors, trades people, and building maintenance professionals. The company also operates EXPO Design Center stores that provide products and services primarily related to design and renovation projects. Apart from 1,950 stores in all 50 states and U.S. territories, in mid-2008 The Home Depot had 34 EXPO stores, five Yardbirds stores, and two THD Design Center stores in the United States, as well as 165 stores in Canada, 12 stores in China, and 66 stores in Mexico. In early 2009, The Home Depot announced it would be closing all 34 EXPO stores and five Yardbirds stores. The company, however, expressed its intention to keep open all of its namesake stores.

The company was founded in 1978 and is based in Atlanta, Georgia. The founders’ vision is one of one-stop shopping for the do-it-yourselfer. In order to compete with traditional hardware stores, The Home Depot offered a very wide product range and economies of scale. Quality customer service is considered a major strength. Customers lacking in hardware skills and knowledge were helped to select tools, paint, and other materials, and also advised how to approach projects such as laying tile, changing valves, or using a certain power tool. To implement these service standards, staff were given rigorous product-knowledge training. Further, clinics were offered so customers could learn how to use The Home Depot products.

The business model was successful and early growth impressive. It went public on NASDAQ in 1981, moving to the New York Stock Exchange in 1984. Growth was rapid in the 1980s and 1990s, with 1989 marking the celebration of its 100th store opening. The Home Depot entered the Canadian market in 1994 with the acquisition of Aikenhead’s home improvement centers, and the Mexican market in 2001 through the acquisition of Total HOME. In 2006 the company extended its reach to China by acquiring Home Way, a 12-store chain. From the start, The Home Depot developed strategic product alliances directly with industry-leading manufacturers. For example, through a combination of national brands and proprietary products like Ryobi tools, Ridgid tools, Behr paint, LG appliances, and Toro and Cub Cadet lawn equipment.

Some key financial indicators at mid-2008 were: revenue, $76.7 billion; total assets, $56.9 billion; total stockholder equity, $27.7 billion; profit margin, 4.8 percent; operating margin, 8.2 percent; return on assets, 7.7 percent; return on equity, 16.7 percent; market capitalization, $42 billion; price/book ration 2.4; stock beta .39; operating cash flow, $5.5 billion; dividend payout ration, 45 percent. The company is profitable and has sustained a good growth rate. However, growth and profitability are both in decline in the past few years, with several analysts forecasting continued decline through 2009.

A strategic case written by Thomas Wheelen depicts The Home Depot as being highly successful in the do-it-yourself/buy-it-yourself market, but struggling to enter the professional contractor market. One crucial set of issues to the case is that the company has several key resources that make it successful in its traditional markets—such as its customer service, range of products, and locations of stores—but that these resources are not necessarily relevant to the professional contractor market, who need to buy in larger quantities, require credit facilities, demand delivery to building sites, and have little use for attractive stores in residential shopping areas.

The Home Depot continues to target the professional contractor market via, inter alia, a division called “contractor services.” As further indications of the company’s commitment to market development, the corporate internet sites mention export services, including a free exporter’s catalogue and an international sales department; and also a welcome to governmental buyers. In fact, recent statements by Chairman Bob Nardelli indicate a continued commitment to these market developments, with over 40 percent of growth coming from the professional market and 25 percent from international do-it-yourself markets.

Bibliography:

Ram Charan, “Home Depot’s Blueprint for Culture Change,” Harvard Business Review (v.84/4, 2006);
Thomas L. Wheelen, “The Home Depot, Inc.: Growing the Professional Market (Revised),” in Strategic Management and Business Policy, 9th ed., by T. L. Wheelen and J. Hungar (Pearson, Prentice Hall, 2004).

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