3. Our Mission: The Home Dept Inc.
4. The Home Depot Inc. Values:
5. The Home Depot Inc. History;
6. Home Depot Historical Milestones
7. Corporate responsibility;
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BUSINESS STRATEGY FOR HOME DEPOT:
The Business Strategy model that is employed by Home Depot addresses its products, Customers, Retail Market, Information Technology and R & D. Home depot has a well designed corporate strategy as well as a robust delivery and supply chain management strategy.
- Product Strategy and Target customers: (1)
Home Depot is focused entirely on the DIY and home improvement sector. However, this is a broad area and involves several business specialties, including residential projects, professional projects, services, home and garden, lighting and services. In 2002 Home Depot created a unit called the Builder Solutions Group that is targeted to professional builders and contractors. The Group spans all levels of the professional segment of the larger DIY/home building market, and includes relationships with each of the top 10 builders in the US as well as developing supplier relationships on regional and local levels. Through a series of strategic acquisitions, which included specialty hardwood flooring companies, RMA Services, a leading design company, and Apex Supply Company, the company was able to form this group that specializes in flooring and interior projects.
Home Depot Inc: Net Sales by Product Group 1999-2003 (Euro monitor May 2004)
US$ million
Percentage sales break down:
- Market Focus:
Home Depot is principally involved in the hardware, DIY and gardening sectors of the broad retail market in the US, Canada and Mexico. The company grew by store construction and acquisition in the US. Home Depot entered and expanded in the Mexican market through the acquisition of two leading DIY chains in 2001 and 2002.Company has a very limited International presence and needs to expand in that area if it wants to be a truly global player.
Home Depot Inc: Number of Retail Outlet Openings 2001-2003 (Euro monitor May 2004)
- Information Systems and Research: (2)
Home Depot places a high priority on improving customer service through advances in technology. The company undertook several key initiatives to improve front-end service, and at the end of the third quarter 2003, 760 stores had self-checkout stations, with more than 40 million self-service transactions completed during the quarter.
In 2002 Home Depot entered into a partnership with NCR and Microsoft to improve checkout and scanning accuracy. The project was called FAST (Front-end Accuracy and Service Transformation) (2). This involved hardware and software initiatives to reduce wait time for customers and improve keying accuracy for cashiers, and was carried out under the auspices of customer service improvement and enhanced checkout processes. In another initiative, in 2003 Home Depot partnered with IBM to develop a new data warehouse used for market forecasting and product planning.(3) Nearly two thirds of the 2004 IT capital plan at Home Depot corporate is focused on the stores as the company makes considerable advancements in technology with a primary focus on streamlining store operations.
- Operations Strategy: (4)
Home Depot undertook a number of operating strategies and infrastructure development initiatives over the past several years. These initiatives are designed to improve efficiencies in operations, provide better service to customers, ensure product variety and position the company to deliver sustainable, long-term growth. Among these strategies are the utilization of technology; improved merchandising; continual introduction of new items in both national brands and private labels, increasing the efficiency of the distribution system and developing new stores.
5. Company Structure strategy:
One area of diversification that the company has embraced is in the area of professional and consumer services. Through a series of internally developed programmes, such as home installation services by Home Depot contractors, and knowledge programmes such as training courses and seminars, as well as through acquisitions of leading service-based DIY businesses in recent years, Home Depot has added a growing list of services to compliment its retail offerings at the store level.
Home Depot is vertically integrated insofar as its professional and builders services groups engage in agreements that sell store products to commercial contractors, but not from a production standpoint. The company works with third party manufacturers and suppliers around the world in sourcing and developing products for its retail stores
- Acquisitions and Mergers: (5)
Home Depot was involved in a spate of acquisitions in recent years, all of which complimented the strategic objective of growth through acquisition and enhancing the company’s presence in services suited to the focus of the DIY retailer
Home Depot Inc: Joint Ventures, Alliances and Other Agreements 2003 (1)
(Euro monitor May 2004)
Mergers and Acquisitions since 2001
(Euro monitor May 2004)
Ref for this section:
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Euro monitor; Company Report Home Depot May 2004. www.euromonitor.com
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News release; Home Depot initiative sets industry standard for check-out accuracy, speed, and service
- The Home Depot chooses IBM for Enhanced e-Business Infrastructure
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Unscrambling Home Depot (NYSE: HD)
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Home Depot acquires White Cap Construction Supply;
BUSINESS STRATEGY FOR HOME DEPOT
Porter model as Applicable to Home Depot:
The barriers for potential entrants into this industry are high. They consist of high inventory costs and heavy competition from established “big-box” chain stores. The chain stores have significant market penetration and offer a wide selection of quality products at low prices. The growth of the industry along with profit margins is expected to taper due to increased competition in the sector. Barriers to exit the industry are low.
MARKET AND FINANCIAL PERFORMANCE:
Home Depot is the second-largest retailer in the US, with fiscal 2003 sales of US$63.8 billion and a share of 2.8% of the broad retail market in the US. Net sales increased by 9.5% over 2002, due in large part to new store openings, while the company's broad market share grew from 2.5% in 2001.(1)
Home Depot Inc:
Key Facts
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Home Depot web site
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Hoovers Online;
Home Depot Inc: Sales Fact file 2002-2003 (Based on Company report) US$ million
HOME DEPOT CHARTS
HOME DEPOT INC BASIC CHART: Year 2003- 2004: =
Net Sales and Profits: (Annual report 2003)
Home Depot has performed well in 2002 and 2003 as low interest rates have supported a strong housing market and a healthy market for homeowners doing renovations and projects around their homes.
Net sales at Home Depot reached US$63.8 billion in 2003 for an increase of 65.9% over 1999. After two consecutive years of double-digit increases, sales growth slowed over the review period as the momentum gained by store expansion cooled and acquisitions in 2000-2001 were absorbed into yearly reporting.
The acquisitions of Apex Supply and Your "other" Warehouse in particular contributed significantly to the increase in net sales, while the acquisition of three leading flooring companies in 2002 and the resulting creation of the Builder Solutions Group supported sales growth in 2002 and 2003.
New business included opening Home Depot Floor Store in 2000 and three Home Depot Landscape Supply stores in 2002. The company acquired three leading maintenance and home building services companies in 2003, all of which further buoyed growth in the latter years when same-store sales growth was soft. Augmenting the freeze in same store revenue growth was a focus on new store construction, which saw stores added under the main Home Depot and its related banners across all of the company's markets.
Home Depot Inc: Group Sales 1999-2003 (Euro monitor)
US$ million
Performance Indicators
Home Depot registered steady improvement in all indices of financial performance. The company has demonstrated sustained growth in earnings per share, shareholder value and share price growth.
After two years of flat same-store sales comparisons, the company forecasts an increase of 3-5% in comparative store sales for 2003, as prices have increased for lumber (a major category for this retailer), and demand has been strong for power equipment, power washers, paint, concrete and roofing materials.
The sale of the company's stores in South America underpinned the dramatic rise in net cash in 2001 and 2002, which was further supported by a growth in day’s payable outstanding from 23 days in 2000 to 34 days in 2001 and significant improvement in inventory management.
Net sales per employee grew to US$210,900 in 2003 from US$191,200 in 2999, driven by improvements realized from capital investment in technology and steady annual increases in both the number of transactions and average transaction value in stores.
Home Depot Inc: Selected Performance Indicators 1999-2003 (Euro monitor )
US$ million
SWOT ANALYSIS
Strengths
- A strong domestic and increasingly internationally recognized brand name.
- A vast and expanding customer base.
- High sales volumes and a high level of local market penetration, which increase barriers to entry for competitors.
- The company purchases merchandise from vendors located throughout the world and it is not dependent on any single vendor.
- Most of the company's merchandise is purchased directly from manufacturers, which eliminates middleman costs.
- The company maintains a global sourcing merchandise Programme to source high-quality products directly from overseas manufacturers, which gives customers a broader selection of products while enhancing company gross margin
Weaknesses
- Competitive marketplace with many generalists and specialists, both chained and independent.
- Excess growth tapping quality management. The company promotes from within; however, rapid growth might dilute the management pool.
Opportunities
- Overseas markets present great opportunities and are generally untapped.
- Niche markets. The company's testing of several specialty market formats may allow it to capture greater niche market share.
- Strategic branding opportunities in extending lines of exclusive brands.
- Possible connections to home financing opportunities, already begun in the home improvement loan Programme.
Threats
- Customer segmentation and methodology applied to US consumers may not so easily transfer internationally.
- EXPO Design Center stores also compete with specialty design stores or showrooms, some of which are only open to interior design professionals.
- The company's main competitor, Lowe's, is also developing similar concepts and strategies.
SECTION III
Role of Business Strategy and Information technology in the success of the Company:
There has been a quite a few strategic initiatives Home depot has taken to keep it ahead of the competition. These are discussed briefly:
Presence in specialty segments
Home Depot is establishing a presence in DIY-related specialty segments, such as interior design and décor (EXPO Design Center), distribution of plumbing supplies (Apex Supply), gardening (Home Depot Landscape Supply) and floors (Home Depot Floor Store).
Product diversification:
Home Depot, significantly expanded its appliance retailing activities in 2002. Prior to that year, appliances had been available at Home Depot only on a limited basis. With that chain's push into the business, sales for the channel climbed by 64% during the year, reaching US$5.4 billion.
Further gains were seen in 2003, as the chain continued to roll out appliance departments throughout its system. Having realized significant share gains in appliance sales during the review period, Home Depot expanded its appliance retailing programmes by incorporating appliance sections into more than 1,400 stores by the end of 2003.
Customer service:
Home Depot is well known for knowledgeable and well-trained sales associates in its stores, and uses their customer-focused approach as a strategic element in its business. Department stores and mass merchandisers are renowned for in-store service being sacrificed for low prices, which is a widely held perception that Home Depot recognizes and uses to its advantage by providing stringent training and customer facing corporate culture.
The company also takes a strategic approach to its store hiring. Stores are staffed by experts in their field, and provide a resource for customers to ask questions, and this in turn supports customer satisfaction and revenue generation with repeat sales.
In 2002 Home Depot entered into a partnership with NCR and Microsoft to improve checkout and scanning accuracy. In another initiative, in 2003 Home Depot partnered with IBM to develop a new data warehouse used for market forecasting and product planning
DIY-related services to retail customers
In 2003 pursuant to company strategy to enhance its installation services, Home Depot acquired its former contracted agent IPUSA, a nationwide contract installer of roofing. The combination of RMA and IPUSA provides Home Depot with a strong platform in the home installation services market, where Home Depot reports annual sales growth of 40%.
The company's At-Home Services group provides installation services in more than a dozen categories, including windows, siding, roofing, interior and exterior doors, interior shutters, garage doors, garage door openers, sheds, landscape pavers, water heaters, power generators, kitchen cabinets and countertops, and a full range of flooring products. This service is targeted at a customer group that the company calls the Do-It-For-Me customers, who are offered installation services for products that they purchase at Home Depot stores.
Information Technology and e retailing:
As traffic to HomeDepot.com soared, Home Depot executives realized the potential for generating direct or indirect sales from the Web were enormous. By 2001, Home Depot had expanded its online presence to offer localized sales to markets throughout the continental U.S
As one of America’s best-known brands, Home Depot faced immense pressure to establish an Internet presence that could handle booming traffic and mirror the success of its 1,200 brick-and-mortar stores.
Home Depot’s huge inventory—more than 400,000 products sold to 156 disparate geographical regions—posed enormous challenge. Information about these products was coming to HomeDepot.com from numerous sources, including Home Depot’s 11,000 vendors and suppliers. As much as 3% of that information changes every day.
Varity’s K2 Technology:
To address to its huge e commerce demands Home Depot entered in to a contract with Varity. Home Depot executives selected Verity K2 technology to power HomeDepot.com because they needed a scalable solution to help customers quickly and easily find products and services, regardless of the volume of online information or the number of visitors concurrently accessing information.
Verity helped, Home Depot convey the volume, magnitude and diversity of products available in local stores. By classifying Home Depot’s extensive product line, Verity enabled customers to navigate quickly and easily through hundreds of thousands of items. Now customers could find items and information using Verity’s advanced search—no matter how simple or complex their questions were. Customers could search for brand or SKU, limit searches to products or information, or direct searches to specific store categories such as appliances, building materials or cleaning supplies.
Verity K2 allowed brokered search across multiple servers and multiple CPUs to provide the most relevant search results from many information sources without sacrificing speed or accuracy. As the number of users, queries or data increased, Verity K2 applications kept pace with the increased demands simply by adding new CPUs or servers to the network.
What Makes Home Depot “The Best?”
According to Tony Brown it’s the people who make the Home Depot the best. This emphasis on people is what has helped to drive Home Depot to be the best. Home Depot has won Fortune magazine’s “Most Admired Specialty Retailer” award for eight consecutive years. Mr. Brown shared the “wheel of value” which is a blueprint to achieving results and the key to the home improvement giant’s success. One facet of the Home Depot’s success is its focus on the customer.
The success of Home Depot lies in its adherence to core values, complete customer orientation and effective use of technology to making its operations effective and customer friendly. The policies of Home Depot rely heavily on these core values and have stood them in good stead so far. Their aggressive marketing and a sound corporate strategic competitiveness makes them a true market leader in DIY retailing.
FUTURE FOR HOME DEPOT:
Much of Home Depot's recent success can be attributed to the once-budding economy. However with slowing economy the company has fallen on hard times of late (along with most other retailers), but the outlook remains bright, particularly considering its efforts to spur additional growth. In addition to those growth initiatives, there are several economic indicators -- declining interest rates and increased mortgage activity -- that bode well for the future. The home improvement market is directly related to the impact interest rates have on spending. Recent cuts should spur additional growth, which means more housing-related expenditures. Prior to the Fed's initial cuts, mortgage applications were up 20% in December year-over-year. One month earlier, that number declined 3%.
Home Depot is striving to maintain at least a 23% growth rate. With roughly $44 billion in trailing 12-month sales and its Home Depot stores already achieving a great deal of success, the company's long-term growth depends on its ability to identify and succeed in new markets. High on its list is international expansion. The company already has stores in Chile, Argentina, Puerto Rico, and Canada, but plans are on the way to attack new markets in South America, Asia, and Europe.
There are also the professional contractors. While only 18 of Home Depot's stores specifically target this segment, the company plans to expand its services to 500 stores by the end of this year. When all is said and done, the company plans on 80% of its stores catering to this segment.
The company has also launched its Villager's chain of hardware stores. These stores are essentially large convenience stores geared toward densely populated markets. Not only that, but the company's Internet retail and direct shipping sales model bode well for future growth.
Perhaps the most growth will come from Home Depot's EXPO Design centers for design and renovation projects, ranging from window treatments and patios to kitchens and baths. Currently, 24 EXPOs are operational with plans calling for another 200 by 2005. The company expects revenue contributions of up to $10 billion by 2006. In some instances, the company has placed a warehouse store next to an EXPO, essentially bundling two of its franchises.
Home depot is expected to realize the most dramatic growth, with a total gain of 19% over five years, to reach US$112 billion by 2008. Despite occasional frustrations with customer service, this channel remains very popular with consumers, as it can service most home-repair or renovation needs at prices that are not matched by other channels given the small volume orders of most consumers. The company is addressing current challenges, such as over-lean staffing at some stores, and is investing in staff and systems to meet demand. The appliance retailing Programme is also indicative of the company's interest in growing beyond the current limitations of its home centers by developing a new business. Although the company remains a minor player within that category, the scale of its operations is likely to yield some efficiency, and consumers are likely to respond well over time if the pricing is in accordance with the company's pricing in other categories.
Projected Future Performance
A slowing economy could slow the company's momentum slightly and prevent Home Depot from attaining the high annual revenue growth enjoyed over the review period. It is likely that while average outlet sales may suffer, the addition of hundreds of new stores will contribute to sustained revenue growth throughout the forecast period. More interesting will be how the slowed economy will affect profitability and if any signs of market maturation or even saturation will be seen in the forecast period.
Home Depot Inc: Forecast Retail Sales 2003-2007
US$ million
Source: Euro monitor estimates based on projected market sizes and forecasts for market share