Home Depot Analysis


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Internal, External (PESTEL analysis), Porters' 5 Forces analysis.

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Home Depot Analysis

  1. 1. Home DepotBy: Marcus GadsonNatalie HillTerri MenserJosh NicholsPayal PatelHarris Weinstein
  2. 2. Overview• Introduction: Harris• Internal Analysis: Terri• External Analysis: Natalie• Recommendations: Payal & Josh• Conclusion: Marcus
  3. 3. About Home Depot• Founded in Marietta, Georgia in1978• Operates 2,300 large ‘big box’stores across 50 states, Mexico,Canada and China• Offers 40,000 products and canspecially order up to 250,000 otherproducts and building materialsupon request
  4. 4. About Home Depot• Sold ownership of EXPO DesignCenter and Home DepotLandscape Supply– Still offers some services such aspre-screened contractors forinstallation and home repair services
  5. 5. About Home Depot• Largest retail home improvementstore in the United States• Has 55% of the market cap inhome improvement industry• HD had $66.18 billion in revenuesin 2009– Largest competitor, Lowe’s, had$35.8 billion
  6. 6. Internal Analysis• EXPO, THD Design Center, andYardbirds stores-2008– upscale group of home design andhardware stores targeted at remodels• In 2009 7,000 jobs / additionalpositions will be shed as well asclose more stores and• In 2010, growth will continuedto be curtailed
  7. 7. Internal AnalysisPositioning:• As the country slowly climbs out ofrecession, Home Depot plans toreposition itself as a bargain-priced DIYstore.– reduced prices on its best-selling items– cleaned up stores to attract a larger femaledemographic– increased customer service training
  8. 8. Internal AnalysisSales 2009:• Home Depot- $71,288 million• Lowe’s- $48,230 million incompany can boast of• Home Depot- 322,000 employees• Lowe’s- 229,000 employees.• Gross Profit Margin for 2009-33.77%
  9. 9. Internal AnalysisCurrent Plans:• “Free cash flow rose to near $2 billion, a level not seensince 2007. This enhanced liquidity allowed theCompany to finish the year with more cash-on-hand(about $1.4 billion) and lower total debt.”• Saturated markets creates pressure to mine growth withnew merchandise offers, services, formats and markets:– Store Modernization—Improving the Experience– Merchandising—New Products, New Appeals– Services—A Do-It-For-Me Focus– Formats—Tapping New Markets– Non-store—Extending Multichannel Reach– Pro Market—Moving Beyond Retail Core– Capabilities—Enhancing Efficiencies– International—Getting Serious Overseas
  10. 10. Internal AnalysisAssortment, Price and Service= Strategic Guide:• “To say that Home Depot (grew) fast is anunderstatement. Second only to Wal-Mart inthe retail category, the company brought inmore than $73 billion in sales in 2004 andadded 20,000 employees – bringing the totalnumber of associates to 325,000.”• Frank Blake: “Were committed to being thecompany that helped set the standard forcustomer service excellence in homeimprovement. Please continue to hold usaccountable.”
  11. 11. External Analysis:PESTEL• Political:– Government policy that affects the housingmarket• Economic:– The current recession• Social:– Changes in income have resulted inconsumers shying away from discretionaryitems– Lower availability of credit to consumershas adversely affected sales– The baby boomers
  12. 12. External Analysis:PESTEL• Technological:– Home Depot has transformed its supply chain– 24 Rapid Deployment Centers• Environmental:– The “green” movement– Home Depot is committed to conducting business inan environmentally responsible way• Legal:– Employer/employee disputes, product liabilitydisputes, workers’ compensation claims– Foreign trade issues
  13. 13. External Analysis:Five Forces• Rivalry of Existing Competitors:– Lowes, Sears, and Ace Hardware– Home Depot’s competition runs a range of lumberyards, specialty interior stores that concentrate onone aspect of the home, i.e. kitchens, lighting,flooring, etc• Threat of New Entrants:– The barriers to entry are high: large productselection, highly trained employees, large startupcapital, prime real estate, strong regionalrecognition, and customer loyalty• Bargaining Power of Suppliers:– Price concessions
  14. 14. External Analysis:Five Forces• Bargaining Power of Buyers:– Since inception, primarily focused with the do-it-yourself customers– Redefined the market by opening up the buy-it-yourself and professional customers• Threat of Substitute Products:– People will always have/need houses and thedesire to improve one’s home– It is hard to create a substitute that cancompete with Home Depot’s low costs– A substitute to Home Depot’s in storehome improvement classes is theInternet
  15. 15. Recommendations• Key is to transform HD into anaggressive first-mover in themarket– Already making some moves in theright direction– Be more aggressive by focusing oncommercial sales and takingadvantage of potential acquisitions
  16. 16. Recommendation:Focus on Execution• Already making steps in the rightdirection– Women identified as weak point andadded “Martha Stewart Living” line ofhome décor and associated products– International expansion strategy– Emphasis on improvement of supplychain
  17. 17. Recommendation:Focus on ExecutionTargeting Women:• Capitalize on visit to store– Transition from Martha Stewart line totypical HD assortment• Women are growing force in householddecision making– Make sure women realize their capabilities• In-store signage• Project seminars• TV specials
  18. 18. Recommendation:Focus on ExecutionInternational Expansion:• China poses greatest challenge– Dramatically different culture andlogistics• “The Home Way” HD store withChinese corporate culture- easierand safer way to break into themarket
  19. 19. Recommendation:Focus on ExecutionSupply Chain:• HD is mocing distribution into RDC’s (RapidDistribution Centers)– Serves about 100 stores each (By end of 2010, 20RDC’s for US)• HD struggles with management of inventorylevels– Inventory manager should have power to makechanges to stocking levels– Communication between department manager,inventory manager and vendor reps to account forseasonality and special events– Audit program to track reasons for stock outs
  20. 20. Recommendation:Scripps NetworksScripps Networks:• Expand business by moving intoadvertising industry– Competitive advantage no competitor caneasily imitate– Corner important target audiences:• Do It Yourself Network• Home and Garden TV• Food Network• The Travel Channel• Fine Living
  21. 21. Recommendation:Scripps NetworksFood Network:• Cooking shows targeted towards thosemost interested in cooking– Ties into kitchen remodeling (one of HD’smost common projects sought out by the“Do-It-For-Me” consumer– Travel Channel and Fine Living cater tomore affluent customers with the financialmeans to pursue most home improvementprojects
  22. 22. Recommendations:Commercial Sales• Market Home Depot has enteredand exited• Customers– Very Demanding• Deliveries• Stock Outs– Long Term / Relationship selling– Cost Conscious
  23. 23. Recommendations:Commercial Sales• HD Strengths– Buying Power– RDC’s / Supply Chain– Credit Department– Existing Resources• HD Weaknesses– Customer Service– Sales Tactics
  24. 24. Recommendations:Commercial Sales• HD Supply– Conquered the commercial sales“mountain”• Service• Lower price– Separate locations lead to loss ofefficiency– Overhead costs• Lower margins
  25. 25. Recommendations:Commercial Sales• Create new “sales force” within HD– Mobile, commission based salesman– Manager equal with store manager– Separation from retail culture– Low / No overhead• Sales contribute to the individual storerevenues• Utilize existing resources /facilities / equipment
  26. 26. Recommendations:Sherwin Williams• Facts:– Painting and associated products:20% of revenue– Painting #1 rated projecthomeowners are willing to tacklethemselves– Sherwin Williams has the lowestconsumer market penetration– Sherwin Williams is the #23 ratedretail brand in the US (HD is 3)
  27. 27. Recommendations:Sherwin WilliamsReasons for acquisition:• Marketing Aspect– Drive consumers to the store– Create a destination within a productsegment• Sears Craftsman• Target / Wal-Mart in home furnishings• Profit Aspect– Eliminate the “middle man” within the paintindustry– SHW revenues– Potential higher return
  28. 28. Recommendations:Sherwin WilliamsImplementation:• Move SHW representatives into HDstores• Maintain existing SHW business model– Commercial / Industrial focus– Drives image• Maintain separation– Efficiency and Service are key drivers– Possible service of existing clients onlimited basis through new locations
  29. 29. Recommendations:Sherwin WilliamsFinancials:• SHW– Market Cap: 7.8 B– Revenue: 7.1 B– Net Income: 6.1%• HD– Market Cap: 56.3 B– Revenue: 66.1 B– Net Income: 4.0%
  30. 30. Wrap-Up• Recession=Decreased Sales• Beat Lowe’s 66-36• Maintain Strong BrandImage/Consumer Loyalty• Thriving without the Stock MarketSoaring– Execution– Sherwin Williams– Marketing-Scripps Network
  31. 31. Questions?