Free Essay Home Depot History and Business Case Analysis free essay sample

Some of the strategic factors that Home Depot faces are related to product quality, price, advertising, store capacity, competitors, and customers independency and satisfaction. Most of these strategic factors helped in the growth and popularity of Home Depot. Home Depot offers good quality products such as home improvement products, lawn and garden supplies. Installation services for these products are offered too. Home Depot like Wal-Mart Company offers low prices everyday. Operational efficiency had been a crucial part of achieving these low prices while still offering a high level of customer service. The company assesses and upgrades its information to support its growth, reduce and control costs and enable better decision-making. From the installation of computerized checkout systems, to the implementation of satellite communications systems in most of the stores, the company had shown that it has been and would continue to be innovative in its operating strategy. In year 1994 Home Depot introduced a prototype store format that offered about 32,000 more square feet of selling space and a significantly broader and deeper selection of products and services, as well as a more convenient layout than the traditional stores. These Type (V) stores were designed around a design center, which grouped complementary product categories. Therefore, this wide store capacity enabled Home Depot to stock like 40,0000 to 50,000 products in each store. I think that this is a very good strategic factor that enables the store to offer a wide variety of products. Lowes is the main competitor against Home Depot. Both companies have big stores, and many products. But Home Depot is still number one. Mike Brune from the Rainforest Action Network declared that Its been a busy month for us all as we attempt to find out the implications of the Home Depot victory on the entire DIY (do-it-yourself) industry, get the all important details of Home Depots new policy, and actually determine to what degree the new policy is a victory at all. The short answer is that there is a lot of good news, with some large question marks. Home Depots announcement, and the extensive press coverage it earned, sent shockwaves through all of Home Depots competitors. (Mike Brune. Important Update on Home Depot and Competitor Policies. Retrieved October 5, 1999, from http://forests. org/archive/america/compdebo. htm). Home Depot has stores all over the map nationally, and is expanding worldwide. It recently put competitor Hechinger out of business, and before that Builders Square. (Rob Landley. A Case for Home Depot. Retrieved January 14,2000, from http://www. fool. com/portfolios/rulemaker/2000/rulemaker000114. htm). Congratulations on being number one in your industry. I would like now to discuss the reasons behind this success for year 2002 . I think that the strategies that you and your employees are following and the great customer service are leading to the growth and success of your company. Home Depot uses a clustering strategy to locate new stores closer to existing ones. The short-term effect is to lower same-store sales. On the other hand, this strategy can create a strategic advantage by raising the barrier of entry to competitors. It reduces overcrowding in the existing stores. It also allows the company to spread its advertising and distribution costs over a larger store base. I think that this strategy led Home Depot to have fewer competitors, and lowered the distribution cost. On the other hand, opening too much stores increase the expenses from equipments, products and employees. Even if, the company can afford to open all these stores, I do not think that the company should open many stores in one area. Another strategy that your company is following is focusing on customer service and satisfaction or what is referred to customer cultivation. Customer cultivation is the result of the provision of highly qualified and helpful employees, professional clinics and in-store clinics. When the company was faced with clogged aisles, endless checkout lines, and too few salespersons, it sought creative ways to improve customer service. Workers were added to the sales floor, shelf stocking and price tagging were shifted to nighttime, when the aisles were empty. Therefore, the availability of sales personnel to attend to customer needs was one clear objective of the Home Depot customer service strategy. It gave the DIY (Do It Yourself) customers the support and confidence that no home project was beyond their capabilities. Home Depot attitude of complete customer satisfaction has led the company to constantly seek ways to improve customer service. I think that this strategy is great and was worth all the expenses because the employees were free to sell during the day and focus more on the customers needs. It the good experience that brings the customer again and its the word of mouth that brings other new customers, therefore, customer satisfaction is the most important strategy that any company shall follow. The third strategy that you company is following is focusing on extensive advertisement. In year 2002, Home Depot spent $895 million on advertising, 9. 5 percent more than the $817 million it spent in 2001 and 24 percent more than the $722 million it spent in 2000. Home Depot is one of the nations largest retail advertisers and spends far more on advertising than comparable stores. Home Depot spent nearly eight times as much on advertising in 2002 than its nearest competitor, Lowes Cos. Lowes, which has just half the annual sales of Home Depot, spent about $114 million on advertising in year 2002. Jim Lovel. Home Depot ad spending $895M. Retrieved April 25, 2003, from http://www. bizjournals. com/atlanta/stories/2003/04/28/story1. html). Therefore, extensive advertising is giving Home Depot a distinctive competency against other companies in the same industry. These strategies are implying higher expenses in order to be achieved, especially the huge expenses on advertising. I would l ike to make a comparison between two most growing companies in the USA (Home Depot and Wal-Mart) . In 2002, Home Depot spent 32 percent more than Wal-Mart Stores Inc. , the worlds largest retailer. Wal-Mart with annual sales almost five times higher than Home Depots spent $676 million on advertising last year. (Jim Lovel. Home Depot ad spending $895M. Retrieved April 25, 2003, from http://www. bizjournals. com/atlanta/stories/2003/04/28/story1. html). Therefore, the more money you spend on advertising, does not lead to increase in annual sales but it leads to increase in expenses. Even though, the extensive advertising made this company have a distinctive competency against other companies but Home Depot spent $ 895 million on advertising and Lowes company spend only $114 million. It is true that the annual sales of Home Depot were more than half than Lowes but Home Depot can lower its expenses of advertising to 5 times and can still be able to compete with Lowes company. So, the main question for you is that can you plan a strategy that does not require higher expenses? I am not implying that these strategies are not working but I think that there should be a strategy that keep the company growing but at least lower the expenses. Net Sales had increase 10. 5% year 2003, comparing to year 2002. But the expenses too have risen 15. 3 %. (Form 10-Q for HOME DEPOT INC5. Retrieved September 5,2003, from http://biz. yahoo. com/e/030905/hd10-q. html). lt;Tab/gt;Home Depot is Growing internationally as in new stores in Mexico (a $12. 5 B market); and Expo Stores in Asia. Home Depot has gone from zero stores in Mexico to being the second largest building supply retailer in Mexico in just a few months. I think that Home Depot can grow fast in other countries because of their distinctive competency from great customer service to extensive advertisement. This year, the profits and revenues for Home Depot are tending to decrease. Therefore, you as a CEO had to immediately put Home Depot through a sweeping restructuring, but it has been a bumpy ride. Your efforts to trim the fat out of inventory levels resulted in shortages and lost sales during parts of 2002, prompting you to reverse course and build inventories back up. That, coupled with your efforts to reshuffle store staffing and initiate disruptive makeovers of older stores, caused sales at most of Home Depots locations to turn negative for two quarters. The result: The stock, which had already fallen by nearly 30%, to around $50 when you arrived in late 2000, slid as low as $20. 10 in early 2003. It has rebounded to around $35. 50. The stock price today is $ 37. 70. ( Dean Foust . Home Depots Remodeling. Retrieved January 9, 2004, from http://host. businessweek. com/businessweek/Corporate_Snapshot. html? Symbol=HD). lt;Tab/gt;I would personally not buy this stock because the stock price has not stable for the past 2 years. Home Depot is battling a sagging stock price and increased competition from Lowes. Home Depots stock price reached a five-year low of $21. 38 a share in January and currently is trading at about $27. 75 a share, almost one-half of the value it had when you became the companys CEO and president in December 2000. Although the company has aggressively opened new stores, average weekly sales at Home Depot stores fell from $864,000 in 2000 to $772,000 in 2002, according to the companys annual report filed April 21 with the Securities and Exchange Commission. (Froust Dean. Home Depots Remodeling Project. Retrieved January 9, 2004, from http://www. businessweek. com/bwdaily/dnflash). I really enjoyed the research I did on your great and well known company. It is my pleasure to maintain a relationship with your company. Although lately, Home Depot has been blamed for the sharp slowdown in revenues and profits on deflation in lumber prices, which is not just because of the price of the plywood. You have been renovating for 2 years and the main question is that After two years of distracting renovations, is the DIY giant ready to unveil its new design. Will it be enough to hammer rival Lowes? This year, you and your team must prove that you can sustain that momentum and demonstrate that the makeover is paying off. I think that you as a CEO is capable of leading the company to number one again. Thank you a lot for reading my memo and taking my advices and suggestions. If you would like to ask any questions or discuss any issue, please do not hesitate to contact me.