Home Depot Business Case Analysis Letter to CEO
To: Robert L. Nardelli, - President and CEO of Home Depot, Inc. Date: March, 04, 2004
First of all, I would like to thank you for giving me the honor to analyze your well organized and developed company. In this memo, I am going to discuss the strategic factors facing Home Depot, the strategies that the company has been following for the past years, and the distinctive competency Home Depot attain. Also, I am going to give my recommendations and opinion.
Some of the strategic factors that Home Depot faces are related to product quality, price, advertising, store capacity, competitors, and customer's 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 " It's 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 Depot's 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 Depot's announcement, and
the extensive press coverage it earned, sent shockwaves through all of Home Depot's 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 Builder's 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...
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