Home Depot Case Analysis

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Home Depot enjoyed high growth of revenues and profits in the period 1978-2003. From 7 mio USD of revenues in 1979 to 64,8 bn in 2003. Revenue growth was generated mainly due to external growth coming from mergers and acquisitions. Home Depot has four product categories: Building and Remodeling, Home Décor and Organizing, Outdoor Living and Tool and Hardware. Company went through some structural changes when in 2000 first non funder Bob Nerdelli became the CEO of the company. Nerdelli previously worked for 27 years at General Electric and was known to be detailed oriented leader concerned with industrial cycles and archiving operational efficiency. After Nerdelli become CEO of Home Depot the company introduced several operational improvements like improved supply chain, self check out kiosk, introduction of advance IT technology, offering more services, etc. Even dough these improvements were well perceived by the customers and analysts the stock price fell to all-time low bottom 22 USD in year 2000. The operating margin and net profit margin were increasing during the years 2002-04, however, the revenue growth was below the expected revenue growth of 16% in the first quarter 2001 compared to the company 5-year annual average of 25%. The strategies chosen by Home Depot seem to have worked effectively till this day. However, if the company continues to ignore the low profit that it is making and just expands the number of its stores, in the long run, the company might fail to achieve its business goals. SITUATION ALALYSIS

The case does not provide any industry or competitive analysis of margins and revenue growth but I can assume that they performed better than Home Deposit because its stocks were declining in value. For the purpose of this paper I will analyze the industry, Home Depots generic strategies and analysis of the main competitor (Lowe) position. I find it interesting that in 1980 the situation was reversed – Lowe was the largest home improvement retailer and Home Depot overtook the market leader position, which suggests competitive environment in the industry. The Industry - Home Improvement Retail

The case do not say much about other competitors, it only mentions two main players Home Depot and Lowe which are large warehouse-like stores offering numerous home improvement products for the lowest price possible. The industry in the past was not dynamic but since the competition from Lowe is increasing the two competitors are trying to satisfy more customers needs (shift from do-it-yourselfers to full basket of services) and offer extra services which makes the industry more dynamic and innovative. Competition

The largest competitor of Home Depot is Lowe which is the fastest growing retailer in the U.S. market with the annual growth rate of 19%. Lowe chose direct confrontation with Home Depot and their goal is to offer customers better service, more user-friendly stores and competitive pricing. It seems that Lowe understands customer needs better because they make store more appealing to women as their research indicated that women made majority of the purchasing decisions. I do not believe that there is a threat of a new large competitor entering this market. I rather see an opportunity for small niche players that can satisfy more sophisticated individual needs which cannot be covered by the two large players. Large amount of stores set high entry barrier for other competitors. Since Lowe is gaining its market share and current Home Depot market position is bad I expect that Lowe will try to become the largest player by exploiting Home Depots weaknesses. Unfortunately the case does not provide financial information about Lowe which would allow us to asses financial stability of both players. Home Depot – The Company

I have briefly described the company in the introduction. In this section I will evaluate Home Depots weaknesses and strengths. The strengths of the company are the distribution...
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