The Home Depot was formed in 1979 by Bernie Marcus and Arthur Blank in Atlanta, Georgia. Home Depot virtually revolutionized the do-it-yourself home improvement industry in the United States almost overnight. The two entrepreneurs opened their stores which were no frills warehouses. In 1998 the average Home Depot carried 35,000 products. Products varied from well known national brands to propriety Home Depot brands. Home Depot held its IPO in 1981 and listed on the New York Stock Exchange three years later under the ticker HD'. Home Depot reached $1 billion in sales in 1986. Sales of $20 billion were reached in 1997 making them the fastest growing home improvement retailer with an average annual growth in sales of 119% during said period. Important Issues
It is important to note that as Home Depot has grown so quickly, it has been able to garner significant concessions in prices from suppliers. Home Depot has also been able to establish and successfully execute a market saturation strategy coupled with low prices and high service. Being able to execute on these three pillars has been the hallmark of Home Depot's strategy and will carry the company into the future. As Home Depot continues to expand, the cost of prime real estate will rise as they compete head to head with their main competitor, Lowes. Also tied to the market saturation strategy, Home Depot stores may realize a cannibalization of sales when a nearby store opens its doors. While expanding internationally, Home Depot will be careful to pay close attention to local building customs, laws, and regulations. Maintaining solid returns on investment and financial health will be a primary concern. More interestingly, Home Depot plans on investing significant amounts of money in their human capital to maintain their consistently high marks in customer service and knowledge of home improvement projects. Five Forces Model of Competition
As the world's largest home improvement retailer, Home Depot's competition runs the gamut of lumber yards, specialty interior stores that concentrate on one aspect of the home, i.e. kitchens, lighting, flooring, etc. Home Depot's competition is also embodied in other such retailers as: Sears, Ace Hardware, Frank's Nursery, and Lowes. Home Depot's competition (except Lowes) primarily focus on one aspect of their expansive product offerings. For example, Sears would specialize in selling Craftsman tools to Home Depot's offering; likewise Frank's Nursery competes directly with Home Depot's garden center. Lowe's Companies is Home Depot's largest competitor. Home Depot and Lowes have very similar product offerings and large warehouse formats. In many major markets Lowes and Home Depot stores go head to head both vying for the patronage of the do-it-yourself customer. Suppliers
Home Depot maintains relationships with many suppliers that stock Home Depot stores with over 30,000 different products. Although Home Depot has a significant amount of suppliers they are still able to force them into offering price concessions due to the fact that Home Depot makes up a large portion of the supplier's sales. These concessions have gone a long way in driving down the cost of home improvement as well as further increasing Home Depot's margins and competitiveness with Lowes and others in hotly contested markets. Buyers
At the time of the case, Home Depot has 3 distinct customer segments.
Since the company's incorporation, they have been primarily focused with the do-it-yourself (DIY) customers. These customers are non-professional consumers interested in doing their own home improvement projects.
More recently, Home Depot has also begun to redefine the market in which they operate. This redefinition has opened up the buy-it-yourself and professional customer segments to Home Depot.
Specifically the buy-it-yourself customer segment are those consumers that like to pick out the...