Home Depot Strategy Analysis

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Muhammad Chughtai
Daniel Tesler
Home Depot Case Analysis

Home Depot is a large U.S. based company that competes in the low cost home improvement retail and service industry. Home Depot is a global company because they also have consumers in Canada and Mexico, the potential to expand their market to other areas globally and have a global supply chain. In the U.S. market, the industry is concentrated and in the mature stage with Home Depot and Lowe’s making up a duopoly because they are the only two major players that compete at a similar retail volume nationwide. With only two large companies in the industry, there are high entry barriers because of the high cost necessary to obtain the key success factors to compete against these established companies. In the home improvement retailer industry, the key success factors (KSF) are the ability to meet competitive pricing, a broad mix of products and distribution capabilities. Because Home Depot and Lowe’s sell an essentially homogeneous selection of goods, any new competitors in the industry would have to be competitive in their pricing to draw customers. Both companies stock a large number of products to create a one stop shopping experience and have extensive distribution channels from suppliers worldwide. On the macro level and during the time of this case study, the PESTEL analysis from Exhibit 1 indicates a favorable environment for the home improvement retail industry. The U.S. was going through a period of increased housing production and property values were rapidly increasing in price. There was significant opportunity for Home Depot to sell building supplies to contractors creating new properties and home owners that were looking to increase their property values. There was also a large pool of potential customers because the government had been promoting home ownership through subsidizing mortgages and creating tax deductions for mortgage interest payments. There was also a shift in consumer preferences towards environmentally friendly goods and processes which retailers needed to take into account in operations and the mix of products stocked. The internet was well established in the U.S. by 2005 and internet based businesses had proven themselves as having a successful business model. In 2005, all established companies needed to have a web presence and leverage technology to stay relevant. Home Depot originally targeted do-it-yourself customers when it was established in 1979, but it has since expanded to also target contractors and upscale customers looking for high-end solutions and professional installation. Home Depot originally targeted suburban and small town markets, but once they thought that the market was saturated, they began to move into metropolitan areas and international markets. Home Depot also operates 5 specialized subsidiaries: Expo Design Centers, The Home Depot Supply, The Home Depot Landscape Supply, The Home Depot Floor Store and Georgia Lighting. We made the assumption that the goal of Home Depot is to maintain its position as the biggest retailer of home related products in the U.S. Their objectives are to grow modestly in the U.S. market and gain additional profit through process efficiency and the expansion of services available at Home Depot locations. Home Depot’s resources are its number of stores, market presence, and prime suburban and small town real estate which coincides with the areas of housing growth. Home Depot also has the capability to leverage its economy of scale to exercise buyer power over suppliers, a large network of proven suppliers, including suppliers identified by its overseas sourcing offices and the one stop shopping experience by combining tool rentals and contractors under the same roof as home improvement supplies. Home Depot’s sales volume and size gives it a competitive advantage because it allows them to set prices with competitors and indicated in the VRINE analysis in Exhibit 2....
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