A. Executive Summary
* The Home Depot Story - First Stage (1979-2000)
* The Home Depot Story – Second Stage (2000 – 2006)
* Problem Identification
* Case Questions
* Home Depot was founded in 1978 in Atlanta, Georgia by Bernie Marcus and Arthur Blank. * Both of them worked at Home Improvement Company in California and were fire by this company. * So instead of looking for a new job they decide to start up their own business based on a vision they had. * This vision was about creating home improvement stores similar to warehouses where customers would be able to find different types of tools and products with the help of experts in home improvement and customer service. * Home Depot created the concept “Do it yourself” (DIY) where homeowners were encouraged to buy products and tools and to use them to build, repair and improve their own homes. * This concept of “Do it yourself” was Home Depot’s main strategy to become successful in the Home Improvement industry. The “Do it yourself concept consisted on: * Prioritizing customer service (special attention to their customers problems) * Providing customers with training workshops and clinics to teach them how to repair their own homes. * Vendors and sale associates went through a rigorous training in product use before servicing customers. * Sales associates develop relationships with customers rather than just merely seeing the sale as a transaction. * The growth of the company was quite fast. We can see that in the following figures * In 1979 the two first home depot stores were opened.
* By 1980 they achieved $22 million in sales in only four stores they had. * By 1990 Home Depot achieved $3.8 billion in sales with 145 stores and in that way Home Depot became the top U.S. retailer in the home improvement industry. * To explain things in more detail we have divided the story of Home Depot in two stages. *
The Home Depot Story (First Stage)
* The first stage goes from the years 1979 to 2000 (first 20 years) when Bernie Marcus and Arthur Blank were managing the company. * So during this first stage Home Depot had the following characteristics: * All stores were independent from each other (run rather informally). In other words each store manager run its own store operations. For example, each store decided their employees’ wages, what merchandizing was going to best for the store, and what promotions the store should display. So the operational decisions each store took were based on the local market needs and preferences. * Purchasing was decentralized. There were nine regional purchasing offices in total that negotiated separately with suppliers. Blank believed that decentralization would help increment sales between 15% and 20% as each local store would be able to understand better the local needs of that particular market they were in. * Home Depot had full time employees who were like experts in home improvement. * They pay well to their employees staying away from minimum wage. * These strategies kept productivity high and turnover low. * Focus was on customer service and sales growth.
* As purchasing grew in size, Marcus and Blank thought that a more disciplined approach to operations would be important for further growth. * In the year 2000, the company hired Robert Nardelli to lead this change.
The Home Depot Story (Second Stage)
* The second stage goes from the year 2000 to the year 2006 when Nardelli was hired. * Nardelli conceived the following strategy in order to respond better to the demands of the market: * Extending the business into new lines: tool rental and home installation of Home Depot products. * Expanding the market geographically: Nardelli expanded Home Depot’s market to Mexico. * Expanding the market with new types of customers: Expanded the wholesale business of products and...
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