Strategic

Marketing
Case Study Analysis of Home
Depot Inc.
Submitted to:
Sir M.A.Butt

Submitted by:

Urooj Nazir 58124

Table of Contents

Acknowledgement
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Home Depot Inc.

History of Home Depot

Home Depot, who was the first to really commercialize the big-box format
back in 1979. Home Depot has grown since then to become the largest home
improvement retailer in the world. With the exception of Wal-Mart, no other
retail chain has the globally expansive net sales growth than the Home
Depot. Nardelli (Chief Executive) loves to hire soldiers. The military, to a
large extent, has become the management model for his entire enterprise.
Overall, some 13% of Home Depots 345,000 employees have military
experience, vs, 4% at Wal-Mart Stores Inc. With the intensely competitive
nature of the home improvement retail segment, it becomes vital to not only
make the exact product available to the customers at the right price, but
having sensitivity to serving what the customer needs will make the
difference in who gains competitive advantages. Although Home Depot has
delivered superb financial results since its inception, over the last six years
they have encountered their share of challenges to include eroding market
share to Lowes, and severe organizational discontent from shareholders,
employees as well as customers.
Home Depot was conceived in the late seventies by Bernard Marcus and
Arthur M. Blank; two charismatic entrepreneurs with a retail background and
an innovative idea to create a no-frills, floor to ceiling warehouse filled with
the largest variety of home improvement products available to the public.
Because retail had long been considered a largely aesthetic experience, this
was regarded as a radical marketing shift in that a high volume, high
assortment, low overhead business strategy could successfully lure
customers in with drastically reduced prices over their competition. It has
been reported that prior to the first store opening in 1979, Bernard Marcus
was so intent on creating a warehouse feel that he raced around on a
forklift, throwing on the brakes to create skid marks on the floors. The cofounders envisioned a huge warehouse store where all products would be

acquired and delivered almost instantaneously from the manufacturers

production floor. The hook for the customer was the promise of amazingly
low prices, in an environment where the do-it-yourself customer would be
assisted by knowledgeable sales people, who through their expertise, would
instruct motivate and encourage customers towards what was needed to fix
and improve the home environment.
By the end of that first year, Home Depot had three separate locations
opened with almost 200 associates (employees) and net sales of just over $7
million dollars. However, some people would be surprised to know that Home
Depot reported a loss in the first year of almost one million dollars. By the
following year, a profitable Home Depot literally exploded on the retail front,
with sales topping one billion dollars annually by 1986. Home Depot reached
net sales of almost 81.5 billion dollars in 2005, an average annual growth
rate to 12% according to result announced on Feb 21.
Nardelli plans to kick start the stock move beyond the core U.S big box
business and conquer new markets, from contractor supply to convenience
stores to expansion into China.
By 2010 ,HDS sales are expected to reach $23 billion, according for 18% of
Home Depots total, up from 5% in 2005. As for the co-founders, in late 2000,
Bernard Marcus and Arthur Blank handed over the CEO job to Robert Nardelli,
a command and control leader, who had mentored under Jack Welch while he
was at General Electric.
Nardellis leadership style can be described as being task oriented,
directive and autonomous and autocratic.. His tenure at the company
was marked with heavy-handedness and inflexibility. Almost immediately
after Home Depot snared Nardelli, he embarked on an aggressive plan to
centralize control. He neglected the touchy-feely stuff, enthusiasm of his
people, a sense of humility before his board, the care of his shareholders. He
was maniacal about goals, objectivity, accomplishments within the
boundaries of the values of the company. He invested heavily in technology.
He also wanted to virtually measure everything in the company and hold top
managers strictly accountable for meeting the numbers.
He ran the company efficiently for six years. However, the growth slowed
down. At the same time, Lowe's enjoyed a far better reputation. It had a
more appealing store design and women shoppers endorsed it. Better
customer service, customer experience, and personalized product offerings
gave Lowes stores the competitive advantage which eventually moved it

directly onto Home Depot turf. Nardellis reign at Home Depot was
characterized by the callous and inflexible management style. Nardelli
was brought in when the company needed to focus on the cost side of the
equations when sales were growing.
Home Depot specializes in construction materials, home improvement
supplies as well as lawn and garden offerings. Home Depot has been
endorsed as an innovator in their ability to combine economies of scale with
exceptional customer service and know-how The Home Depot divides itself
into two different business compartments: Retail and HD Supply. The retail
segment caters to the Do-It-Yourselfers those who think they know what
they are doing, the Do-It-For-Me or Buy-It Yourselfers who realize they
may need a little extra help and finally the professional remodelers and
tradesmen, who really know what they are doing.
The retail segment of Home Depot consists of 1,872 stores in the United
States as well as 228 stores in Canada, Mexico and China. Home Depot
stores are typically large, averaging about 105,000 square feet and provide
well over 40,000 different product offerings.
Home Depot should continue to seek innovative ways to enhance and
distribute products in the United States and in other geographic dimensions.
By exploiting specialized customer niches and gaining footholds in areas of
the world which are not experimenting market difficulties, Home Depot can
achieve the first to the party competitive advantages. The innovation center
is also a venue for experimentation. In his relentless drive for laser execution
at Home Depot, Nardelli has pushed executives to come up with new ways to
beat competitors on price, displays and product assortment.

Introduction
Home Depot originated in Atlanta Georgia in 1978 when Bernie Marcus and
Arthur Blank formed MB Associates. The company went public in 1981.The
Home Depot stock moved from NASDAQ to the New York Stock Exchange
three years later in 1984. The company then acquired Bowater's Home
Center. The company opened its first super-sized store in 1986.Home Depot
is a home improvement retailer. The company sells a wide variety of building
materials, home improvement, lawn and garden products. The company sells
these products to do-it-yourself (DIY) customers, do-it-for-me (DIFM)
customers, and professional customers who include professional remodelers,
general contractors, repairmen, small business owners and tradesmen.

The Home Depot is an American retailer of home improvement and

construction products and services. Headquartered in Vinings, just outside
Atlanta in unincorporated Cobb County, Georgia, the Home Depot employs
more than 355,000 people and operates 2,141 big-box format stores across
the United States (including the 50 U.S. states, the District of Columbia,
Puerto Rico, the Virgin Islands and Guam), Canada (ten provinces), Mexico
and China. Currently, the world's second largest Home Depot opened on
November 14, 2007 on the island of Guam. Established in 1978 by Bernie
Marcus and Arthur Blank, the Home Depot Corporation opened its first store
in Atlanta, becoming the worlds largest home improvement retailer.
They are now the second largest retailer in the United States, offering 40,000
to 50,000 different types of home improvement supplies, building materials,
and lawn and garden products. They carry a wide assortment of low-cost
products, and offer expert advice and exceptional customer service. As an
innovator of the home improvement industry, Home Depot has expanded
into Canada, Mexico, Argentina, Chile, and Puerto Rico. Currently there are
1,459 stores including fifty EXPO Design Centers, one Floor Store, and three
Home Depot Landscape
Supply stores. Home Depot caters to Do-It-Yourself customers, as well as
home improvement, construction and building maintenance professionals.
Home Depots stock went public in 1981 and is traded in the New York Stock
Exchange under the ticker symbol, "HD". It is included in the Dow Jones
Industrial Average and
the Standard and Poor's 500 Index.
The Home Improvement sector in general is in the growth stage of its life
cycle. Even in the weak economic environment, low interest rates have
allowed the real estate sector to survive. As a result, home ownership has
reached new highs, and the housing industry thrived. In August 2002, Home
Depot was ranked first in "Quality of Earnings" by Merrill Lynch in a study of
large, publicly traded companies. Home Depot reported net sales for fiscal
2001 of $53.6 billion and employs approximately 280,000 people. Fortune
Magazine has ranked them as Americas Most Admired Specialty Retailer.
Business Week cited Home Depot as Ten Best Boards in the U.S. In October
10, 2002, Home Depot announced they are opening two sourcing offices in
Shanghai and Shenzhen. According to Vice President of Global Sourcing,
Duane Goodwin, this will allow Home Depot to enhance their opportunities to
purchase more goods directly from their manufacturers, as well as rapidly
expand their purchasing throughout China and Asia.

Strategic Marketing Objectives

To become market driven organization.

In addition, Home Depot will increase investments in technology and
store modernization, as well as sustain its control through its vertical
growth strategy in its value chain (Home Depot).

Using a customer-back initiative in decision-making, Home Depot is

dedicated to building relationships with the customers, whether they
are the do-it-yourselfers (DIY), the do-it-for-me (DIFM), Home Depot is
pledges to provide service and products second to none
To reduce turnover of employees
To enhance the sales of annual growth rate 12%

Marketing Strategy
Product

The company sells a wide assortment of building materials, home

improvement, lawn and garden products such as patio sets, kitchen,
doors, windows, grills, bath, lighting, fans and appliances.

Home Depot provides an inventory of products specifically aimed at

professional contractors, such as lumber, paint and painting supplies,
plumbing equipment, cleaning and janitorial equipment.

Price

Home Depot will offers discounted prices via its online Savings Center
where it cuts to 20% off products such as play sets, kitchen faucets,
and professional saws.
The company will establish special buys prices on appliances offering
25%
discounts on products such as Washer & Dryer sets, and 20% off on
Water & Ice
Refrigerators
Place

The Home Depots main office is located in the US, in northwest

Atlanta, Georgia.

Home Depot has 3 stores in Georgia, 5 in Florida, three in California, as

well as locations in Tennessee, New Jersey, and Indiana.

The company has stores in Mexico, Guam, the Virgin Islands and
Canada.

Promotion

In future Home Depot will market its New Low Prices campaign
which featured
rebates and discounted prices on over 1000 products.

The company unveiled its Aprons on the Floor initiative designed to

improve customer service by providing an increased presence of
available.

The company markets special offers via email newsletters, do it

yourself workshops, and garden
Process

Estimates are that the Aprons on the Floor initiative could allow the
assignment of two additional hours of floor time per week for these
supervisors. This is estimated to mean 4,000 extra hours of customer-

service activities for Home Depot.

Home Depot continues to transforming its information technology
applications by converting their Canadian business to a new enterprise

resource planning platform.

Recent associate training and procedures concentrate on helping

customers with problem solving, rather than simply securing sales.

In recent years Home Depot is emphasized a more formalized decisionmaking process tempering some of the flexibility regional mangers had

operated under.
Physical Evidence

The average size of a Home Depot store is about 105,000 square feet
of enclosed space. Each store has about 24,000 additional square feet

in the outside garden area.

The companys stores stock approximately 30,000 to 40,000 different

kinds of products.
To improve merchandising of its chemical products area, Home Depot
has employed new way finding signage program to brighten aisle and

make easier to navigate between product categories.

The garden center area was revised with New table fixture design with
larger and brighter way finding signage.

.
People

Human Resources and assigned to oversee all aspects of human

resource management as well as address customer service issues.
Home Depot plans to increase the number of full time employees and
expand their training, while de-emphasizing the use of part-time

workers.
The company places strong on value on its associates and provides
performance based merit increases as well as a 401(k) matching
program.

Companys Strategy
Operating strategy
-focused on the shift from new square footage growth to maximizing
the productivity of the existing store base.
-optimize capital allocation, concentrate efforts on core business, (2008 15stores are closed, 50 stores are removed from new store pipeline, exit our
EXPO,THD Design Center, Yardbirds and HD Bath businesses)
Long term strategy:
geographical expansion of store network through acquisition and opening
new stores.
-IT development - to improve customer service and develop e-commerce
business.
-Global Sourcing and Distribution

Recommendations
From the in depth analysis of Home Depot and its primary competitors,
it seems that Home Depot is positioned well to move into the next
millennium. Financially, Home Depot is very sound which is good considering
they will need vast amounts of capital to continue growth. Home Depot also
appears to be realizing investments from IT as well as operational
efficiencies.

Home Depot seems to show some weakness in their ability to collect

from customers as evidenced in the average collection period .Perhaps a
reworking of the credit policy is in order. They should also be careful not to
grow out of control due to imminent market saturation and overall industry
slowdown.

Annexure
Numbers in Millions of dollars
1995 1996 1997 1998 1999 2000

Net Sales

1247 1547 1953 2415 3021 3843

6
0
5
6
9
4

Cost of Merchandise Sold

8991

Gross Profit

3485 4285 5434 6781 8605

1118 1410 1737 2161 2702

4
1
5
4
3
1141
1

Operating Expenses:
Selling and Store Operating
Pre-Opening
General and Administrative
Non-Recurring Charge (note
8)
Total Operating Expenses
Operating Income
Interest Income (Expense):

2216 2783 3521 4303 5341 6832

51

52

54

65

88

113

230

269

324

413

515

671

104

2498 3105 3900 4885 5944 7616

986 1179 1533 1896 2661 3795

Interest and Investment

Income
Interest Expense (note 2)

Interest, net

28

19

25

44

30

37

-35

-4

-16

-42

-37

-28

-7

15

-7

Earnings Before Income

Taxes

979 1195 1534 1898 2654 3804

Income Taxes (note 3)

375 463 597 738 1040 1484

Net Earnings

604 731 937 1160 1614 2320