Home Depot Business Case Analysis Letter to CEO
To: Robert L. Nardelli, – President and CEO of Home Depot, Inc.
Date: March, 04, 2004
First of all, I would like to thank you for giving me the honor to analyze your well organized and developed company. In this memo, I am going to discuss the strategic factors facing Home Depot, the strategies that the company has been following for the past years, and the distinctive competency Home Depot attain. Also, I am going to give my recommendations and opinion.
Some of the strategic factors that Home Depot faces are related to product quality, price, advertising, store capacity, competitors, and customer’s independency and satisfaction. Most of these strategic factors helped in the growth and popularity of Home Depot.
Home Depot offers good quality products such as home improvement products, lawn and garden supplies. Installation services for these products are offered too. Home Depot like Wal-Mart Company offers low prices everyday. Operational efficiency had been a crucial part of achieving these low prices while still offering a high level of customer service. The company assesses and upgrades its information to support its growth, reduce and control costs and enable better decision-making. From the installation of computerized checkout systems, to the implementation of satellite communications systems in most of the stores, the company had shown that it has been and would continue to be innovative in its operating strategy. In year 1994 Home Depot introduced a prototype store format that offered about 32,000 more square feet of selling space and a significantly broader and deeper selection of products and services, as well as a more convenient layout than the traditional stores. These Type (V) stores were designed around a design center, which grouped complementary product categories. Therefore, this wide store capacity enabled Home Depot to stock like 40,0000 to 50,000 products in each store. I think that this is a very good strategic factor that enables the store to offer a wide variety of products.
The Term Paper on Company Profile of The Home Depot
... the company operates four Villager's Hardware test stores, which offer products for home enhancement and small projects. In mid-year, Home Depot also launched a Home Depot Floor Store, located ... and information about Home Depot. Last year, Home Depot began selling products over the Internet in three markets. The Company offers customers the products available at stores in their ...
Lowes is the main competitor against Home Depot. Both companies have big stores, and many products. But Home Depot is still number one. Mike Brune from the Rainforest Action Network declared that ” It’s been a busy month for us all as we attempt to find out the implications of the Home Depot victory on the entire DIY (do-it-yourself) industry, get the all important details of Home Depot’s new policy, and actually determine to what degree the new policy is a victory at all. The short answer is that there is a lot of good news, with some large question marks. Home Depot’s announcement, and
the extensive press coverage it earned, sent shockwaves through all of Home Depot’s competitors.”(Mike Brune. Important Update on Home Depot and Competitor Policies. Retrieved October 5, 1999, from http://forests.org/archive/america/compdebo.htm).
Home Depot has stores all over the map nationally, and is expanding worldwide. It recently put competitor Hechinger out of business, and before that Builder’s Square.
(Rob Landley. A Case for Home Depot. Retrieved January 14,2000, from http://www.fool.com/portfolios/rulemaker/2000/rulemaker000114.htm).
Congratulations on being number one in your industry. I would like now to discuss the reasons behind this success for year 2002 . I think that the strategies that you and your employees are following and the great customer service are leading to the growth and success of your company.
Home Depot uses a “clustering” strategy to locate new stores closer to existing ones. The short-term effect is to lower same-store sales. On the other hand, this strategy can create a strategic advantage by raising the barrier of entry to competitors. It reduces overcrowding in the existing stores. It also allows the company to spread its advertising and distribution costs over a larger store base. I think that this strategy led Home Depot to have fewer competitors, and lowered the distribution cost. On the other hand, opening too much stores increase the expenses from equipments, products and employees. Even if, the company can afford to open all these stores, I do not think that the company should open many stores in one area.
The Essay on 2004 At Approximately Customer Company Store
White Marsh Electronics, Inc. 1000 Bel Air Rd. White Marsh, MD 21236 April 1 st, 2004 John Leonard 1313 Wake Forest Way Baltimore, MD 21234 Dear Mr. Leonard: This letter is to inform you that because of numerous offenses against the company's rules and regulations we are terminating your employment with us effective immediately. This letter will spell out all documented occasions with times and ...
Another strategy that your company is following is focusing on customer service and satisfaction or what is referred to “customer cultivation”. Customer cultivation is the result of the provision of highly qualified and helpful employees, professional clinics and in-store clinics. When the company was faced with clogged aisles, endless checkout lines, and too few salespersons, it sought creative ways to improve customer service. Workers were added to the sales floor, shelf stocking and price tagging were shifted to nighttime, when the aisles were empty. Therefore, the availability of sales personnel to attend to customer needs was one clear objective of the Home Depot customer service strategy. It gave the DIY (Do It Yourself) customers the support and confidence that no home project was beyond their capabilities. Home Depot attitude of complete customer satisfaction has led the company to constantly seek ways to improve customer service. I think that this strategy is great and was worth all the expenses because the employees were free to sell during the day and focus more on the customers needs. It the good experience that brings the customer again and it’s the word of mouth that brings other new customers, therefore, customer satisfaction is the most important strategy that any company shall follow.
The third strategy that you company is following is focusing on extensive advertisement. In year 2002, Home Depot spent $895 million on advertising, 9.5 percent more than the $817 million it spent in 2001 and 24 percent more than the $722 million it spent in 2000. Home Depot is one of the nation’s largest retail advertisers and spends far more on advertising than comparable stores. Home Depot spent nearly eight times as much on advertising in 2002 than its nearest competitor, Lowe’s Cos. Lowe’s, which has just half the annual sales of Home Depot, spent about $114 million on advertising in year 2002. (Jim Lovel. Home Depot ad spending $895M. Retrieved April 25, 2003, from http://www.bizjournals.com/atlanta/stories/2003/04/28/story1.html).
The Business plan on Home Depot Company Market Industry
... to daily life. Last year, hurricanes, tornadoes, mudslides, flooding and wildfires impacted many of our customers. The Home Depot met their needs by ... we are always looking for ways to improve our company. The Home Depot also strives to take care of its investors by ... more difficult to find good associates.This shortage causes us to spend more time and financial resources training employees. This has ...
Therefore, extensive advertising is giving Home Depot a distinctive competency against other companies in the same industry.
These strategies are implying higher expenses in order to be achieved, especially the huge expenses on advertising. I would like to make a comparison between two most growing companies in the USA (Home Depot and Wal-Mart) .In 2002, Home Depot spent 32 percent more than Wal-Mart Stores Inc., the world’s largest retailer. Wal-Mart with annual sales almost five times higher than Home Depot’s spent $676 million on advertising last year. (Jim Lovel. Home Depot ad spending $895M. Retrieved April 25, 2003, from http://www.bizjournals.com/atlanta/stories/2003/04/28/story1.html).
Therefore, the more money you spend on advertising, does not lead to increase in annual sales but it leads to increase in expenses. Even though, the extensive advertising made this company have a distinctive competency against other companies but Home Depot spent $ 895 million on advertising and Lowe’s company spend only $114 million. It is true that the annual sales of Home Depot were more than half than Lowe’s but Home Depot can lower its expenses of advertising to 5 times and can still be able to compete with Lowe’s company. So, the main question for you is that ” can you plan a strategy that does not require higher expenses”? I am not implying that these strategies are not working but I think that there should be a strategy that keep the company growing but at least lower the expenses. Net Sales had increase 10.5% year 2003, comparing to year 2002. But the expenses too have risen 15.3 %. (Form 10-Q for HOME DEPOT INC5. Retrieved September 5,2003, from http://biz.yahoo.com/e/030905/hd10-q.html).
The Business plan on Home Depot Inc. Case Analysis
... three years. Unlike Home Depot, Hechinger relied on equity financing to fund its expansion. Evaluation & RecommendationsThe company has undermined the profitability of its stores ... out of stock occurrence. Moreover, Home Depot pursued an aggressive advertising program through media and direct mail catalogues. The advertising were focused on promotional ...
<Tab/>Home Depot is Growing internationally as in new stores in Mexico (a $12.5 B market); and Expo Stores in Asia. Home Depot has gone from zero stores in Mexico to being the second largest building supply retailer in Mexico in just a few months. I think that Home Depot can grow fast in other countries because of their distinctive competency from great customer service to extensive advertisement.
This year, the profits and revenues for Home Depot are tending to decrease. Therefore, you as a CEO had to immediately put Home Depot through a sweeping restructuring, but it has been a bumpy ride. Your efforts to trim the fat out of inventory levels resulted in shortages and lost sales during parts of 2002, prompting you to reverse course and build inventories back up. That, coupled with your efforts to reshuffle store staffing and initiate disruptive makeovers of older stores, caused sales at most of Home Depot’s locations to turn negative for two quarters. The result: The stock, which had already fallen by nearly 30%, to around $50 when you arrived in late 2000, slid as low as $20.10 in early 2003. It has rebounded to around $35.50. The stock price today is $ 37.70.( Dean Foust .Home Depot’s Remodeling. Retrieved January 9, 2004, from http://host.businessweek.com/businessweek/Corporate_Snapshot.html?Symbol=HD).<Tab/>I would personally not buy this stock because the stock price has not stable for the past 2 years. Home Depot is battling a sagging stock price and increased competition from Lowe’s. Home Depot’s stock price reached a five-year low of $21.38 a share in January and currently is trading at about $27.75 a share, almost one-half of the value it had when you became the company’s CEO and president in December 2000. Although the company has aggressively opened new stores, average weekly sales at Home Depot stores fell from $864,000 in 2000 to $772,000 in 2002, according to the company’s annual report filed April 21 with the Securities and Exchange Commission. (Froust Dean. Home Depot’s Remodeling Project. Retrieved January 9, 2004, from http://www.businessweek.com/bwdaily/dnflash).
The Essay on Home Page Internet Company Access
How the Internet Originated and What its Basic Construction Is In the 1960's the Department of Defense's Advanced Research Project Agency started a small network to promote the sharing of super-computers amongst researchers in the United States. (PBS Article). In the 1970's, email became popular. This helped people to research projects and discuss topics. The Internet started out with universities ...
I really enjoyed the research I did on your great and well known company. It is my pleasure to maintain a relationship with your company. Although lately, Home Depot has been blamed for the sharp slowdown in revenues and profits on deflation in lumber prices, which is not just because of the price of the plywood. You have been renovating for 2 years and the main question is that ” After two years of distracting renovations, is the DIY giant ready to unveil its new design. Will it be enough to hammer rival Lowe’s?” This year, you and your team must prove that you can sustain that momentum and demonstrate that the makeover is paying off. I think that you as a CEO is capable of leading the company to number one again. Thank you a lot for reading my memo and taking my advices and suggestions. If you would like to ask any questions or discuss any issue, please do not hesitate to contact me.