Home Depot and its Growth - Coursework Example

Home Depot has a strong repute in the number and scope of its stores and in the good stature it has earned over the years. Its home center segment includes large warehouse-style stores like Home Depot averaging nearly 100,000 square feet, with between $12 and $15 million annually. Most of the stores are in suburban regions; Home Depot is in a good position to continue its growth and to improve its profit picture with new advancements and more careful analysis of the consumer and the marketplace. The store has grown rapidly in its almost quarter of a century history and should be able to overcome the slight downturn in growth that it experienced en route. Home Depot “The Home Depot was founded in 1978 in Atlanta, Georgia by Bernie Marcus and Arthur Blank after the two got fired from their positions at Handy Dan. The company grew rapidly, with sales topping $1 billion annually by 1986. In 1997, Home Depot expanded to Chile and Argentina with unexpected success during these countries economic booms. Home Depot wanted to pull out and avoid conflict of interests with their governments. Home Depot remains active in South America, but increasingly focuses on its twelve new stores in China opened in 2006 with better results and success in a communist, but free-enterprise motivated country”. (Wikipedia, 2007) “The home center segment includes large warehouse-style stores like Home Depot averaging nearly 100,000 square feet, with between $12 and $15 million in annual sales. Such warehouse stores first appeared in the late 1970s, and by the 1990s analysts predicted that the warehouse format would revolutionize the hardware industry” (Hardware Stores, 2001). “If this store performs well, says the company, it will be adapted for other urban environments” (Hisey, 2003, 8). Home Depot has a reasonable advantage in the number and scope of its stores and in the good reputation it has created over the years. “In spite of this, the company has encountered problems in recent years, with its stock currently down more than 50%. Some fund managers see the stock as undervalued. However, others argue that the renovation of the company is only beginning and that it must now prove it can produce solid earnings growth in a market that is becoming saturated” (Revell, 2003, 110). As noted, the identified market segments are listed as Lumber and Other Building Materials Dealers, Retail Nurseries and Garden Stores, and Hardware Stores, further identified as the Home Center segment of these larger categories. Also as noted, the target market is dual, consisting of the do‑it‑yourself home improvement market and construction professionals. Both markets are served by the huge number of products stocked in these stores and the wide choice addressing such specific areas as building materials, electrical wiring, plumbing, home decoration, gardening products, lighting, and related products. Most of the stores are in suburban regions, representing the belief that residents in those areas are most interested in home repairs and do-it-yourself and that professionals will buy their materials in the same suburban regions because that is where supply houses are usually found. The customer at Home Depot wants a wide selection of products in each category, including all the sizes and other differentiating features, which are important in making a selection for building materials in each category. There have been demographic studies of shopping habits at home Depot in different cities. “A study from San Jose, California, for instance, addressing psychographics and demographic data shows that the group most likely to have shopped at Home Depot in the previous month. These segments are likely to have a mortgage on their primary residence and are typically married couples with young children living in suburban and urban areas. They also have high-income levels, are homeowners, and are white-collar workers” (San Jose Retail, 2002). Possible appeals to this target consumer would include the degree of choice offered in these stores, the convenience of having all types of building materials in one location, and discounted prices. Other appeals would relate to specific stock when there is a sale. Home Depot is one of the retailers making use of new technology that allows the company to update software at all POS devices chain‑wide instantly from headquarters, which cuts costs by reducing expenses for the returns process and protects the company from credit card terminal downtime. Using this method, “Home Depot will be able to update all 150,000 of its POS stations instantly, saving untold millions in laborious manual software installation and testing” (Hisey, 2002, 16). The normal method would be for the retailer to send out technicians to every store whenever software has to be updated. The potential savings can go even further “because software that directly affects sales can be updated nationwide, instantly, along with price changes and new product information” (Hisey, 2002, 16). As noted, the primary competition for Home Depot includes Kmart and Wal-Mart. These chains are only partially in competition with Home Depot, however, for they offer a wider range of products and are more like department stores in that regard. There are numerous other hardware chains and hardware stores, though these would be considered secondary competitors. Many of the large competitors that immediately followed Home Depot in the 1980s have gone out of business. “North Carolina‑based Lowes Companies, Inc. are the second leading hardware retailer in the country and has more than $10 billion a year in sales from 484 stores. Builders Square, Inc. of San Antonio, Texas is the third largest retailer, with approximately $4.18 billion in sales in 1997, though two years later its parent company, Hechinger, Inc., filed for bankruptcy protection and announced plans to close a number of stores in the Builders Square chain. Menard Inc. is another one the countrys leading hardware retailers, generating about $3.5 billion a year in revenue from approximately 130 stores located mostly in the Midwest. Founded as a single, family‑owned store in Iowa in 1930, Payless Cashways, Inc. has about 192 stores in 22 states, for about $2.29 billion in sales” (Hardware Stores, 2001). “Since 2001, the company has been following an ambitious growth plan to increase its in‑home services business substantially and also to sell more products to professional contractors. The company also planned to hire 40,000 new employees and to add 200 stores. Certain stores are to be pro stores, like one already in Phoenix. The company sees its customer base evolving as aging baby‑boomers have increased their financial capabilities and become more discerning in their quality‑of‑life buying decisions” (Miodonski, 2001, 1). “The company continued to expand, and company executives stated that Home Depot opened a new store every 53 hours. Competition includes discount stores such as Kmart and Wal‑Mart, which typically have a wider range of products” (Hardware Stores, 2001). Home Depot is in a good position to continue its growth and to improve its profit picture with new technology and more careful analysis of the consumer and the marketplace. The store has grown rapidly in its almost 25 year history and should be able to overcome the slight downturn in growth that it experienced in the opening years of this century. Distribution of Home Depot Stores in the US Shareholder figures for Home Depot Sales figures for Home Depot EPS figures for Home Depot References "Hardware Stores" (2001). Encyclopedia of American Industries, 3rd ed. Farmington Hills, Michigan: Gale Group. http://www.galenet.com/servlet/BCRC Hisey, P. (2002, January). "Home Depot, Kmart, Sears focus on logistics." Retail Merchandiser 42(1), 16. Hisey, P. (2003, February). "Home Depot, Target lead mass merchant invasion in Chicago." Retail Merchandiser 43(2), 8. The Home Depot, Inc. (1997). International Directory of Company Histories, Vol. 18. New York: St. James Press, 1997. Miodonski, Bob. "Home Depot Unveils Plans for Big Growth." Contractor Magazine 48(9)(September 2001), 1-2. Revell, J. (2003, February 3). "Can Home Depot get its groove back?" Fortune 147(2), 110-112. The Home Depot. (2007). http://corporate.homedepot.com/wps/portal San Jose Retail (2002). City of San Jose. http://www.sanjoseretail.com/demographics/psychographics.asp?WhichHdr Wikipedia. (2007). The Home Depot. http://en.wikipedia.org/wiki/Home_depot Read More