An Analysis Of The Home Depot Using Strategic Management Presented by: Geordan Hull, Dave Rosu, and Jason Steinberg

DEFINITIONS Strategic Management A comprehensive and ongoing management process aimed at formulating and implementing effective strategies; it is a way of approaching business opportunities and challenges

DEFINITIONS Depot* A place of deposit for the storing of goods; a warehouse; a storehouse The headquarters of a regiment, where all supplies are received and distributed, [workers]s are assembled and instructed… and all the wants of the regiment are provided for * = Definition provided by Webster’s Revised Unabridged Dictionary

HD IN A NUTSHELL The first Home Depot store opened in Atlanta on June 22, 1979 First locations were attached to Treasure Island stores In its first five years, The Home Depot expanded into Florida, Louisiana, Texas, and Alabama World’s largest home improvement retailer Currently, there are more than 1,700 stores in the United States, Canada, Mexico, and Puerto Rico, and two sourcing offices in China Sells a large assortment of lumber, building materials, home improvement, and lawn and garden products The average Home Depot store is 109,000 square feet and offers about 40,000 products

HD IN A NUTSHELL Second largest retailer in the United States Bob Nardelli is the current Chairman, President, and CEO Traded on the NYSE under the symbol HD

MISSION STATEMENT The Home Depot is in the home improvement business and our goal is to provide the highest level of service, the broadest selection of products and the most competitive prices

The Home Depot sells enough paint in a year to paint all of Manhattan ? The Home Depot sells enough paint in a year to paint all of Manhattan with one good coat and still have enough left over to touch up the graffiti in the Bronx

? The Home Depot sold enough carpet last year to pave a two-lane road from Atlanta to Los Angeles to New York City and back to Atlanta again.

The Home Depot sells less than 1% of all trees cut worldwide, yet ? The Home Depot sells less than 1% of all trees cut worldwide, yet the company is the largest supplier of certified wood on the planet

If all the 2-inch disposable brushes sold at The Home Depot each year ? If all the 2-inch disposable brushes sold at The Home Depot each year were lined up side-by-side, they would paint a stripe 1,622 miles wide, about the distance from New York City to Denver

The color ORANGE came from a consulting firm that suggested painting ? The color ORANGE came from a consulting firm that suggested painting The Home Depot signs on bright circus-tent canvas because it would cost less than the more common electric-lighted signs

BUSINESS Great shopping experience Service Merchandise Shoppability Knowledgeable associates Merchandise Endless possibilities for improving and repairing your home High quality Shoppability Clearly printed signs Conveniently placed displays

PRODUCTS Paint & Decor Plumbing Electrical Kitchen & Bath Lawn & Garden Flooring Lighting & Fans Building Materials Lumber Tool Rental Millwork

STRUCTURAL UNITS Business Development & Corporate Operations Marketing Information Technology Human Resources Merchandising Global Logistics Regional Eastern Central Western Northwest

HOME DEPOT’S MANAGEMENT Bob Nardelli Chairman, President, & CEO Joined in December 2000 Elected Chairman of the Board of Directors as of January 1, 2002 BS in Business from Western Illinois University, MBA from University of Louisville Came from GE Power Systems where he was President and CEO Was selected by President George W. Bush to serve on the President’s Council on Service and Civic Participation in January of 2003

HOME DEPOT STORES Home Depot stores are designed to suit the needs of the communities they are located in How-to-clinics Offer step-by-step instructions on do-it-yourself projects Specialty product assortments, credit programs, and delivery programs Options available for professional customers At-Home Services Offers installation on select products National Brands Account for nearly 90% of store merchandise Designer/Exclusive Brands Tool Rental Centers Over 600 stores carrying more than 200 types of tools and equipment Load ‘N Go Truck Rental Allows customers to take large purchases home with them

CORE BUSINESS Do-It-Yourself Homeowners (DIY) Account for 70% of all Home Depot sales

ENHANCING BUSINESS Improve Store productivity & Enrich inventory At Home Services Caters to Do-It-For-Me (DIFM) customers Installation service PRO Program Professional-specific services Expanded to over 1,100 stores Appliances Expanded appliance showrooms, targeted at the professional customer Tool Rental Program Customer can try a tool before buying it Customer can rent tools Urban Store Format “Neighborhood friendly” stores focused on local needs Store format is smaller and more compact

DIVERSIFIED BUSINESS EXPO Design Center The Home Depot Supply One-stop home decorating and remodeling resource Products here were previously only available to professionals The Home Depot Supply Geared specifically to the needs of professional customers and large companies Areas devoted to electrical, paint, plumbing, millwork, hardware, lumber, and building materials The Home Depot Landscape Supply Serves anyone from the professional landscaper to “do-it-yourself” garden enthusiasts

DIVERSIFIED BUSINESS The Home Depot Floor Store The Home Depot Mexico Offers the most comprehensive selection of flooring products and services available Styles range from basic and durable to high-fashion decorator The Home Depot Mexico Acquired Mexico’s second largest home improvement retailer, Total HOME, in June of 2001 Georgia Lighting Specialty lighting designer E-Commerce Routes web-based orders through existing stores Enables regional items to be offered across the country

EMPLOYEES Home Depot associates are put through a two-week “intensive” training program

EMPLOYEE INITIATIVE PROGRAMS Store Leadership Program Home Depot is actively recruiting leadership candidates Associates are able to manage a store after two years of extensive training E-Learning Web-based curriculum Teaches product knowledge with two terminals per store Human Resource Professionals 1,400 new members (on-staff human resource professionals) Ensures that every store is an employee-centered workplace

STRATEGIC PARTNERSHIP National Hiring Partnership U.S. Department of Labor Recruit, screen, refer, and prepare unemployed or dislocated workers for job opportunities

COMPETITIVE ENVIRONMENT The Home Depot operates in an environment characterized by monopolistic competition Many firms (retailers) in the industry Well-differentiated products are exchanged Products can be differentiated from competing offerings on the basis of price, quality, or other features All participants have some control over price Firms involved can easily enter and exit the market without restriction The success of sellers often attracts new competitors to the market

COMPETITION Lowe’s, Inc. Sherwin-Williams Co. 2nd largest home improvement retailer in the world More than 1025 stores across 45 states $30.8 billion retailer Fortune Magazine’s 2003 and 2004 Most Admired Specialty Retailer Sherwin-Williams Co. Stores in 50 states, Canada, and parts of Latin America A global producer with a core business in the sale of coatings and related products* One of the world’s leading companies in the manufacturing, distribution, and sale of core business to various customers* * = Architectural coatings, industrial finishes, and associated supplies; professional, industrial, commercial, and retail customers

INTEGRATION STRATEGY Vertical Integration Forward Integration Increased openings of their own freestanding home-décor stores Home Depot plans on opening 200 EXPO Design Center stores by 2005 Web sites used to sell products directly to customers Home Depot warned its suppliers not to compete with them in selling products online

INTENSIVE STRATEGY Market Penetration Home Depot is attempting to further increase its market share for its products and services in the current market through greater marketing efforts Attempting to attract an international client base

ADAPTATION STRATEGIES Innovation NextGen Technology used to manage customer home improvement jobs Market Development Pro Set A desk for contractors staffed by licensed plumbers, electricians, and other professionals New Store Formats Refashioning stores Brighter lights Fewer products stacked Better signs

ADAPTATION STRATEGIES Acquisitions (recent) Total HOME Acquired in 2001 Georgia Lighting, Inc. Acquired in 1999 Corporation Transformation Home Depot does not plan on changing its form of business

CORPORATE LEVEL STRATEGIES GROWTH Retrenchment Stability

FINANCIAL INFORMATION December 6, 2004 Open: $41.59 Close: $42.00 Change (from yesterday’s close): + $0.20 High: $42.18 Low: $41.586

FINANCIAL INFORMATION P/E Ratio: 18.90 Earnings/Share: $2.21 Dividend/Share: $0.34 52 Week High: $44.30 52 Week Low: $32.34

FINANCIAL INFORMATION Financial Summary for 2003 (in millions) Net Sales: $64.8 billion (11.3% increase from 2002) Net Earnings: $4.3 billion (17.5% increase from 2002) Gross Profit: $20.6 billion Diluted EPS: $1.88 Assets: $34 billion Cash: $2.9 billion 1st Quarter FY2004 Performance Revenue: $17.6 (16.2% increase from2003) Gross Profit: $5.8 billion Earnings: $1.1 billion (21% increase from 2003) Cash: $4.3 billion Total Assets: $38 billion Customer Transactions: 316 million New Stores: 33

FINANCIAL INFORMATION Information from December 6, 2004

FINANCIAL INFORMATION Information from most recent quarter (last three months)

FINANCIAL INFORMATION Information from most recent year (12/2003 through 12/2004)

FINANCIAL INFORMATION Information from the last five years

GROWTH TARGETS 2004 10%-12% sales growth 13%-16% earnings growth Overall capital spending forecast of $3.7 billion Plan to spend $1 billion to support Home Depot’s Modernization Program

REPUTATION Media Financial Community Good community relations Charitable contributions Financial Community Consistently has solid balance sheets Favorable ratings Is expected to significantly outperform the market over the next six months with very low risk

SWOT ANALYSIS Strengths Weaknesses World’s largest home improvement retailer Second largest retailer in the United States Ranked 13th on the Fortune 500 $64.9 billion company In the Fortune 500, ranked 5th in Growth Sales out of the Top 13 Companies Weaknesses Relative inexperience of current CEO, Bob Nardelli, in this market First time in history that it is without any of its founding fathers Company’s size (1,740 stores and a new one opening every 43 hours)

SWOT ANALYSIS Threats Competitors Opportunities Lowe’s Advertising New distribution centers Positions high-velocity oversized products closer to stores Shipments will move direct-to-store without burdening the existing warehouse network Implementation of new operating practices SOAR (Strategic Operating and Resource Planning Process) Focuses on expanding growth horizons by integrating industry and economic data into the business model SPI (Service Performance Improvement) Serve customers while store is open, and unload and restock after hours Threats Competitors Lowe’s Sherwin-Williams

TURNAROUND STRATEGIES Quality versus Quantity Temporary retrenchment Better trained staff Improve overall organizational structure Remember humble beginnings Surveys Marketing Mix Product Price Promotion Place Physical Distribution of products