1. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
2005
A Strategic Management Case Study
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

2. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Overview
A brief history of The Home Depot
EOY 2004
Mission, Vision, Objectives, Strategies
2005
New Vision and Mission
External Analysis
Opportunities & Threats
CPM
EFE
Internal Analysis
Financial Data
Strengths and weaknesses
IFE
Financial ratios
Strategic Analysis
SWOT Matrix
SPACE
BCG
IE matrix
Grand Strategy Matrix
Matrix Analysis
QSPM
Possible alternative strategies
Our Recommendation
Strategies
Long range objectives
EPS/EBIT
Implementation Issues
Proposed annual objectives (goal) and polices
Proposed procedures for evaluation
Epilogue
Current Performance
Resources Utilized
Questions
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

3. History of the Home Depot
1978 Founded by Bernie Marcus and Arthur Blank; zero locations; 20 associates
store location; 200 associates; $7 million in sales
stores; 300 associates; $22 million in sales
1981 Stock goes public on NASDAQ, raising $4.1 million; 8 stores; 700 associates; $51 Million in sales
1984 Moved to the New York Stock Exchange (NYSE) in
1986 Sales exceed $1 billion; 60 stores
1987 Day-in/Day-out pricing policy; UPC scanning system; health program for associates introduced; 75 stores; $1.45 billion sales
1988 Named retailer of the Year by Building Supply Home centers for second time; named High Performance Retailer for 7th consecutive year by Management Horizons; 96 stores; $2 billion in sales
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

4. History of the Home Depot
1994 The company arrived in Canada with the acquisition of Aikenhead’s home improvement centers
stores; 124,000 associates; $24.2 billion sales
1999 The Legend opened in the Atlanta Store Support Center; chronicles the history of The Home Depot and illustrates the values that set us apart
2001 Began flying its flag proudly in Mexico in 2001 through the acquisition of Total HOME
2002 1,532 stores; 300,000 associates; $58.3 billion in sales
2003 $64.8 billion in sales
2004 Sales reach 73.1 billion; over 1,818 stores and 54 EXPO centers making Home Depot the world’s largest home improvement retailer, 2nd largest retailer in the United States, 3rd largest retailer in the world
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

5. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
2004 Mission
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. We are a
values-driven company and our eight core values include the
following:
Excellent customer service
Taking care of our people
Giving back
Doing the "right" thing
Creating shareholder value
Respect for all people
Entrepreneurial spirit
Building strong relationships
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

6. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Giving Back
In 2004 Home Depot committed to its first ever week of service. 260,000 volunteers hours were donated by 34,500 associates. Completing 1,600 service projects. Due to its success we have decided to make it an annual event.
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

7. 2004 Strategies and objectives
Approximately $1 billion is being invested in infrastructure
Self check out computers
Product scanning devices
175 new stores in North America
Modernize current stores
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

8. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
2004 Issues
Strong competition with Lowe’s is driving down prices
Contractor shortages causing a backlog in home remodeling
A class-action lawsuit alleges that Home Depot and rival Lowe's misled customers with interest-deferred credit card promotions in 2003
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

9. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Exclusive Brands
The Home Depot carries several exclusive brands, including:
BEHR Paint
Chem-Dry (carpet cleaning, upholstery cleaning, tile and grout services)
Distinctions Cabinetry
Eco Options (store brand)
Feather River Doors
G.E. (Water Heaters)
Glacier Bay (faucets and bath)
Hampton Bay (lighting, ceiling fans & patio furniture)
Husky (tools)
Millstead
Pegasus (kitchen and bath items)
Ralph Lauren paint
Ryobi (power tools)
Thomasville cabinetry
Vigoro (fertilizer)
Workforce
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

10. Creating a worldwide presence
Add the end of 2004 we had 44 stores in Mexico and 117 in Canada
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

11. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
A New Vision
To be the first choice for affordable,
diverse, innovative, and modern products in
the home improvement industry.
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

12. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
A New Mission
The Home Depot’s mission is to be a superior retailer in the home improvement business by providing an extensive range of products worldwide. (2,3,7) We offer first-rate customer service to all home owners and businesses, from housewives to contractors. (1) The Home Depot values its relationship with it’s employees, shareholders, customers, and the community as well as the environment and maintains a high level of respect for all. (6,8,9) These relationships are maintained through vast community involvement and a dedication to increasing our presence internationally, thereby providing to those in need and increasing profits to our shareholders. (4, 6,5) We utilize technological advancements to assist in our growth and further develop our innovated stores. (4)
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

13. The Home Depot’s mission
The new mission answers the following questions
Customers: Who are the firm’s customers?
Products or services: What are the firm’s major products?
Markets: Geographically, where does the firm compete?
Technology: Is the firm technologically current?
Concern for survival, growth, and profitability: Is the firm committed to growth and financial soundness?
Philosophy: What are the basic beliefs, values, aspirations, and ethical priorities of the firm?
Self-concept: What is the firm’s distinctive competence or major competitive advantage?
Concern for public image: Is the firm responsive to social, community, and environmental concerns?
Concern for employees: Are employees a valuable asset of the firm?
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

14. External Audit: Opportunities
International expansion
Consumer interest in one-stop shopping to save time and gas money
Growth in global sourcing
Hardware stores, home centers, and retail-oriented lumberyards, industry expected to grow (from $236.3 billion in 2004 to $281.7 billion by 2008)
Slow housing sales (people are likely to stay home and spend money on remodeling and on improvements to make a home more attractive to purchase)
The growing number of woman who are making home improvement decisions and spending an increasing amount of time on DIY (do-it-yourself) projects
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

15. External Audit: Threats
Competitors (Lowe's, Sears, Wal-Mart)
Reaching market saturation within North America
Contractor shortage causing backlog in home remodeling
Overlap between Home Depot and Lowe's
A class-action lawsuit alleges that Home Depot and rival Lowe's misled customers with interest-deferred credit card promotions in 2003
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

16. The Home Depot CPM Home Depot Lowe's Wal-Mart Critical Success factors
Weights
Rating
Weighted Score
0.0 to 1.0
1 to 4
Market Share
0.10 3
0.3 2
0.2 4
0.40
Inventory system
0.07
0.28
0.21
Financial position
0.14
Product quality
0.09
0.27
0.18
Consumer loyalty
0.05
0.20
0.15
Sales distribution
Global expansion
0.11
0.33
0.44
Organization structure
0.08
0.24
Production capacity
E-commerce
0.16
0.32
Customer service
0.06
0.12
Price competitive
Management experience
0.4
0.30
Totals 1
3.28
2.87
3.4
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

17. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
The Home Depot EFE
Key External Factors
Weights
Rating
Weighted Score
0.0 to 1.0
1 to 4
Opportunities
International Expansion
0.1 4
0.4
Consumer interest in one-stop shopping to save time and gas money
Growth in global sourcing
0.08
0.32
Payback from IT Investment
0.05 3
0.15
Hardware store, home centers, and retail-oriented, lumberyards, industry expected to grow (from billion in 2004 to billion in 2008)
Slow housing sales (people are most likely to stay home and spend money on remodeling and on improvements to make a home more attractive to purchase
0.07 2
0.14
Growing number of women who are making home improvement decisions and spending an increase amount of time on DIY (Do-it-yourself) projects
0.09
0.36
Threats
Competitors (Lowes's, Sears, Wal-Mart)
0.3
Reaching market saturation within North America
0.28
Contractor shortage causing backlog in home remodeling
Overlap between Home Depot and Lowe's
0.21
A class-action lawsuit alleges that Home Depot and rival Lowe's misled customers with interest-deferred credit card promotions in 2003
0.06
0.12
Industry slowdown
0.18
Totals 1
3.32
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

18. Consolidated Balance Sheet
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

19. Consolidated Balance Sheet
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

20. Consolidated Statement of cash flows
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

21. Internal Audit: Strengths
#1 home improvement retailer in the world
#2 retailer in the U.S.
Profits climbed 16% and revenues climbed 13% in for the fiscal year 2004
Innovative methods of differentiating
Dominant in the lumber and building materials industry
Distinctive product range
Efficient business model
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

22. Internal Audit: Weaknesses
Rising expenses
Store layout and appearance
New store productivity remains weak
Revenue growth is slower than industry average and Lowe's
18% decrease in cash and cash equivalents FY from 2002 and 2003 to 2004
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

23. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
The Home Depot IFE
Key Internal Factors
Weights
Rating
Weighted Score
0.0 to 1.0
1, 2, 3 or 4
Internal Strengths
3 or 4
#1 home improvement retailer in the world
0.12 4
0.48
#2 retailer in the U.S.
0.09
0.4
Profits climbed 16% and revenues climbed 13% in for the fiscal year 2004
0.07
0.32
Innovative methods of differentiating
0.08
Dominant in the lumber and building materials industry 3
0.24
Distinctive product range
0.04
Efficient business model
0.1
Internal Weaknesses
1 or 2
Rising expenses 2
0.2
Store layout and appearance
0.06
New store productivity remains weak
0.11 1
Revenue growth is slower than industry average and Lowe's
0.16
18% decrease in cash and cash equivalents FY from 2002 and 2003 to 2004
Totals
3.04
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

24. Financial Ratio Analysis
LIQUIDITY RATIOS
Current Ratio
1.3 times
1.4 times
Quick Ratio
0.4 times
LEVERAGE RATIOS
Debt to Total Assets
37.9%
34.9%
Times Interest Earned
114.0 times
111.4 times
ACTIVITY RATIOS
Inventory Turnover
7.3 t
imes
14.3 times
Ave. Collection Period
7.5 days
3.1 days
Fixed Assets Turnover
3.0 times
6.1 times
Total Assets Turnover
1.9 times
3.8 times
PROFITABILITY RATIOS
Profit Margin on Sales
6.8%
6.6%
Return on Total Assets
12.9%
25.0%
Return o
n Net Worth
20.7%
38.4%
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

25. Financial Ratio Analysis
LIQUIDITY RATIOS
Current Ratio
1.3 times
1.2 times
0.9 times
Quick Ratio
0.4 times
0.2 times
LEVERAGE RATIOS
Debt to Total Assets
37.9%
45.6%
58.4%
Times Interest Earned
114.0 times
21.1 times
17.6 times
ACTIVITY RATIOS
Inventory Turnover
7.3 times
12.2 times
9.6 times
Ave. Collection Period
7.5 days
0.0 days
1.8 days
Fixed Assets Turnover
3.0 times
5.1 times
3.6 times
Total Assets Turnover
1.9 times
3.4 times
2.4 times
PROFITABILITY RATIOS
Profit Ma
rgin on Sales
6.8%
6.0%
3.5%
Return on Total Assets
12.9%
20.5%
8.6%
Return on Net Worth
20.7%
37.7%
20.8%
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

26. Financial Ratio Analysis
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

27. Financial Trends (January 1999-January 2005)
Financial data in U.S. dollars
Industry: Home Improvement Stores
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

28. The Home depot stock Performance
Source: moneycentral.msn.com
Dividends ( )
Splits ( )
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

29. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
The Home depot Net Worth (January 2005, in Millions of U.S. Dollars Except Per Share items)
1. Stockholders’ Equity + Goodwill = $24, $1,394
$ 25,552
2. Net Income x 5 = $5,001 x 5=
$ 25,005
3. Share price = *$40.41/EPS(2.26) = x Net Income $5,001 =
$ 89,418
4. Number of Shares Outstanding x Share Price = 2,159 x $40.41=
$ 87,245
Method Average
$ 56,805
*Stock price is based on a closing price at 1/28/2005 from finance.yahoo.com
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

30. Strategic Analysis: SWOT Matrix
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

31. Strategic Analysis: Space Matrix
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

32. Strategic Analysis: Space Matrix
Home Depot has achieved moderate competitive advantages and financial strength in a growing and stable industry.
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

33. Strategic Analysis: Grand Strategy Matrix
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

34. Strategic Analysis: IE Matrix
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

35. Strategic Analysis: BCG Matrix
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

36. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Matrix Analysis
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

37. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
The Home Depot QSPM
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

38. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
The Home Depot QSPM
Key Internal Factors
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

39. Possible Alternative Strategies
Forward integration: As a retail outlet, Home Depot can acquire major distributors of plumbing equipment, construction equipment, and other Home Depot product related distributors.
Backward Integration: As a retail outlet, Home Depot can acquire its major suppliers of Home Depot supplies such as installation services, steel mills, and logging companies of their own thus creating a supply that suits their quality, and amount that they need.
Horizontal integration: Home Depot can acquire other home improvement companies taking greater control of the industry, and gaining more control in various regions.
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

40. Possible Alternative Strategies
Market Development: Home Depot mainly targets self builder construction companies and baby boomers. Home Depot can develop a market for newly weds, and new home owners who may want to improve their newly purchased home.
Market Penetration: Go after Lowe’s, Ace Hardware and True Value’s market share
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

41. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Recommendations
Strategy 1
Domestic Expansion
Open up more full service hardware stores throughout the united states
thus creating a presence in all areas within a state. Goal would be to have
at least 5 Home Depots per state, averaging 10 new stores per quarter. This
will make Home Depot a one stop shop for individual customers and
businesses alike.
Estimated cost of such an expansion:
$4 million per store
10 stores = $40 Million
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

42. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Recommendations
Strategy 2
International Expansion
Acquire European home improvement company Kingfisher plc.
By acquiring this company, we will create a presence in Europe. This
will also give us presence and possession of companies that are part of the
Kingfisher group such as B&G (UK: Ireland: China: Taiwan and Hong
Kong), Brico Depot (France and Spain), Castorama (France: Italy: Poland
and Russia) Hombach Holding AG (21% Kingfisher stake), KOCTAS
(Turkey, and Screwfix Direct Ltd (England).
Estimated cost for such an acquisition: $10 Billion
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

43. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Recommendations
Strategy 3
Provide fuel services
Aside from being a home improvement store, Home Depot will have filling
stations at select Home Depot stores. This will create a one stop shop for
customers, and businesses providing fuel, food, and other quick stop
necessities.
Estimated cost: 8 million
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

44. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
EPS/EBIT
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

45. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
EPS/EBIT
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

46. Implementation Issues
Importing goods overseas
Dealing with changes in supply chain with distributors
Dealing with new cultures
Customers
Employees
Environmental issues and regulations
Hostile takeover
Hesitancy of KingFisher to sell
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

47. Proposed Annual Objectives (goal) and Policies
Increase sales revenues by 20% annually for the next 3 years
Reduce expenses by 20% annually for the next 3 years
by 10% in selling and store operating costs
by 10% in general and administrative costs
New capital expenditure priorities; not over investing in a maturing business
90% reduction in a new store development in domestic
40% increase in remodeling older stores and upgrading IT systems
50% increase in international expansion
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

48. Proposed Procedures For Evaluation
Track competitors’ price changes
Company ranking
SAP Top 100 retailers
Business Week
Fortune
Quarterly financial reports
Quarterly meetings to evaluate current plan and respond as necessary to changes
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

49. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Epilogue
2005 launches its high-end online home-furnishings store, 10 Crescent Lane, shortly followed by the launch of Paces Trading Company, its high-end online lighting store.
2005 Former employee Michael Davis filed a whistleblower lawsuit against the Home Depot, alleging that his discharge was in retaliation for refusing to make unwarranted charge backs against vendors.
2006 the Home Depot acquired Home Decorators Collection which was placed as an additional brand under its Home Depot Direct Division; Sales totaled US$90.8 billion; 10% increase in revenue
2006 Started testing with fuel centers at some of its stores. The first centers are expected to earn $5-$7 million per year. The fuel centers sell beer, hot food, snacks along with providing diesel at a separate island. This allows contractors with large trucks to be able to fill their vehicles. The fuel centers also offer car washes, which are large enough to accommodate full size pickups.
2007 Nardelli (CEO) was replaced by Frank Blake; sold its wholesale division HD Supply to a consortium of 3 private equity firms
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

50. Current Stock Performance
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

51. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Resources
MSN Money
CNN Money
Almanac Business and Industry Financial Ratios 2008
Edgar Online
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

52. ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Questions ?
®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker