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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. ? 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.

10. 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

11. 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

12. 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

13. 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

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

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

16. 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

17. 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

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

19. 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

20. 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

21. 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

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

23. 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

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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

31. CORPORATE LEVEL STRATEGIES
GROWTH
Retrenchment
Stability

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

33. 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

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

35. FINANCIAL INFORMATION
Information from December 6, 2004

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

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

38. FINANCIAL INFORMATION
Information from the last five years

39. 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

40. 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

41. 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)

42. 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

43. 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