Internal, External (PESTEL analysis), Porters' 5 Forces analysis.

1. Home Depot
By: Marcus Gadson
Natalie Hill
Terri Menser
Josh Nichols
Payal Patel
Harris Weinstein

2. Overview
• Introduction: Harris
• Internal Analysis: Terri
• External Analysis: Natalie
• Recommendations: Payal & Josh
• Conclusion: Marcus

3. About Home Depot
• Founded in Marietta, Georgia in
1978
• Operates 2,300 large ‘big box’
stores across 50 states, Mexico,
Canada and China
• Offers 40,000 products and can
specially order up to 250,000 other
products and building materials
upon request

4. About Home Depot
• Sold ownership of EXPO Design
Center and Home Depot
Landscape Supply
– Still offers some services such as
pre-screened contractors for
installation and home repair services

5. About Home Depot
• Largest retail home improvement
store in the United States
• Has 55% of the market cap in
home improvement industry
• HD had $66.18 billion in revenues
in 2009
– Largest competitor, Lowe’s, had
$35.8 billion

6. Internal Analysis
• EXPO, THD Design Center, and
Yardbirds stores-2008
– upscale group of home design and
hardware stores targeted at remodels
• In 2009 7,000 jobs / additional
positions will be shed as well as
close more stores and
• In 2010, growth will continued
to be curtailed

7. Internal Analysis
Positioning:
• As the country slowly climbs out of
recession, Home Depot plans to
reposition itself as a bargain-priced DIY
store.
– reduced prices on its best-selling items
– cleaned up stores to attract a larger female
demographic
– increased customer service training

8. Internal Analysis
Sales 2009:
• Home Depot- $71,288 million
• Lowe’s- $48,230 million in
company can boast of
• Home Depot- 322,000 employees
• Lowe’s- 229,000 employees.
• Gross Profit Margin for 2009-
33.77%

9. Internal Analysis
Current Plans:
• “Free cash flow rose to near $2 billion, a level not seen
since 2007. This enhanced liquidity allowed the
Company to finish the year with more cash-on-hand
(about $1.4 billion) and lower total debt.”
• Saturated markets creates pressure to mine growth with
new merchandise offers, services, formats and markets:
– Store Modernization—Improving the Experience
– Merchandising—New Products, New Appeals
– Services—A Do-It-For-Me Focus
– Formats—Tapping New Markets
– Non-store—Extending Multichannel Reach
– Pro Market—Moving Beyond Retail Core
– Capabilities—Enhancing Efficiencies
– International—Getting Serious Overseas

10. Internal Analysis
Assortment, Price and Service= Strategic Guide:
• “To say that Home Depot (grew) fast is an
understatement. Second only to Wal-Mart in
the retail category, the company brought in
more than $73 billion in sales in 2004 and
added 20,000 employees – bringing the total
number of associates to 325,000.”
• Frank Blake: “We're committed to being the
company that helped set the standard for
customer service excellence in home
improvement. Please continue to hold us
accountable.”

11. External Analysis:
PESTEL
• Political:
– Government policy that affects the housing
market
• Economic:
– The current recession
• Social:
– Changes in income have resulted in
consumers shying away from discretionary
items
– Lower availability of credit to consumers
has adversely affected sales
– The baby boomers

12. External Analysis:
PESTEL
• Technological:
– Home Depot has transformed its supply chain
– 24 Rapid Deployment Centers
• Environmental:
– The “green” movement
– Home Depot is committed to conducting business in
an environmentally responsible way
• Legal:
– Employer/employee disputes, product liability
disputes, workers’ compensation claims
– Foreign trade issues

13. External Analysis:
Five Forces
• Rivalry of Existing Competitors:
– Lowes, Sears, and Ace Hardware
– Home Depot’s competition runs a range of lumber
yards, specialty interior stores that concentrate on
one aspect of the home, i.e. kitchens, lighting,
flooring, etc
• Threat of New Entrants:
– The barriers to entry are high: large product
selection, highly trained employees, large startup
capital, prime real estate, strong regional
recognition, and customer loyalty
• Bargaining Power of Suppliers:
– Price concessions

14. External Analysis:
Five Forces
• Bargaining Power of Buyers:
– Since inception, primarily focused with the do-it-
yourself customers
– Redefined the market by opening up the buy-it-
yourself and professional customers
• Threat of Substitute Products:
– People will always have/need houses and the
desire to improve one’s home
– It is hard to create a substitute that can
compete with Home Depot’s low costs
– A substitute to Home Depot’s in store
home improvement classes is the
Internet

15. Recommendations
• Key is to transform HD into an
aggressive first-mover in the
market
– Already making some moves in the
right direction
– Be more aggressive by focusing on
commercial sales and taking
advantage of potential acquisitions

16. Recommendation:
Focus on Execution
• Already making steps in the right
direction
– Women identified as weak point and
added “Martha Stewart Living” line of
home décor and associated products
– International expansion strategy
– Emphasis on improvement of supply
chain

17. Recommendation:
Focus on Execution
Targeting Women:
• Capitalize on visit to store
– Transition from Martha Stewart line to
typical HD assortment
• Women are growing force in household
decision making
– Make sure women realize their capabilities
• In-store signage
• Project seminars
• TV specials

18. Recommendation:
Focus on Execution
International Expansion:
• China poses greatest challenge
– Dramatically different culture and
logistics
• “The Home Way” HD store with
Chinese corporate culture- easier
and safer way to break into the
market

19. Recommendation:
Focus on Execution
Supply Chain:
• HD is mocing distribution into RDC’s (Rapid
Distribution Centers)
– Serves about 100 stores each (By end of 2010, 20
RDC’s for US)
• HD struggles with management of inventory
levels
– Inventory manager should have power to make
changes to stocking levels
– Communication between department manager,
inventory manager and vendor reps to account for
seasonality and special events
– Audit program to track reasons for stock outs

20. Recommendation:
Scripps Networks
Scripps Networks:
• Expand business by moving into
advertising industry
– Competitive advantage no competitor can
easily imitate
– Corner important target audiences:
• Do It Yourself Network
• Home and Garden TV
• Food Network
• The Travel Channel
• Fine Living

21. Recommendation:
Scripps Networks
Food Network:
• Cooking shows targeted towards those
most interested in cooking
– Ties into kitchen remodeling (one of HD’s
most common projects sought out by the
“Do-It-For-Me” consumer
– Travel Channel and Fine Living cater to
more affluent customers with the financial
means to pursue most home improvement
projects

22. Recommendations:
Commercial Sales
• Market Home Depot has entered
and exited
• Customers
– Very Demanding
• Deliveries
• Stock Outs
– Long Term / Relationship selling
– Cost Conscious

23. Recommendations:
Commercial Sales
• HD Strengths
– Buying Power
– RDC’s / Supply Chain
– Credit Department
– Existing Resources
• HD Weaknesses
– Customer Service
– Sales Tactics

24. Recommendations:
Commercial Sales
• HD Supply
– Conquered the commercial sales
“mountain”
• Service
• Lower price
– Separate locations lead to loss of
efficiency
– Overhead costs
• Lower margins

25. Recommendations:
Commercial Sales
• Create new “sales force” within HD
– Mobile, commission based salesman
– Manager equal with store manager
– Separation from retail culture
– Low / No overhead
• Sales contribute to the individual store
revenues
• Utilize existing resources /
facilities / equipment

26. Recommendations:
Sherwin Williams
• Facts:
– Painting and associated products:
20% of revenue
– Painting #1 rated project
homeowners are willing to tackle
themselves
– Sherwin Williams has the lowest
consumer market penetration
– Sherwin Williams is the #23 rated
retail brand in the US (HD is 3)

27. Recommendations:
Sherwin Williams
Reasons for acquisition:
• Marketing Aspect
– Drive consumers to the store
– Create a destination within a product
segment
• Sears Craftsman
• Target / Wal-Mart in home furnishings
• Profit Aspect
– Eliminate the “middle man” within the paint
industry
– SHW revenues
– Potential higher return

28. Recommendations:
Sherwin Williams
Implementation:
• Move SHW representatives into HD
stores
• Maintain existing SHW business model
– Commercial / Industrial focus
– Drives image
• Maintain separation
– Efficiency and Service are key drivers
– Possible service of existing clients on
limited basis through new locations

29. Recommendations:
Sherwin Williams
Financials:
• SHW
– Market Cap: 7.8 B
– Revenue: 7.1 B
– Net Income: 6.1%
• HD
– Market Cap: 56.3 B
– Revenue: 66.1 B
– Net Income: 4.0%

30. Wrap-Up
• Recession=Decreased Sales
• Beat Lowe’s 66-36
• Maintain Strong Brand
Image/Consumer Loyalty
• Thriving without the Stock Market
Soaring
– Execution
– Sherwin Williams
– Marketing-Scripps Network

31. Questions?