The Home Depot Inc.: Some Basic FactsYear of Inception Founded by : 1978 : Bernard Mercus Arthur Blank No.of Stores Stock Listing : 50 (end of 1985) Market Market Segment Selling Method Expansion Target : Home Remodeling : Do-It-Yourself (DIY) : Cash-and-Carry : 9 Stores (1986)
: New York Stock Exchange (April, 1984).
QUESTIONS: 1. Evaluate Home Depot¶s business strategy. Do you think it is a viable strategy in the long run? Ans. Business strategy analysis gives the picture of key profit drivers, business risks as well as profit potentials with qualitative judgments. Strategy Analysis is generally comprised of industry, competitive strategy and corporate strategy analysis. Since, The ...view middle of the document...
9% (1985) -Sales grew by-62% (1985) Bargaining Power of Suppliers -Quality matters -quality assured by suppliers -Few retailers in the market
3 High Bargaining Power
Bargaining Power of Buyers -Cost & quality matters -HD guaranteed quality -No. of buyers increasing -Low substitutes
3 High Bargaining Power
B. Competitive Strategy Analysis: There are two types of strategies in competitive positioning: cost leadership and differentiation. The Home depot Inc. is the leader in D-I-Y market and Hechinger¶s is its immediate rival. However, their market shares are very low compared to the whole industry. Beneath here, Home Depot competitive strategy has been analyzed comparing with that of Hechinger¶s.
Table-1: Competitive Strategy Analysis The Home Depot Inc.
y Low & Competitive Price y Low margin, high turnover
y Upscale stores y High margin, low turnover
-In 1985-ROS:1.2%; AT:2.2
y Keeping cost by low overhead y Stocked right products-25000 items 3Cost Leadership Strategy
- In 1985-ROS:4.8%; AT:1.5
3 Differentiation Strategy
Giving guarantee for both popular and less popular brands Excellent sales assistance by its employees with technical know how Best quality products and quality of service Aggressive advertising and in store demonstration
Factors of Home
Key Risk Factors Dropping of net earnings (42% in 1985) and stock prices(23.4% in of Home Depot 1985) made the financing difficult for expansion; Already attracted some chain stores in the industry that challenges its market dominant position.
Evaluation of Strategy: The Home Depot Inc. is pursuing a cost leadership business strategy in the industry it operates (D-I-Y segment of home decoration). The core competencies of Home Depot Inc. are selling brands with guarantee, quality products, excellent staffs and assisting buyers. The company creates value chain by sharing cost savings with the customers. However, the company¶s net earnings has been decreased last three years and failed to generate cash from its operating activities.
It seems that The Home Depot¶s business strategy seems successful in the short run. But, the company will not survive in the long run with its present strategy. As the industry is growing rapidly, the company needs more expansion. Since, the operation activities could not succeed
to generate cash for its expansion; the company may face obstacles for financing even through debt. So, the company has to have enough cash generating operations as well as net earnings. Moreover, it is not difficult for the rivals to imitate Home Depot core competencies. As a result, The Home Depot has to think of its business strategy for future success. May be, the company may pursue a mixed strategy for their long run business prosperity.
2. Analyze Home Depot¶s financial performance during the fiscal years 1983-1985. Compare Home Depot¶s performance in this period...