Marketing The Home Center Industry example essay topic

Introduction History The Home Depot was founded in 1978 by Bernard Marcus, Arthur Blank, and Ronald Brill. These men founded The Home Depot because they were laid-off of their management jobs at the Handy Dan home center chain. They used the knowledge that they acquired from the Handy Dan along with funds provided by a New York venture capitalists firm to form The Home Depot. The Home Depot understood there was an un served market of do-it-yourself ers who couldn't do-it-themselves. Though we also serve professional contractors, we have made the do-it yourself er our primary focus.

In order to properly serve this market of unskilled craftsmen, we made it a requirement that our employees be competent in their department. We are credited with revolutionizing the home improvement industry by offering an unparalleled selection of products and services. The Home Depot is currently the world's largest home improvement retailer. Some of our competitors (Lowe's) have tried to replicate "The Home Depot" way of doing business, but they lack the human resources to provide the type of value and service that we offer. Although we have enjoyed our success over the years, the lumber and hardware industries are highly competitive. The Home Depot is not only the world's largest home improvement retailer; we are the second largest retailer in the world (Behind Wal-Mart).

Because of this fierce competition, we are always looking for ways to improve our company. The Home Depot also strives to take care of its investors by trying to earn them the greatest return on their investment possible. We would like to keep our reputation for being a very safe yet profitable investment. People should see our stock symbol, HD, and feel comfortable that we are working for them. Our 21% increase in sales is evidence that this is being accomplished.

Summary of Organizational Challenges The Home Depot's is being faced with its biggest problem to date. We are expanding and opening new stores all the time, so the workforce that we have to choose from is becoming diluted. On average, we are opening a new store every 48 hours. As previously mentioned, the company was founded on the professional competence of our employees and we are finding it more and more difficult to find good associates.

This shortage causes us to spend more time and financial resources training employees. This has become so big a problem that we have turned to "headhunters" to find good associates for us. It is vital that we figure out a way to rectify this problem without using so many resources. This rapid growth is also making it more difficult for the stores, suppliers, and headquarters to effectively communicate among each other.

There are more than 1,800 stores just in the United States all having to ensure that their supply needs are filled every Monday through Friday night. We must search for a better way to coordinate these routine transactions. Strategy Formulation Mission Statement " The Home Depot's mission is to be the leading home improvement center in the world. We will do this by offering our customers all over the world unparalleled value and quality on their home improvement purchases. We plan too accomplish this through day-in day-out low prices and continuing technological advancement. The Home Depot is an environmentally sound company and encourages goodwill throughout its communities.

We will treat our employees with respect while encouraging them to use there entrepreneurial spirit to help increase stockholder wealth". Vision Statement " The Vision of The Home Depot is to become the number one retailer in the world. We would like to achieve superior shareholder value, demonstrate excellent corporate citizenship, and generate an environment that induces creativity from our employees". External Analysis Competition The home improvement industry is one of the most rapidly growing industries in the world. We would like to maintain our current status as number one while gaining more of the market share. We are trying to accomplish this through the successfully combining the economics of a warehouse store with high-level customer service usually reserved for smaller companies.

Our annual sales totaled 64.8 billion. Our biggest competitors are: Lowe's, Menard, and TruServe. Lowe's, Inc. is the company's biggest competitor and they are steadily gaining more of the market share. Lowe's experienced rapid growth throughout the 1990's and the early 2000's. They are currently opening most of their stores in small towns where they can easily offer better prices and a larger selection than the smaller outlets already located there. Lowe's strategy for the new millennium is focused on expanding operations into the Midwest and the West.

They recently purchased the Eagle Hardware and Garden chain of retail outlets, which helped them add about 40 new stores in the West. Its annual sales totaled 36.5 billion. Menard, Inc. ranks as the third largest home improvement retailer. They have, approximately, 170 outlets located primarily in the northern region of the Midwest. Menard may be smaller than both Lowe's and The Home Depot, but they feature a full compliment of products similar to both. Menard, however, operated a manufacturing facility to maintain competitive retail pricing and increase net profits.

The company is owned by John Menard, founder, president, and CEO. Its annual sales totaled 5.3 billion. The True Value Company, formerly known as TruServe, operates 6,800 retail outlets, including its flagship True Value Hardware stores. True Value Company is a cooperative comprised of members who are entrepreneur-retailers. They are committed to empowering the independent retailer by setting industry and market standards with their unique brand of creative marketing, wide product assortment, technology, and training. Their annual sales totaled 32.7 million.

Economic Impact The Home Depot, as well as the entire home improvement industry, was affected by poor state of the economy. The Home Depot experienced fluctuations in its stock price in 2002 because investors shied away from our company. Lowe's was able to capitalize and gain more of our market share. After these initial fluctuations we started to, once again, see steady growth.

This was due to the psyche of the American public after the September 11 attacks. People started to stay home instead of taking vacations. This generated more interest in home improvement projects and it also left them with the disposable income to pay for them. We also benefited from the recession in the economy. There were people who were planning to have home repairs done, but they didn't have the money to pay a contractor.

We were able to get them involved in our "how-to" classes to teach them to be do-it-yourself ers. During this recession, we decided to focus on our core products and not to make any major changes. We wanted to stick to what made us the youngest company ever to reach 50 billion dollars. By doing this we were able to better serve our consumers during their time of need. Social-Cultural-Demographic Factors The old image of all men at a hardware store is quickly fading as many home improvement centers target more women. Lowe's conducted a study that shows women influence 80 percent of all home improvement buying decisions.

Women make up about half of our customer base and this number is rapidly rising. Most of these purchases made by women involve home decorations and painting, so stores have invested more resources into designer paints and developing elaborate store decorating centers. We have recently discovered that 65 percent of our DIY workshop participants are women. Since we are a home improvement store it is imperative that we keep up with the current demographic of the new homeowners. The average age of a homeowner in the United States is 37.5 with an average income of about $59,000. We would like to pay special attention to this market because they Political-Legal-Environmental Forces Associates educate customers on how to face emergencies before, during and after natural disasters strike.

Working with relief organizations, the company is able to assist communities to prepare through clinics and awareness programs by teaching customers how to be ready for an emergency, respond with needed supplies and volunteers in the wake of natural disasters and severe weather and rebuild and help neighbors return to daily life. Last year, hurricanes, tornadoes, mudslides, flooding and wildfires impacted many of our customers. The Home Depot met their needs by providing volunteer assistance, funding, and products donations. We completed the largest relief and resupply effort in the company's history in response to an unprecedented number of tropical storms and hurricanes in the Southeast U.S., including over $4 million to relief and rebuilding organizations. We also made a $500,000 donation supporting American Red Cross' Tsunami relief efforts in South East Asia. We hosted more than 20 Hurricane Preparation Events in eight states, educating the public on necessary steps and precautions.

We have also worked to help relief efforts for the California wildfires. Unfortunately, everyone doesn't see the great things that we do in the community. Despite our efforts to be a leader in our industry as well as our community, there is still a hate website called "HomeDepotSucks. com". The site was geared towards stopping us from selling wood obtained from our endangered rainforest's.

In response to their growing concern, we decided to phase out the selling of lumber produced in certain regions over the next three years. We have recently been involved in a civil lawsuit with a young boy's parents due to his injury in our store. A boy was injured while walking through one of our Durham stores by a door from a display. They filed a suit asking for $20 million in damages.

We went to court in March 2005 and a jury awarded them $500,000. We are currently taking the proper steps to ensure that we never have this problem again. Technological Changes Just as everything else in the world, our company has evolved. We have installed the technology that will allow us to keep track of every item in the store.

This allows us to maintain an adequate inventory of every product we offer. This technology has changed the way Home Depot does business. Trends The future looks very promising for the home improvement industry. With an increasing number of people migrating to the south to escape the apartment life of the big cities up North, we should see record growth over the next ten years. Since the roots of our company are in the South, we believe that we will benefit more than anyone else in the industry from this movement. The downside to this industry growth is that new firms will enter the market.

There are very few barriers to entry, so anyone with the resources and desire to enter the market could come in and threaten our market share. Internal Analysis The Management Team Bob Nard elli, Chairman, President & CEO o Carol Tom'e, Executive Vice President, CFO o Frank Blake, Executive Vice President, Business Development and Corporate Operations o John Costello, Executive Vice President, Merchandising and Marketing o Bob P. D eRodes, Executive Vice President, Information Technology & Chief Information Officer o Dennis M. Donovan, Executive Vice President, Human Resources o Frank Fernandez, Executive Vice President, Secretary & General Counsel o Millard Barron, Senior Vice President, Store Merchandising o Troy Rice, Senior Vice President, Operations o Bruce Merino, Division President, Western Division o Bill Patterson, Division President, Central Division o Eric Peterson, President, Strategic Markets o Jim Stoddart, President, Home Depot Supply o Tom Taylor, Division President, Eastern Division o Annette Verschuren, Division President, Canada & EXPO Design CenterBoard of Directors Gregory D. Brenneman o Richard H. Brown John L. Clendenino Berry R. C oxo Claudio X. Gone " ale zo Mill edge A. Hart, Bonnie G. Hill Laban P. Jackson Jr. o Lawrence R. Johnston Kenneth G. Langoneo Robert L. Nardellio Roger S. Penske Corporate Culture We know how important customer service and good wholesome values are to creating company loyalty from our consumers. Home Depot's unique culture is built on associate dedication and a commitment to an entrepreneurial spirit. The core values of the company are: 1) Taking care of our people 2) Giving back to our communities 3) Doing the right thing 4) Excellent customer service 5) Creating shareholder value 6) Building strong relationships 7) Entrepreneurial spirit 8) Respect for all people If we make our daily decisions with these core values in mind we will achieve great success on the financial statements and in the community.

Corporate Structure Home Depot uses a traditional top to bottom management style. At The Home Depot, dedication to serving our customer and providing the ultimate shopping experience is everyone's priority. Maintaining this focus and commitment is a leadership team that believes our company values and commitment to great customer service will create value for all our stakeholders. Working in a Store Support Center, rather than a corporate headquarters, our leaders know that the most important people in our company are the store associates and store leadership teams. Distinctive Competencies Building up do-it-yourself experience for home improvement customers is very significant due to the high level of competition existing between home improvement centers.

The leaders in the industry are continuously investing and emphasizing the development and management of their own DIY experience offered to it's the customers. To keep the highest position in the industry all leading home centers recognize the value of it. However, we believe that we have differentiated our DIY experience from anyone else in the industry. The first thing that any customer notices about our store or any other is the service. We strive to make a good impression on each and every customer from the time they walk into one of our stores until the time they walk out.

A knowledgeable and pleasant sales person can encourage a customer to ask questions and start feeling comfortable in the department that otherwise might be completely new. The whole image of a sales person plays an important role in what kind of experience a customer will maintain after leaving the store. Home Depot sends each associate through a one week orientation to make sure they understand what is expected of them. Competitive Advantages Our strong financial situation is one of the biggest advantages that our company has. We are able to reinvest a great portion of our profit back into our company. This allows us to expand at a rate that cannot be matched by any of our competitors.

Our financial standing also allowed us to recently give dividends to our current stockholders. We predict that prospective investors will see that and want to invest their money into our company. Another way to reinvest in our company is through stronger advertising campaigns. We already have the majority of the market share, but we are hoping that these increased marketing efforts will help gain more. Operations Home Depot is the leader in its industry in both the United States and globally employing about 325,000 associates. We sell over 40,000 products in each store to allow one stop shopping for our customers.

We want customers to buy everything they need in order to complete their project all in one store. The products that we sell are always changing to keep pace with the current techniques and styles. We currently import products from over 40 countries and export products all over the world. The Home Depot employs an international sales staff who are experts at fulfilling customers' needs and getting their purchases processed on time. We are now working on ways to improve our supplier relationships in order to bring our consumers more value at better prices. We don't believe in sales at Home Depot, we believe in offering our consumers low prices and value every day.

Marketing The home center industry is swiftly growing, so the marketing efforts we make are becoming increasingly important. We do our advertising through various ways such as sponsorships and television. Home Depot is involved in numerous sponsorships to generate interest in our company. The biggest sponsorships of Home Depot are through sports. The biggest of these sponsorships is The Home Depot Center in Dominguez Hills, California.

We hold many events at this venue which allows us to reach a huge market. We are able to advertise to the people attending the events, the people passing by, and the people viewing on television. However, the fastest growing of our sponsorships is through NASCAR. We really support our driver, Tony Stewart, throughout the year because this sport is quickly rising in popularity. We do a great deal of our advertising on the television. We have several commercials currently airing every day in order to keep the interest high and our name recognizable.

We primarily use our commercials to get the company motto out; "You can do it, we can help". Human Resources The biggest difference between us and our competitors is our associates. We send each of our employees through a very intense two week training program. This is designed to train them to better serve our customers and to spark their entrepreneurial spirit.

We want every associate to feel like they are a vital part of this company's success. We encourage each of them to be creative and come up with new ideas. In order to get them to do this and to work harder we offer stock options to each associate. We believe it is important for us to keep these types of benefits in order to attract the best associates in every department. Finance and Accounting We have many financial goals, but the most important is "sustainable growth". We have had very strong financial growth for the past two decades.

We are planning to continue this trend by aggressively going after greater market share. This will allow us more flexibility to go after more aggressive strategies next year, such as forward or backward integration. Information Technology and Systems The biggest challenge that Home Depot was recently facing was finding a way to speed up access of district managers and store employees to strategic information. The solution they came up with was an advanced information-management infrastructure based on Netscape Directory Server that enables district managers and store staff to share and access updated information in real time. Now a salesperson at a store's information desk can tell a customer when a custom order will arrive or whether another store has a particular item. Executives at headquarters can check weekly sales for a certain district based on current data.

Our staff is now able to make better decisions faster and with less effort. Research and Development Home Depot is an environmentally friendly company. We are constantly looking for ways to acquire the desired amount of lumber while doing as little damage as possible to our natural resources. We recognize the fact that we have contributed to the damage of some of our forests, but we are seeking alternative means of obtaining wood, such as purchasing form it from private land. Financial Analysis Financial Position We are very excited about the current financial position of Home Depot. We enjoyed an 11 percent increase in sales during 2004.

Our basic earnings per share went up from $1.56 in 2003 to $1.88 in 2004. We have been steadily increasing shareholder wealth every year. We hope to continue this trend in 2005. The current ratio for Home Depot is 1.77 which means that Home Depot has a greater chance of satisfying the short term obligations with the resources on hand.

The net margin for Home Depot is 5.64%, which indicates that 5.64% of each dollar of the revenue ends up as profit. We feel that this is a number that can be improved upon. Current Performance to Past Periods We have experienced a steady growth in our company in all areas. We went from sales of $12.5 billion in fiscal 1994 to $64.8 billion in fiscal 2004.

We also increased the number of stores by 1,367 and the number of store associates by 231,500. On the balance sheet we saw an increase in total assets of $28.6 billion dollars over the last ten years. Overall we are happy with the progress our company has made and we hope to continue in the same direction Current Performance to Industry We are well above the industry average in every category. As figure 1 shows we are dominating the industry when it comes to market capitalization.

We don't Figure 1 (Market Share) HOME DEPOT INC $84.0 B LOWES COMPANIES $44.0 B SHERWIN WILLIAMS CO $6.1 B TRACTOR SUPPLY CO $1.7 B BUILDING MATERIALS $658.2 M GRIFFIN LAND NURS $129.0 M FRANKS N&C INC $32.0 M COLONIAL COMM CP$5.7 M FNF INDUSTRIES INC$2.7 M THERMO VIEW INDS INC$2.7 M want to settle for this, Lowe's has been gaining more of the market each year and we don't want them to catch up. We see a lot of room for company improvement and growth. Industry and its Future The home improvement industry is expected to continue to grow. With the economy beginning to pick up, every one in the industry should benefit.

We must make sure that we are the ones that reap most of the benefits. There is room in the market for a current retail company to enter the industry and do well. We want to aggressively pursue more market share to deter this from happening. Analysis of Strategic Alternatives EFE Matrix The EFE matrix allows us to summarize and calculate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information. The industry average weighted score is a 2.5. As seen on appendix, we are currently dealing with our external factors better than the rest of the industry.

The biggest opportunity we have is e-commerce. We started by only selling a few select items online, but we are now starting to offer everything. The e-commerce market is a fast paced market, so we should speed up the transition. Developing countries are soon going need home improvement centers due to more people purchasing homes.

We would like to be the first to enter their market to establish a loyal customer base. Hispanics are now the largest minority in the U.S. and they are becoming more educated. We should target this market because they are buying more homes and will need a home improvement center that will meet their needs. Fluctuations in the economy always lend an opportunity for us to target a new market. If the economy is failing, we will target the people who would normally hire a contractor to do their work. If the economy is thriving, we should target the people who ordinarily wouldn't have the money to make the home improvements they desire.

We should also push our old fashioned hardware store all around the country. We think there is huge segment of consumers to support these stores. Our threats are a big part of our strategic planning process because we want to minimize the chances that we will be taken off-guard by any external factors. Our competition, specifically Lowe's, poses the biggest threat us. They are growing company and are gaining more market share every year.

We could also be hurt if our suppliers started to sell directly online for themselves. The probability of this happening is not very high because on average we purchase about 95 percent of our supplier's goods. We also see room for new firms to enter the market because it is primarily dominated by two companies. The firm might not be new to retail; it could be a major retailer such as Wal-Mart or Target.

IFE Matrix The IFE (Internal Factor Evaluation) Matrix is a strategy-formulation tool that evaluates and summarizes the major strengths and weaknesses in the functional areas of a business, and provides a basis for identifying and evaluating relationships among those areas. Internally, our biggest strengths are our associates and our pricing. We have the most competent and best trained staff in our industry which is partly why we dominate the market. These associates are the reason that our DIY classes are the best of their kind. We also provide the best value of any other company in our industry.

These factors are why we are able to keep our customers loyal to us. Our biggest weakness is our reliance on our suppliers. If one of our suppliers were to make a mistake or stop doing business with us, it could have a huge affect on many of our stores. Customers don't always perceive us to have great quality goods because promote our low cost. We must start to not only advertise our value, but the quality of our products as well. We have tried to differentiate our subsidiaries from Home Depot by making them specialty stores.

However, we are beginning to see signs of our own stores competing with one another. If this continues, customers will start to believe that all our stores are alike and then that all home improvement centers are alike. IE Matrix The Internal-External (IE) Matrix displays the position an organization holds inside of a nine cell display. The Home Depot received a total weighted score of 2.95 on the EFE matrix and a 3.0 on the IFE matrix. The IE matrix is divided into three divisions that have different strategy implications for each.

When a company falls into cells I, II, or IV, then the strategy represented for these three cells is to grow and maintain. If they reside in cells, V, or VII, then the advice for these cells is to hold and maintain. Lastly, if a company is contained in cells VI, V, or IX, then it is suggested for them to harvest or divest. Since Home Depot falls into cell IV, we should grow and build. CPM Matrix The Competitive Profile Matrix (CPM) identifies firm's major competitors and its strengths and weaknesses in relation to a firm's strategic position. Although, factors in the CPM include both internal and external factors, the ratings refer to strength and weaknesses.

Home Depot's CPM had a score of 3.4 while Lowe's has a score of 3.0 and Menard's with a score of 2.25. SWOT Matrix The Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix is a tool to help us determine what strategies they should use. The four strategies consist of: SO (strengths and opportunities) strategies, WO (weaknesses and threats) strategies, ST (strengths and threats) strategies, and WT (weaknesses and threats) strategies. The SO strategies use the strengths to take advantage of opportunities. Second, the WO strategies are used to overcome weaknesses by taking advantage of opportunities. Third, ST strategies use strengths to avoid threats.

Lastly, the WT strategies are used to minimize weaknesses and avoid threats. We should try and pursue all of these strategies very aggressively because they are all critical to our success. We could see early success without the implementation of these strategies, but it would be difficult to sustain any long-term success. QSPM Matrix The Quantitative Strategic Planning Matrix (QSPM) is used to determine which strategies are best.

We looked at three strategies; market penetration, market development, and backward integration. All these are good strategies, but the best and the one we decided to implement is the market penetration strategy. This will allow us to seek increased market share for our present products and services through greater marketing efforts. Strategy Recommendation and Pro-forma Financial Statements After a thorough analysis of the matrices and related financial information, we have decided to go implement a market penetration strategy.

We are aiming this strategy at increasing our market share through an increased marketing campaign. As previously mentioned, we are the number one home improvement center in the world and the number two retailer in the U.S. behind Wal-Mart. Although we are number one, we see the "bigger picture" and we need to continue to develop new market segments. We will target the Hispanic market a lot more aggressively in the U.S. and target the developing countries all over the world.

Our expectation is to reach at least $100 billion in sales by fiscal 2005, but we will strive to attain more. We are very confident that this is a reasonable goal for a company of our size and resources. (Pro-forma financial statements on appendix) Strategy Implementation Annual Objectives Our company has been growing very quickly and we would like to see this trend continue. We would like to open at least 30 new stores each year for the next 5 years. We would also like to switch our marketing campaign to let people know about the quality of our products as well as the value. The most important thing for us to do implement these strategies while maintaining our core values and our strong financial situation.

Policies At the corporate level, executives will oversee these objectives and monitor there progress. They will perform audits and evaluations of the evolution of our company. At the divisional level, we will continue to encourage good relationships with our suppliers. These supplier relationships are vital to the success or failure of our annual objectives.

At the functional level, we will continue to encourage the entrepreneurial spirit of our store associates. There creativity is a key part of what makes this company great. Supporting Programs In order to achieve company advancement, we understand the need for continuing education. At the corporate level, Home Depot will offer its executives an opportunity go back to college paid for by the company. We plan to offer leadership training classes to our associates at all levels. We will also begin to pay workers for attending the product knowledge classes.

This will create a more knowledgeable workforce and a happier workforce. Contingency Plans We recognize the fact that things don't always go as planned, especially in the business world. This is where a good contingency plan can "make or break" a business. Our contingency plan is a market development strategy.

We don't have as many stores in the Northeast and the Midwest as we could. Lowe's has already focused its efforts on these markets, so we would be going in and competing with them. Our other plan contingency plan would go into effect if we experienced unexpected growth of the company. If we vastly exceed our expectations within the next five years, we would begin backward integration. This strategy would make us more independent and more reliable.

It could be quite expensive at first, but we believe it would pay for itself in the long-run. Strategy Evaluation and Control Standards / Targets used as Guidelines to Determine Success In order to determine how successful our strategic planning is we will monitor our demographics very closely in the coming years. We must also check our sales extremely frequently to make sure we are on track to reach our target of $100 billion by fiscal 2005. The easiest part of our plan to monitor is the new store openings. We will make sure that we meet our target of at least 30 per year. Methods for Monitoring Implemented Strategy We plan to do revised EFE and IFE matrices in six months in order to determine whether our strategy is working.

If the data is consistent with our expectations we will continue on as planned, if it is not we must abandon it for one of our contingency plans. In order to achieve our desired success we must have associates at all levels continuously monitoring their own work and being held accountable. Conclusion and Implication of Recommended Strategy The Home Depot has been a staple of many communities for many years. We hope to continue our success in the community and on the income statement. We are confident that we have developed a plan that will accomplish both of these objectives. It is our aspiration for continued growth and family values that make our company different.

By penetrating the market we will not only be increasing company wealth, but we will be taking care of our stockholders as well. The foundation of our company is and always will be taking care of people.