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Home Depot Internal/External Analysis

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Autor:   •  June 16, 2011  •  2,493 Words (10 Pages)  •  854 Views

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The Home Depot History

The Home Depot was formed in 1979 by Bernie Marcus and Arthur Blank in Atlanta, Georgia. Home Depot virtually revolutionized the do-it-yourself home improvement industry in the United States almost overnight. The two entrepreneurs opened their stores which were no frills warehouses. In 1998 the average Home Depot carried 35,000 products. Products varied from well known national brands to propriety Home Depot brands.

Home Depot held its IPO in 1981 and listed on the New York Stock Exchange three years later under the ticker - 'HD'. Home Depot reached $1 billion in sales in 1986. Sales of $20 billion were reached in 1997 making them the fastest growing home improvement retailer with an average annual growth in sales of 119% during said period.

Important Issues

It is important to note that as Home Depot has grown so quickly, it has been able to garner significant concessions in prices from suppliers. Home Depot has also been able to establish and successfully execute a market saturation strategy coupled with low prices and high service. Being able to execute on these three pillars has been the hallmark of Home Depot's strategy and will carry the company into the future.

As Home Depot continues to expand, the cost of prime real estate will rise as they compete head to head with their main competitor, Lowes. Also tied to the market saturation strategy, Home Depot stores may realize a cannibalization of sales when a nearby store opens its doors.

While expanding internationally, Home Depot will be careful to pay close attention to local building customs, laws, and regulations.

Maintaining solid returns on investment and financial health will be a primary concern. More interestingly, Home Depot plans on investing significant amounts of money in their human capital to maintain their consistently high marks in customer service and knowledge of home improvement projects.

Five Forces Model of Competition

Rivals

As the world's largest home improvement retailer, Home Depot's competition runs the gamut of lumber yards, specialty interior stores that concentrate on one aspect of the home, i.e. kitchens, lighting, flooring, etc. Home Depot's competition is also embodied in other such retailers as: Sears, Ace Hardware, Frank's Nursery, and Lowes.

Home Depot's competition (except Lowes) primarily focus on one aspect of their expansive product offerings. For example, Sears would specialize in selling Craftsman tools to Home Depot's offering; likewise Frank's Nursery competes directly with Home Depot's garden center.

Lowe's Companies is Home Depot's largest competitor. Home Depot and Lowes have very similar product offerings and large warehouse formats. In many major markets Lowes and Home Depot stores go head to head both vying for the patronage of the do-it-yourself customer.

Suppliers

Home Depot maintains relationships with many suppliers that stock Home Depot stores with over 30,000 different products. Although Home Depot has a significant amount of suppliers they are still able to force them into offering price concessions due to the fact that Home Depot makes up a large portion of the supplier's sales. These concessions have gone a long way in driving down the cost of home improvement as well as further increasing Home Depot's margins and competitiveness with Lowes and others in hotly contested markets.

Buyers

At the time of the case, Home Depot has 3 distinct customer segments.

Since the company's incorporation, they have been primarily focused with the do-it-yourself (DIY) customers. These customers are non-professional consumers interested in doing their own home improvement projects.

More recently, Home Depot has also begun to redefine the market in which they operate. This redefinition has opened up the buy-it-yourself and professional customer segments to Home Depot.

Specifically the buy-it-yourself customer segment are those consumers that like to pick out the materials being used in their homes, but want a professional to install them.

Moreover the professional customer segment that Home Depot now associates itself with are contractors, electricians, plumbers, landscapers, etc. This group has been able to get Home Depot to offer products in larger quantities due to their larger scale projects.

Substitutes

Substitute products pose a grave threat to many companies. However, Home Depot does not have many substitutes. People will always be houses and the desire to improve one's home is one that is ageless.

A substitute to Home Depot's in store home improvement classes is the vast resources of the internet. With a few clicks of a button, a customer can find "How To" instructions as well as plans for various types of projects.

Another substitute that the Home Depot should be aware of is the purchase of new homes. With new homes people will have a much lower need to purchase home improvement supplies.

New Entrants

New entrants to the home improvement will find it very difficult to compete directly with Home Depot and or Lowes. A company that is new to the market will face a vast difference in economies of scale that they may not necessarily be able to overcome. Also new entrants will be faced with trying to compete head to head with Lowes and the Home Depot or they will be forced to specialize in a certain product category.

The barriers to entry include the following considerations: large product selection, highly trained employees, large startup capital, prime real estate, strong regional recognition, and unwavering customer loyalty.

SWOT Analysis

Strengths

Home Depot has many competitive strengths that make them a very difficult company to compete against. Home Depot's strengths include:

* Business model

* Well known brand name

* Extensive product offerings

* Ability to grow

Home Depot's business model, the first of its kind in the home improvement industry has revolutionized the way customers shop for home improvement products. Their business model is simple. Sell home improvement products and services to DIY, BIY, and professional

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