Home Depot Case Study Analysis Essay

According to the case study, Home Depot Incorporated: The Specialty Retailer of Building Materials, Home Depot, Inc has been incorporated since 1978. The company functions in the home improvement retail industry, which includes multiple markets as do-it-yourself, professional, and renovation home improvement. At the end of 2000, the company had 1,190 brick and mortar retail stores, mainly located in the United States, but slightly less than 100 retail outlets were distributed between Canada and South America. The retail sales of Home Depot are various, and include building materials, home improvement and renovation, lawn and garden, as well as household appliances, supplies, and tools. Other retail sales at Home Depot include cabinetry, tiles and flooring, lighting fixtures. In services, Home Depot offers installation, design assistance, and even instruction/installation assistance. The case study, Home Depot Incorporated: The Specialty Retailer of Building Materials, further shows how Home Depot segments its products into Fix It, Build It, Grow it, Decorate It, and Install it. These segments are based on the three consumer markets, the do it yourself, buy it yourself, and professional customers. This allows Home Depot to seek competitive advantage in specialized retail outlets by defining the characteristics of consumers by their purchase type and buyer characteristics. Home Depot Incorporated: The Specialty Retailer of Building Materials shows that Home Depot’s long-term debt reached $1. 55 US billion in 2002, and total liabilities were at $6. 37 US billion. Home Depot had $177 US million in cash and short term investments as of January, 2001. Their inventory value was at $6. 56 US billion, and the cost of goods sold was $31. 46 US billion, leaving Home Depot with inventory turnover every 76 days. This means that Home Depot incurred more inventory costs in warehousing and distribution, than retail sales supported. Issues in Strategic Management The case study, Home Depot Incorporated: The Specialty Retailer of Building Materials explains that Home Depot’s management issues have several dimensions. First, the increase in retail stores and implementation of specialty stores in response to customer segmentation led to the speculation that Home Depot was having an ‘identity crisis. ’ The diffusion of the core home improvement domain was extreme and initially occurred over a short time line, thus operating expenses climbed. This was combined with a slowing of the do it yourself industry and markets, as well as competition from Lowe’s. In response to this, the CEO at the time, Robert Nardelli, shifted away from the exponential growth strategy and towards reducing warehousing of low-purchase items and boosting in-store item differentiation and sales. Nardelli’s strategy chain was, according to the case study, envisioned as gaining ground in installation and services growth before the competition cornered these markets. The company’s focus then changed from one of brick and mortar growth to one of service industry growth. Thus, Nardelli moved from the traditions of the home improvement industry and towards innovation. In growth strategy, the senior vice president of Home Depot’s management team felt that increasing operational efficiency and maintaining the strength of brick and mortar growth was more important than implementing new service dimensions. The basis of this argument was that traditional growth strategy had a huge success rate since the company’s inception, and multiple trade areas in the Northwest and Southwest United States were largely ignored by major competitors, specifically Lowe’s. The case study, Home Depot Incorporated: The Specialty Retailer of Building Materials, examines that the second management strategy was also in contention, where the executive vice president believed that instead of focusing on the service strategy, or the retail market strategy, Home Depot should maintain its segmentation of consumers into specialty stores, which would allow Home Depot to gain competitive corners of the market that it had not yet explored. In this strategy, Home Depot would be able to market towards the appeal of specialized services. In closing the management strategy analysis, the case study emphasizes the decision of Nardelli as being difficult, as both strategies presented held risk and benefits. Nardelli’s decision making process, therefore, had to be one that focused on the growth initiative of Home Depot, as overcoming competitors, establishing the domains, and segmenting (or not segmenting) the retail outlets. Based on this, the pertinent issues facing management processes at Home Depot are directly related to the growth initiative, growth strategy, and implementation of the growth strategy. Analysis and Evaluation of Issues The concern of Home Depot is to develop a management strategy that enhances growth. There are two main conclusions, as presented in the above case study. First, Home Depot can rely on its traditional method of retail brick and mortar store development with a focus on the under-marketed North-western and South-western United States. Secondly, Home Depot can focus on the development of specialty stores which are geared towards the segmented consumer markets. Key Concepts Lippert, Schwieger, and Schweiger (p 13 2005) examine that options to help a company achieve strategic growth are highly relative to the ability of the company to take action and rely on financial viability. Thus, a strategic growth initiative has the objective to be consistent with corporate growth and profit objectives through the development of key individuals in the organization (Lippert, Schwieger and Schweiger 3005). The focus of the growth strategy should be in the ability of Home Depot to maximize efforts with respect to investment opportunities, gather valuable and real-time data on existing market opportunities and strive for industry-changing innovations on an ongoing basis (Lippert, Schwieger and Schweiger 2005). The concern of either strategy presented to Home Depot is relative to that of all corporate entities. The basic concern is to maximize growth while reducing the risk of the strategy (O’Leary p 37 2005). The underlying strategy of corporate growth initiatives is largely based on innovation, and the engine for innovation is the creation of an efficient connection between technologists, funding, and scale is its abilities (O’Leary p 37 2005). The growth strategies should therefore include diversity in innovation, rather than relying on the older ideals. Based on these key concepts, Home Depot’s optional growth strategies will be evaluated through a SWOT analysis, with a focus on the financial viability and strategic innovation presented. Strengths Home Depot has a strong market position as one of the largest home improvement retail stores in the United States. The sales volume allows Home Depot to maintain strength in domestic and foreign markets. The strong market position inidicates that the traditional growth initiatives have facilitated consumer support. Furthermore, Home Depot has a diversified and balanced brand mixture. The company stocks major branded appliances and a wide range of its own store-branded products. While there has been some worry regarding financial viability, Home Depot has remained the top domestic retailer in the home improvement market, and has a wide range of resources it can use for supporting corporate growth and new market entry. Weaknesses The weaknesses in Home Depot can be identified as a lack of customer service and support, the store has little initiative towards customer service that is easily visible to customers other than the retail store ‘customer service’ line. This shows that Home Depot has lagged behind its competition in providing high customer service quality, and raises a concern for the ability of Home Depot to maintain specialty service stores. The other identifiable weakness of Home Depot is the multiple brick and mortar extensions, which created a diffusion from the central home improvement retail business, and is exemplified by the management decision to ‘cut back’ on building new retail outlets. For the retail store, this creates a loss of square footage, which is vital to maintaining supplier relationships and meeting consumer demands. Opportunities Home Depot’s opportunities lie in the acquisition of new businesses. The company has the financial stability to acquire multiple businesses to further its growth strategy. This could include the service industries and specialized markets. As an opportunity, acquisitions have the ability to save costs over implementing ‘new’ growth strategies. Threats Home Depot’s business is highly competitive. Home Depot must compete against multiple market segments: other home improvement stores, electricity and construction stores, plumbing and lighting stores; cabinet-makers and lumber yards. In the retail segments such as paint, appliances, and tools, Home Depot also competes with discount stores, local, regional and national hardware stores, mail order firms, warehouse clubs and independent building supply stores.