Home Depot Swot Analysis
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"The Home Depot NYSE: HD, headquartered in Vinings, Georgia, is a home improvement retailer that aims for both the do-it-yourself consumer and the professional in home improvement and construction. It is the second largest retailer in the United States, behind Wal-Mart; and the third largest retailer in the world, behind Wal-Mart and French company Carrefour. The Home Depot operates about 1,900 stores across North America. The company operates stores in the United States (including the 50 states, Puerto Rico, the United States Virgin Islands), Canada, and Mexico. The Home Depot also operates EXPO Design Center stores in select U.S. markets, providing high-end home design products and services. Its 2004 sales totaled US $73.1 billion. It was ranked #13 on FORTUNE magazine's FORTUNE 500 The Home Depot also owns a chain of higher-end home decorating and appliance stores. The Home Depot employs over 325,000 people."
The company was founded in 1978 in Atlanta, Georgia by Bernie Marcus and Arthur Blank, and grew rapidly, with sales topping $1 billion annually by 1986. From the moment of its foundation, HD has continued to grow constantly by targeting strong markets with many new homeowners and young people such as New Orleans.Home Depot managed to grow fast by quickly adapting to change and continued to be successful by holding fast to the culture and values of the organization.
The constant renewal and the work to sustain culture that produces good products, employees, and customers has helped Home Depot maintain its competitive advantage and lead the retail building industry.
The company's management put a lot of emphasis on taking care of its employees, encouraging an entrepreneurial spirit, treating each other with respect, and being committed
to the highest standards.
The stores and their merchandise were set up that all the stores were very similar. Operational efficiency has been a crucial part of achieving low prices while still ofering high level of customer service. The company was assesing and upgrading its information to support its growth and control cost, and enable better decision making. The company continued to see greater efficiency as a result of its Electronic Data Interchange program.
Merchandising included all activities involved in the buyig and selling of goods for profit, and the merchandising strategy for Home Depot followed a 3-prolonged approach: (1) excellent customer service, (2) everyday low pricing, and (3) wide breadth of products.
To maintain its competitive advantage Home Depot employed the clustering strategy, and it was also the the only one to offer quality products such as Prego laminate flooring, Ralph Lauren paints, etc. Home Depot's customer service also differentiated it form its comeptitors.
To my opinion Home Depot has manged to succeed and lead the home improvement industry only through its numerous and unique strengths. Some of the most important ones are:
Company culture-The orange-blooded culture emphasized individuality, informality, nonconformity, growth, and pride.
Taking care of its people-Providing excellent wages and benefits, superior training, and advancement opportunities.
Excellent customer service-This is the key to the company success.
Operational efficiency-Home Depot was achieving operational efficiency by upgrading its computerized systems and implementing the satellite communication. All of these investments would help in reducing cost, support growth, and enable better decision-making. Operational efficiency is very crucial in achieving low prices while still offering the same customer service.
Television Network(HDTV)-Money saving device that allowed HD's top executives to get instant feedback form local managers, and allowed training and communication programs to be viewed in the stores.
Advanced inventory management system-It allowed and increases in the inventory turnover.
Electronic Article Surveillance-Preventing theft.
Continuous experimenting and testing in technology and business strategies-A company can grow and be successful only if it invests money and time on its future development.
Advertising-Home Depot maintained an aggressive campaign using various media for both price and institutional policy. Also sponsored the Summer Olympic Games in Atlanta, which can have a great impact on the generation-X, and Y who are going to be future customers of HD.
Reacting with speed and catch trends early- This can assure a firm's success.
Merchandising Strategy-It provided excellent customer service, low prices, and wide variety of products.
Workshops-Can attract more do-it-yourself customers.
No unions-The company has never suffered a work stoppage.
Foresee future problems-The year 2000 problem.
Strategic Planing-Planing in advance how many stores would be opening in the next four years and how many employees they would be needing to keep the business going.
The strong management team of Home Depot has left very less space for weaknesses but has not eliminated all of them. The greatest weakness that I noticed was the rapid expansion into unknown territories. For example, when Home Depot moved to Houston and Detroit. Both these terrain were less hospitable and the company lost money. I can say that this was not a well-studied move. Home Depot repeated the same mistake when it bought the 9-store Bowater Warehouse chain, and also when it implemented the Cross Road Strategy which didn't turn as profitable as HD expected. So all these moves were the result of not well-planed strategies and could lead to a disaster if not prevented.
Another weakness is the fact that HD is not doing a great job in targeting the women customers. The rack-type displays and the non-elegant stores definitely don't attract females like myself, Lowe's is even better at that.
Being the only big-box retailer to offer a number of other exclusive, high quality products such as Prego laminate flooring, Ralph Lauren paints, and Vigoro fertilizers gives Home Depot the competitive advantage.
Serving primarily to do-it-yourselfers, which is a largely recession-proof market. So, even during a recession Home Depot can survive and even make money.
Offering a broad line of products that can lead to an increase in the number of customers.
The biggest threats that I see for Home Depot are its competitors such as Lowe's, which are trying to emulate or even take a step further every strategy used by Home Depot. Wholesale outlets can also affect Home Depot by offering lower prices to professional business customers.
Serving to the DIY industry can also be a threat because it is a very competitive industry and the profit margin is very low. So, if the DIY industry is not managed properly, a company might end up selling it off , like Kmart with Builders Square.
Threats of New Entrants-LOW
I think that this industry is close to reach maturity and the existing companies such as Home Depot and Lowe's have been around and successful for a long time in this industry, so it would be very costly and risky for a new entrant to compete against these "monsters".
Rivalry Among Existing Firms-HIGH
Lowe's, Payless Cashways, Menard's are very aggressive competitors, which are trying to emulate or even take a step further every strategy used by HD.
Threats of Substitute Products-LOW
The chances of substituting lumber, glass, plastic, etc, are very low. If they cannot find a subtitute raw matterial how can they substitute the lumber used to build houses.
Bargain Power of Suppliers-LOW
With the increased advancements in technology, suppliers are being able to produce products more easily at more efficient costs. So, in order to keep their competitive advantage these suppliers will have to keep their bargain power low.
Bargain Power of Buyers-MEDIUM but increasing
Since the products offered by Homed Depot are very standardized and alternative retailers such as Lowe's can provide the customers with the same products, the bargain power of buyers is considerably high. Changing suppliers is not very costly, especially for the DIY market.
Threat of Other Stakeholders-MEDIUM but increasing
Because the government regulations about environmental issues are growing, the cost of producing the products traded by Home Depot can increase. For example, companies that produce metals have to dispose all their wastes far away from populated areas.
What can Home Depot do to Maintain Its Competitive Advantage?
After analyzing in details this case and finding the major strengths, weaknesses, threats, and opportunities, my suggestions are as following:
Home Depot will have to continue to manage the business by using the same strengths, eliminating the weaknesses, increasing its opportunities, and lowering its threats. More specifically, Home Depot should target more the DIY market since it is economic recession proof. By doing so, Home Depot can protect itself from any future economic catastrophe. Home Depot can target more the DIY market by doing more workshops, selling products that are easy to be instaled without being a proffessional consturctor.
Home Depot should increase barriers for its competitors by applying more the clustering strategy, decreasing cost, increasing efficiency, and keeping up with the latest trends. Wherever there are stores that experience high volumes of sales, Home Depot can practice the clustering strategy which
can resolve not only the problem of long lines and waiting time, but can also serve as a barier for competitors. Who would want to open a business in an area where two Home Depots already exist? Home Depot can decrease cost and increase efficiency by continuing to do what it has been doing so far; using advanced technology in inventory systems. Knowing exactly where the inventory is at all times, when orders need to be placed, etc, can help in keeping the cost of doing business very low, thus incresing the competitive advantage.
Home Depot should also start looking more seriously into targeting the female market, which can become a very potential one because the number of single households and same-sex marriages are continuing to grow. I will give Lowe's as an example, which seems to attract me more as a female buyer than Home Depot does. The shelves seem to be more organized then HD's, the stores are brighter, more light is used, the products seem to be more reachable, there are not as many products hanging around as there are at HD. A lot of times it is difficult to move around with a cart because of the enormous number of items that are on the floor between the isles at Home Depot. So Home Depot should try to use the same strategy that Lowe's is using in trying to target the female market. Home Depot should also have more people in the store to help female buyers to take the products from the shelves to their carts and their cars. All these suggestions will make it easier and more fun for females to shop at Home Depot.