Installment #1

Prepared by: Cathleen Pegg, Jared Himes, and Rob Bushman

1
Strategic udit !or Home "epot, Inc#
1# Board o! "irectors
Robert L Nardelli has served as Chairman, President and CEO of Home Depot, Inc. since
an!ar" #$$#. %nder his leadership, Home Depot has set a lon&'term strate&" for
contin!ed &ro(th and e)pansion. *r. Nardelli also chairs the Hands On Net(or+
,dvisor" -oard, serves on President -!sh.s Co!ncil on /ervice and Civil Participation,
and is a member of the board of co!ncilors of the Carter Center 0Home Depot1.
-efore 2oinin& Home Depot, *r. Nardelli (as President and CEO of 3E Po(er /"stems.
He is credited (ith levera&in& technolo&", innovative prod!cts and services, and
ac4!isitions to e)pand a compan" at a rapid pace 0Home Depot1. ,s the leader (ith 3E
Po(er /"stems, *r. Nardelli transformed the compan" into a (orld(ide leader in the
ener&" ind!str" 05orbes1.
/ince bein& (ith Home Depot, Robert Nardelli has foc!sed the home improvement
retailer on enhancin& its core retail net(or+ thro!&h distinctive and innovative
merchandise, technolo&" investment, and store moderni6ation 0Home Depot1. -eca!se
of *r. Nardelli.s e)perience, vision, and leadership, Home Depot prospered d!rin& post
7811 economical t!rb!lence and &lobal conflicts 0,nn!al Report1. In addition, Home
Depot e)tended the scope of its b!siness (ith e)pansions into ne( &eo&raphic and
professional c!stomer se&ments, online sales and installation services, and ne( store
formats 0Home Depot1.
99President and CEO from 17:; to 177:< Co'fo!nder -ernard *arc!s
99President and CEO from 177: to #$$#< Co'fo!nder ,rth!r *. -lan+
0H!n&er and =heelen1
>enneth Lan&one, co'fo!nder of the Home Depot, Inc., has been the Lead Director of
Home Depot since 177; 0Home Depot1. Havin& ori&inall" laid o!t the plans for the Do'
It'?o!rself chain, *r. Lan&one has seen si&nificant chan&e and &ro(th in Home Depot,
Inc., since its inception in ,tlanta in 17:;. *r. Lan&one has and contin!es to ma+e
si&nificant contrib!tions to the home improvement retailer 05orbes1 0Home Depot1.
Havin& established the oran&e'blooded c!lt!re, >enneth Lan&one, -ernard *arc!s, and
,rth!r -lan+ believed and (anted to pass on a commitment to maintain the principles of
the compan" 0Home Depot1.
We are committed to operating a safe environment for our customers and associates.
We never walk by a customer or fellow associate without speaking.
We dont spend money on a fancy environment; that would make our prices higher.
We train our associates so they can pass knowledge on to our customers.
We want associates to build relationships with customers, to educate the customers,
and to give the customers the confidence to complete their projects.
We stay flexible and make changes based on the customer needs and wants.
#
We make an effort to never lose a sale.
3re&or" D. -renneman serves on the -oard of Directors for Home Depot Inc. and
,!tomatic Data Processin&, Inc. He is Chairman and CEO of @!rn(or+s, Inc.A a
Ho!ston based private e4!it" firm, (hich foc!ses on corporate transformation.
-renneman has served on man" boards. Considered the B@!rnaro!nd @itan Read" to
Reload,C *r. -renneman (ith his e)perience and board contrib!tions has been a stren&th
for Home Depot 0-!r&er >in&1. He has helped to lead Home Depot to(ard its strate&ic
plan of contin!ed &ro(th and e)pansion 0Home Depot1.
Richard H. -ro(n is a member of the -oard of Directors Committee 0Home Depot1. *r.
-ro(n had previo!sl" served as Chairman and CEO of Electronic Data /"stems
Corporation 0ED/1, &lobal technolo&" services compan". His (or+ at ED/ centered on
providin& companies (ith b!siness and technolo&ical 0I@1 sol!tions to help the
companies improve b!siness 05orbes1. Richard -ro(n.s information technolo&"
e)perience (ith ED/ has made a si&nificant impact on Home Depot. =ith -ro(n.s
infl!ence in #$$#, Home Depot.s investment in information technolo&" tripled and
s!ccessf!ll" enhanced the c!stomer shoppin& e)perience 0,nn!al Report1.
ohn L. Clendenin has been a member of the -oard of Directors since 177D 0H!n&er and
=heelen1. *r. Clendenin is a 5ormer Chairman, President and CEO of -ell/o!th
Corporation, and he believes that s!ccess and &ro(th are d!e to adaptin& to chan&es (ith
c!lt!ral stabilit" 0-ell/o!th1. Clendenin.s +no(led&e and e)pertise in comm!nication
services can allo( him to assist Home Depot in !nderstandin& the retail cons!mer and
tar&etin& partic!lar c!stomer se&ments.
-err". R. Co) has been a private investor and member of the -oard since 17:; 0H!n&er
and =heelen1. He has seen Home Depot, Inc. thro!&h several chan&es, and his
investment e)perience is beneficial to the compan". ,s an investor and -oard member,
-err" Co) is committed to ma)imi6in& shareholder val!e, (hile s!pportin& mana&ement
in b!siness operations 0Home Depot1.
Cla!dio E. 3on6ale6, as a member of the -oard of Directors, is Chairman and CEO of
>imberl"'Clar+ de *e)ico, /.,. de C.F. 0,nn!al Report1. *r. 3on6ale6 has been
stren&th for Home Depot, as the compan" e)pands its international operations 0>imberl"'
Clar+1. Home Depot s!ccessf!ll" entered *e)ico and (ithin a "ear established 1#
stores, (hich made it the lar&est home improvement retailer in *e)ico. Cla!dio
3on6ale6.s !nderstandin& of *e)ico.s volatile econom" has helped Home Depot.s slo(
and ca!tio!s entr" into the *e)ican mar+et 0,nn!al Report1.
*illed&e ,. Hart, III has been a member of the -oard of Directors since 17:; 0H!n&er
and =heelen1. =hile he serves on several boards, *r. Hart is the fo!nder and Chairman
of the -oard of Hart 3ro!p, Inc. and Rma), Inc 0Doc!corp and 5orbes1. He is the Chair
of the I@ ,dvisor" Co!ncil on Home Depot.s -oard and has been a drivin& force in
Home Depot.s overall advancements in strate&icall" and technolo&icall" 0,nn!al Report
and 5orbes1.
G
-onnie 3. Hill is a member of the -oard. /he is President of -. Hill Enterprises, LLC, a
cons!ltin& firm speciali6in& in corporate &overnance and board or&ani6ational and p!blic
policies 0,nn!al Report and 5orbes1. /ervin& on several boards for vario!s ind!stries,
*s. Hill has inval!able e)perience and +no(led&e (ith monitorin& and s!pervisin& top
mana&ement, as (ell as developments both inside and o!tside the or&ani6ation 0H!n&er
and =heelen1 05orbes1.
Richard ,. 3rasso, (hile servin& on the -oard of Directors, is Chairman and CEO of the
Ne( ?or+ /toc+ E)chan&e 0,nn!al Report1. His leadership e)perience in the (orld.s
most technolo&icall" advanced e4!ities mar+ets is a val!able asset for Home Depot, Inc.
0Ne( ?or+ /toc+ E)chan&e1
=illiam /. Davila serves on the -oard of Directors and is President Emerit!s of @he
Fons Companies, Inc. 0,nn!al Report1. His e)periences in leadin& one of the lar&est
s!permar+et operations in /o!thern California can provide Home Depot (ith ne( ideas
for improvin& the c!stomer e)perience 0/hop /afe(a"1.
Ro&er /. Pens+e is a member of the -oard 0,nn!al Report1. *r. Pens+e fo!nded Pens+e
Corporation and became its Chairman of the -oard in 17;# 03E1. Havin& e)perience on
several boards, Pens+e is a benefit and active member of the Home Depot -oard of
Directors 0,nn!al Report1.
@he -oard of Directors is activel" en&a&ed in the b!siness of Home Depot. =ith each
member.s vario!s scopes of e)periences, ro!tine store visits, and fre4!ent operational
revie(s, the -oard is reco&ni6ed as one of the Btop 1$ -est -oardsC 0,nn!al Report1.
$# "escription at the %ime o! the Case
,t the time of this st!d", Home Depot, Inc. had delivered positive financial res!lts in
(hat (as Bone of the most challen&in& retail environments in #$ "earsC 0,nn!al Report1.
Ran+in& amon& the best in retailin&, Home Depot opened #$G ne( stores, created H$,$$$
ne( 2obs, and made si&nificant investments in technolo&", operations, and merchandisin&
in #$$#. =ith a steadil" increasin& mar+et share of over #IJ, Home Depot has
maintained its title as K1 in home improvement retail ind!str" 0Home Depot and ,nn!al
Report1.
&i'uidity
Current ratio 1#():1
Consistent Short*term &i'uidity
Strength
+uic, -cid*%est. Ratio /#(0 In1entory "ependencies in $//$
In1entory to 2et 3or,ing capital $#10 Increasing %rend 41er 5iscal 6ear
Cash Ratio /#$7 "ecreasing %rend 41er 0*year Period
Operations have provided Home Depot (ith a si&nificant so!rce of li4!idit". Ho(ever,
d!e to avera&e inventor" levels increasin& b" :.7J in Home Depot stores (orld(ide,
H
cash flo( decreased from LD.$ -illion to LH.; -illion in #$$#. @his reflects not onl" the
e)ternal threat of economic instabilit", b!t also Home Depot.s &ro(th and e)pansion
initiatives 0Home Depot and ,nn!al Report1.
Pro!itability
2et Pro!it margin 8#$9: Highest In Industry
;ross Pro!it margin <1: 9( Basis Point Increase
Return on In1estment Capital 1)#): 0/ Basis Point Increase
=arnings Per Share 1#07 =arnings 2ot "iluted
"iluted =arnings Per Share 1#08 $(#8: Increase !rom 199)
In contrast to its competitors, (ho e)perienced decreases in net earnin&s, Home Depot.s
reven!es &re( b" 7J, increasin& the Net Profit mar&in 0?ahooM 5inance and ,nn!al
Report1. Net Earnin&s achieved LG.: -illion 01:.1J increase from an!ar" #$$11, (here
L1 -illion (as earned in the #
nd
4!arter. Ret!rn on Investment Capital reached 1;.;J, a
I$ basis point increase from #$$1, (hich reflects mana&ement efficienc" and asset
control 0H!n&er and =heelen1 0,nn!al Report1. Earnin&s Per /hare improved b" #1J,
beca!se of Home Depot.s rep!rchase of D7 million shares. @his rep!rchase of @reas!r"
/toc+ avoided a dil!ted effect in per share calc!lation 0,nn!al Report1.
cti1ity
In1entory %urno1er 0#<> "ecrease !rom $//1
"ays in In1entory 70#) days Considerable Increase Since $///
1erage Collection Period 8#7$ days Increasing %rend 41er 0*year Period
ccounts Payable ($ days ;ro?th !rom $//1 <( days
"ays in Cash 1<#71 days "ecrease o! 17:
sset %urno1er 1#90 "ecreased !rom $#/0:
Hi&h inventor" levels at an" &iven time (ere a pattern for Home Depot in #$$#. @his
res!lted in a decline of avera&e inventor" &oods sold d!rin& the period. On the contrar",
the ,vera&e Collection Period for ,cco!nts Receivable increased, reflectin& a lon&er
(aitin& period for receipt of c!stomer pa"ments for sales. In addition, d!rin& #$$#,
Home Depot e)perienced &ro(th in Da"s ,cco!nts Pa"able O!tstandin&, d!e to
chan&in& pa"ment terms. @he chan&e has benefited Home Depot b" allo(in& fle)ibilit"
and assistance in maintainin& its &ro(th initiatives. ,t #$$# sales levels, Da"s in Cash
decreased b" 1:J, tho!&h not a problem for Home Depot 0,nn!al Report1.
&e1erage
"ebt to sset Ratio <(: Same &e1el !rom $//1
"ebt to ='uity 0$: &e1eraged
&ong*term "ebt to
='uity 8#7/:
&imited &ong*term
Borro?ing
Current &iabilities to
='uity (1:
3ell*&e1eraged Short*
%erm 5inancing
Home Depot.s financial stren&th and levera&e ran+s amon& the best in retailin& 0?ahooM
5inance1. Home Depot has consistentl" limited the !se of borro(ed f!nds to finance
I
assets. ,ltho!&h the Debt'to'E4!it" ratios have risen sli&htl" over the I'"ear period,
Home Depot is ade4!atel" levera&ed (ith f!nds from creditors and o(ners. In addition,
short'term financin& obli&ations are levera&ed (ith e4!it" and stron& li4!idit" 0,nn!al
Report1.
<. Home "epot@s Aalues and Aision
Associates are central to ome !epots success and our values are part of the fabric of
the company. "alues are beliefs that do not change over time. #hey are what we believe
in, what we do, and what govern our decisions on a day$to$day basis. #hey are the
principles and standards for the framework upon which ome !epot is built. ome
!epots uni%ue culture is built on associate dedication and a commitment to an &orange$
blooded' entrepreneurial spirit.
1. Taking care of our people( #he key to our success is treating people well. We do
this by encouraging associates to speak up and take risks, by recogni)ing and
rewarding good performance and by leading and developing people so they may
grow.
2. Giving back to our communities( An important part of the fabric of #he ome
!epot is giving our time, talents, energy and resources to worthwhile causes in
our communities and society.
3. Doing the right thing( We exercise good judgement by *doing the right thing*
instead of just *doing things right.* We strive to understand the impact of our
decisions, and we accept responsibility for our actions.
4. Excellent customer service( Along with our %uality products, service, price and
selection, we must go the extra mile to give customers knowledgeable advice
about merchandise and to help them use those products to their maximum benefit.
5. reating sharehol!er value( #he investors who provide the capital necessary to
allow our company to grow need and expect a return on their investment. We are
committed to providing it.
". #uil!ing strong relationships( +trong relationships are built on trust, honesty
and integrity. We listen and respond to the needs of customers, associates,
communities and vendors, treating them as partners.
$. Entrepreneurial spirit% ome !epot associates are encouraged to initiate
creative and innovative ways of serving our customers and improving the
business and to spread best practices throughout the company.
D
)# &espect for all people( ,n order to remain successful, our associates must work in
an environment of mutual respect, free of discrimination and harassment where
each associate is regarded as a part of the ome !epot team. 0Home Depot1
4bBecti1es and Strategies
In #$$#, Home Depot maintained its lon&'term ob2ectives for contin!o!s &ro(th and
e)pansion. CEO, Robert Nardelli, plans on the openin& of #$$ ne( Home Depot stores
in the %./. in #$$G. In addition, Home Depot (ill increase investments in technolo&"
and store moderni6ation, as (ell as s!stain its control thro!&h its vertical &ro(th strate&"
in its val!e chain 0Home Depot1.
=ith a strate&" to enhance its core retail net(or+ thro!&h innovative and !ni4!e
merchandise, Home Depot is committed to the chan&in& needs of the home improvement
mar+et 0Home Depot1. @he compan" be&an to tap the residential homeb!ilders. mar+et
(ith the #$$# ac4!isition of three of the top 1$ t!rn+e" providers of installed floorin&
0,nn!al Report1.
%sin& a Bc!stomer'bac+C initiative in decision'ma+in&, Home Depot is dedicated to
b!ildin& relationships (ith the c!stomers, (hether the" are the Bdo'it'"o!rselfers 0DI?1,
the do'it'for'me 0DI5*1, the professional, or one of man" emer&in& c!stomer se&mentsC
0,nn!al Report1. Home Depot is pled&es to provide service and prod!cts Bsecond to
noneC 0Home Depot1 0,nn!al Report1.
(# ;eneral =>ternal Scan
'pportunities
Home Depot has been +no(n for creatin& opport!nit" thro!&h comm!nit" a(areness and
charitable contrib!tions. @he" have made stren!o!s efforts to ma+e an impact in the
comm!nit". -" bein& involved in the comm!nit" the" are able to &ive themselves a &ood
ima&e. @he" mi&ht claim the" are doin& this o!t of the &oodness of the Bcompan".s
heartC, b!t ever"one +no(s it is onl" dollars si&ns corporations see. Home Depot claims
the" have a social obli&ation to help o!t.
D!rin& a recession it is said that Home Depot maintains constant b!siness beca!se
c!stomers are more li+el" to pa" cheap prices for materials and fi) problems themselves.
@his is a definite opport!nit" beca!se this p!ts Home Depot at an advanta&e over other
competitors and ind!stries. D!rin& the "ears of #$$$'#$$#, Home Depot constantl"
increased earnin&s. @his is 4!ite ama6in& d!rin& a recession. @he" also benefited from
#$$#.s b!ildin& and real estate e)pansion. @his (as ca!sed b" the steep decrease in
interest rates. Homeo(ners (ere able to refinance their homes, save mone" on a monthl"
basis, and p!t mone" bac+ into their homes 0Home Channel Ne(s Ne(sfa).1 /ome of
this mone" (as spent at Home Depot stores across the co!ntr".
:
Home Depot bases store locations on demo&raphic st!dies. It (as demo&raphic research
as an on&oin& opport!nit". In #$$#, Home Depot increased their n!mber of stores to
over 1$$$. Its stores are located in pop!lated areas and are close to&ether to some other
competitors. Home Depot also p!t stores in areas that are pop!lated (ith BDo It
?o!rselfers,C s!ch as man" so!thern areas. @hese /o!thern c!stomers have a stron&
sense of c!lt!ral appreciation for 4!alit". Home Depot has also recentl" 0#$$$'#$$#1
e)plored the &lobal *ar+et. @he" have started openin& stores in *e)ico and Canada, and
opened reso!rce stores in China.
Threats
/ome ma2or threats came abo!t from the "ears #$$$'#$$#. /eptember 11, #$$1 and
Enron crashin& created a do(n(ard spiral for the %nited /tates econom". @his affected
almost ever" ind!str". Even tho!&h Home Depot maintained constant n!mbers d!rin&
this time, the" al(a"s had to (orr" abo!t ho( fast to e)pand. ,t this time there (ere
man" ,mericans leavin& the co!ntr" &oin& off to (ar, and most ,mericans (anted to
protect ever" penn" not +no(in& (hat (as to come. D!rin& a time of recession,
companies have to be (ar" of c!stomer spendin&.
,nother ma2or threat to Home Depot is its competition, and (hen I mean competition (e
are 6onin& in on Lo(es. Lo(es is Home Depot.s onl" competitor that competes on a
consistent basis at the national level. D!rin& #$$$'#$$# the" have e)panded almost
e4!all" (ith Home Depot0c!ran1. @his is a threat beca!se Home Depot does not (ant a
compan" (ith almost the same reso!rces sellin& &oods at almost the same prices. Lo(es
sho!ld contin!e to &ro( at the same pace as Home Depot, so this (ill be somethin& to
(atch o!t for.
0# =>ternal =n1ironmental Scan
Threat of (e) Entrants
@he threat of ne( entrants is ver" !nli+el". @his ind!str" if ver" mat!re and (henever a
ne( competitor tries enterin& the mar+et, Home Depot or Lo(es p!ts !p a store ri&ht
ne)t to the ne( store +no(in& the" (ill ta+e most of its b!siness. @here is no (a" a ne(
competitor can compete (ith the bi& companies of this ind!str". @hese companies have
alread" made a name for themselves and c!stomers are &oin& to &o there instead of
an"(here else. ,lso, these ne( companies do not have the capital to compete (ith
Home Depot. Home Depot has been consistentl" red!cin& costs. @his has helped them
sell their prod!cts at lo(er costs than its competitors.
&ivalr* +mong Existing ,irms
;
Home Depot has abo!t 1$ tr!e competitors, and of those Lo(es Cos Inc is the onl"
Competitor that reall" competes on the national level. Other Competitors incl!de< ,ce
Hard(are, Homebase Inc., H!&hes /!ppl", =oloham L!mber, and @r!e Fal!e
Compan". @his 2!st sho(s that Home Depot.s competition is far off the pace the" are
settin& for the ind!str". Home Depot has no e4!al competition.
@his ind!str" has not sho(n si&ns of &ro(th (ith re&ards to !p and comin& competitors.
No other competitor has the sheer si6e of Home Depot and this allo(s the compan" to
sell their &oods at lo(er prices than companies of smaller si6es. Home Depot is also able
to sell a more diversified line of prod!cts beca!se of their corporate si6e and reso!rces.
C!stomers !s!all" +no( e)actl" (here the nearest Home Depot is and (ill search for
their (anted prod!cts there instead of &oin& to an B,ce Hard(areC (hich has a smaller
selection. @his is almost al(a"s the case e)cept for instances (here c!stomers have store
lo"alt" and ref!se to shop an"(here else.
@here are not man" fi)ed costs associated (ith this ind!str". Home Depot and its
competitors do not have set sched!les to (hich the" are restricted. Home Depot has the
option to b!" &oods and reso!rces (hen the" need them. @hro!&h lo&istics the" are able
to decide the (hen, (here and ho( m!ch 4!estions lin+ed to the s!ppl" and demand of
their prod!cts.
Home Depot has been able to increase their mar+et share b" openin& !p more stores
across the co!ntr". -" #$$# the" had 1,$I$ stores open across the %nited /tates and
Canada. @his is 1:$ percent more than Lo(es, (hich is its closest competitor. @his
increase allo(s them to lo(er prices. @here reall" are onl" a fe( e)it barriers in this
ind!str". @here are not man" companies sellin& in this mar+et and most of these
companies have their set mar+et share. =ith the real estate mar+et and ne( propert",
these companies are &oin& to &ro( over the comin& "ears. @he onl" thin& these smaller
companies have to (orr" abo!t is Home Depot ta+in& more of the mar+et share b"
openin& !p a store near them 0Home Depot1.
Threat of -ubstitute .ro!ucts or -ervices
@here are reall" no s!bstit!te services that can be created in this ind!str". @he onl"
s!bstit!te services are companies that onl" sell l!mber and (o!ld deliver that l!mber at
cheap costs to the c!stomers. @hese places are not ver" (ell +no(n so this h!rts them.
@his ma+es it hard to create a s!bstit!te service that can compete (ith the lo( costs
Home Depot offers.
#argaining .o)er of the #u*er
@he b!"er al(a"s has po(er in decidin& the price of the prod!ct that is for sale. @his
b!"er is ta+en from the &eneral pop!lation and then the prices are based on s!ppl" and
demand. Home Depot sells tho!sands of prod!cts at ver" lo( costs compared to the
competition. =hen "o! sell "o! &oods at lo( costs there is not m!ch lo(er the prod!ct.s
sellin& price can &o. 5or the most part the b!"er is ver" satisfied (hen b!"in& a prod!ct
7
from Home Depot. @he" &o to Home Depot beca!se the" +no( (hat the" (ant and
ma+e the p!rchase. @here are not ne&otiations on the floor to lo(er the price of the
prod!ct.
#argaining .o)er of the -upplier
@he s!pplier also has po(er in the price the" sell their prod!cts at. @he" (ant to +eep
their prod!cts at a price that the" (ill ma+e profits on (hile not &oin& over a threshold in
(hich b!"ers (on.t (ant to p!rchase the different items. Home Depot sets its prices at
levels to beat o!t the competition. Even if Home Depot does not ma+e that m!ch profit
on one prod!ct, the compan" (ill ma+e it !p (ith the 4!antit" of prod!cts the" sell
compared to their competitors. @his is a ma2or advanta&e bi& s!ppliers have, beca!se
the" can +eep c!stomers from the competition.
&elative .o)er of 'ther -takehol!ers
Other sta+eholders are al(a"s &oin& infl!ence the ind!str". @hese sta+eholders have
invested mone" into the compan", so the" are &oin& to infl!ence final decisions. =hen
Home Depot &oes into contracts (ith other companies to sell their prod!cts in their
stores, these companies have a sa" in ho( their prod!ct (ill be sold. Comm!nities also
have a sa", beca!se there are cit" and state re&!lations in (hich Home Depot m!st abide.
@he shareholders have some sa" in the decision process. *ost shareholders hold a ver"
little share so the" (ill not have m!ch of a sa" compared to the bi&&er shareholders. @his
is ver" common (ith Home Depot, beca!se of the si6e of the compan" and that it is
p!blicl" traded.
8# Preliminary Statement o! Strategic Issues Priority Catri>
Hi&h
3lobal
E)pansion
Comm!nit"
,(areness
Demo&raphics
/t!dies
*edi!m
>eep b!"in&
s!pplies from
overseas
/trate&ic oint
Fent!re ,lliance
Domestic
@hreat
Lo(
Non'Domestic
@hreat
Lo( Priorit"
*edi!m Priorit"
1$
Hi&h Priorit"
Companies often tr" to predict f!t!re environmental trends that co!ld possibl" have an
impact on their mar+et. Home Depot and its competitors share these trendsA and it is !p
to each compan".s mana&ement to monitor its e)ternal environment. It is ver" hard to
monitor all of the e)ternal factors. Ho(ever, if con4!ered, this (ill be a benefit and a
step !p on the competition. Home Depot does have an advanta&e over its competitors
beca!se of their si6e. @he" are able to dedicate more emplo"ees and mone" predictin&
f!t!re environmental trends.
@here are man" trends in this ind!str" that can effect (hat the different companies loo+
li+e. One trend in this ind!str" is &ettin& reso!rces from overseas companies. /ome of
the companies in this ind!str" sta" lo"al to ,merican companies and b!" all of their
reso!rces from them. Companies li+e Home Depot b!" over 7D percent of (ood
overseas, beca!se the (ood is cheaper. @his allo(s the compan" to sell prod!cts at lo(er
prices.
,nother trend in the %nited /tates is other companies and b!ilders b"passin& the retailers
and b!"in& s!pplies from the man!fact!rer or (holesaler. @his co!ld have an impact on
Home Depot and the mar+et, if c!stomers started b!"in& s!pplies from (holesalers. @his
is !nli+el", b!t it is somethin& to definitel" (orr" abo!t.
, trend that (ill have lo( occ!rrence and probabilit" is competition from a Non'
Domestic Competitor. ,mericans appreciate domestic companies and Home Depot is a
pro!d ,merican s"mbol that dominates the ind!str". It is ver" !nli+el" the" (ill fall
victim to a forei&n competitor in the near to distant f!t!re. Home Depot has to (orr"
abo!t Domestic threats b!t (ith little (orr". Home Depot has capt!red a ma2orit" of the
mar+et share and it is also !nli+el" that an" domestic compan" (ill catch them.
Home Depot has made man" 2oint vent!res (ith companies to sell onl" their prod!cts in
their stores. @his is ver" common (ith retailers beca!se this sec!res bi& time contracts
and lar&e amo!nts of income. 5or e)ample, in #$$# Home Depot and ohn Deere made
an a&reement that Home Depot (ill onl" sell ohn Deere.s in their stores. E)pect more
of these 2oint vent!res to come in the f!t!re.
11
7# Strategic ;roup Cap
HI;H







P Ace ardware
R #rue "alue
I
C
=


Home-ase Inc
H!&hes /!ppl"


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Woloham
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&43
&imited Selection
"i1erse
Selection
"i1ersi!ied &ine o!
Products
@his strate&ic map sho(s that Home Depot has a more diversified prod!ct line and sells
their prod!cts at lo(er prices. Companies s!ch as ,ce Hard(are and @r!e Fale cannot
compete on the same level beca!se the" do not have the capital to compete. =oloham
1#
L!mber is ver" limited in its prod!ct line, b!t the" do sell their (ood as cheap as Home
Depot.
8. External Factors
Weigh
t
Ratin
g
Weighte
d Score Comments
1 2 3 4 5
Opportunities
Global Expansion
0.20 5 1.00 China
Community Awareness
0.10 5 0.50
Community/Charitable
Responsibility
emo!raphi"s #a$or %& Customers
0.05 3 0.15 Cultural Appre"iation #or 'uality
(n"ertain E"onomi" En$ironment
0.10 4 0.40 Consistent eman)
%nterest Rate e"line
0.15 4 0.*0 +uil)in! An) Real Estate Growth

Threats
omesti" Competition
0.15 3 0.45 ,owe-s .rimary Competitor
.olit"al %ssues
0.05 2 0.10 .eople ,ea$in! #or /ar
E"onomi" %ssues
0.15 2 0.30 0eptember 111 2001
(nion 2r!ani3ation
0.05 1 0.05 4ime An) 5aintenan"e Costs
Totals
1.00 3.55
9# Internal Resources
4rganiDational Structure
Home Depot, Inc. is loo+in& to or&ani6e and establish dominance &loball". @o achieve
this &oal, the corporation be&an to locate several stores in one mar+et. @he reasonin&
behind this is to establish m!ltiple !nits in a sin&le mar+etplace to create dominance.
@his move can be seen as a threat to the compan". @hird 4!arter sales dropped d!e to
this move. @herefore Home Depot, Inc. ma" (ant to consider locatin& stores farther
apart and ma" (ant to diversif" store locations.
Corporate Culture
@he Home Depot. Inc., fo!nded in 17:;, is the (orld.s lar&est DI? retailer. @o achieve
this &lobal stat!s, the corporation has diversified the t"pes of stores in operation.
Incl!ded in this strate&" are Home Depot /tores, EEPO Desi&n Centers, Home Depot
/!ppl" /tores, Home Depot Landscape /!ppl" /tores, Home Depot 5loor /tores, etc.
1G
@he compan" is (idel" +no(n and is traded on the Ne( ?or+ /toc+ E)chan&e !nder the
s"mbol BHDC.
Car,eting Issues
Home Depot, Inc. is bi& on c!stomer service and providin& e)pertise to the DI?
cons!mer. @o achieve this, onl" the most 4!alified and +no(led&eable associates are
hired to provide the best c!stomer service possible. ,lso, in order to attract the lar&est
cons!mer o!treach possible, the compan" provides onl" the best 4!alit" prod!cts (ith
ever"da" lo(est prices beca!se of direct p!rchasin& from s!ppliers.
5inancial Issues
/ince the compan" (as fo!nded, reven!es have si&nificantl" increased from "ear to "ear.
/ome ma2or financials for #$$# are as follo(s<
Reven!e< LI;.#-
3ross *ar&in< G1J
Net Earnin&s< LG.:-
EP/< L1.ID
=hile these n!mbers loo+ &ood, some ad2!stments need to be made internall".
,d2!stments need to made to increase the stoc+ price. @he chairman of Home Depot,
Inc. said that he (as disappointed in the (a" the stoc+ price performed (hich in ret!rn
had a ne&ative impact on emplo"ees and shareholders.
R E " Issues
@he compan" is bi& on havin& onl" the most !p to date technolo&" implemented (ithin
each store. @his "ear the compan" tripled the amo!nt spent on RND to constr!ct better
s"stems, condense operations, and to implement a di&ital b!siness s"stem.
4peration Issues
In the past, the compan" (o!ld stoc+ shelves d!rin& store ho!rs. @o ma+e the shoppin&
e)perience more en2o"able, the" created a /PI 0/ervice Performance Improvement1. @his
means that stoc+in& shelves (ill be done after ho!rs to red!ce cl!tter in the aisles. Home
Depot, Inc. also opened fo!r ne( @ransit 5acilities and b!ilt t(o ne( Import Distrib!tion
Centers. ,nother improvement to some stores incl!des the self'chec+o!t s"stem. @his
red!ces the time the c!stomer has to spend (aitin& in line and allo(s a constant flo( of
people to be chec+ed o!t of the store.
HR Issues
1H
Home Depot, Inc. strives to achieve the hi&hest compan" morale. D!rin& #$$#,
mana&ement s!rve"ed associates and emplo"ees and fo!nd that :$J planned to f!rther
their careers at Home Depot, Inc. =hile this percenta&e is hi&her than some leadin&
competitors, ad2!stments need to be made to raise the retention rate. D!rin& the "ear
mana&ement also provided better pa" and benefits to ens!re satisfaction amon&
emplo"ees. ,side from pleasin& 2!st (or+ers, the compan" B&ives bac+C to local
comm!nities. @he" participate in pro2ects s!ch as Habitat for H!manit" and the" have
provided athletes 2obs (ith f!ll'time pa" and benefits d!rin& their trainin& for the
Ol"mpics. Home Depot also provides emplo"ees classes for aerobics, dietin&, and to
help them 4!it smo+in&.
ISFI% Issues
@here have been several advancements in technolo&" this past "ear. One advancement
(as the introd!ction of self'chec+o!t re&isters, (hich is also a +e" part of operations.
@his empo(ers the c!stomer and &ives them a sense of control. ,nother improvement
(as the connectivit" for ne( stores. @he net(or+ development established better
c!stomer service b" ma+in& s!re each prod!ct (as al(a"s in stoc+.
10. Internal Factors Weight Rating
Weighte
d Score Weighted Comments
1 2 3 4 5
Strengths
4e"hnolo!i"al A)$an"es
0.10 3 0.30 %mplementation 26 7ew %4
%mpro$e) ,o!isti" 2perations
0.20 5 1.00 0.%80er$i"e .er6orman"e %mpro$ement9
.ro"ess 2riente) R:
0.15 4 0.*0 4riple) #rom .re$ious &ears
Employee E66i"ien"y
0.10 3 0.30 %n"rease) Employee /ellness An) ,oyalty
0tore i$ersity
0.10 2 0.20 E;.21 0upply1 ,an)s"ape1 #loor1 Et".

Weaknesses
e"linin! 0to"< .ri"e
0.20 3 0.*0 0harehol)er issastis6a"tion
4rainin!
0.05 2 0.10
0low %n Re"ruitin! An) 4rainin! 7ew
Employees
epot 2$erloa)
0.10 2 0.20 Re)u"e) Earnin!s ue 4o Clusterin!
Totals
1.00 3.30
%n both the E#A0 an) %#A0 Analysis1 is "an be "onl"u)e) that =ome epot1 %n". is respon)in! to internal an) external 6a"tors
abo$e the a$era!e in)ustry rate.
1I
1D
5iber &lass "arns
man!fact!red b"
O(ens
Corporation.
?arns are then
sent to Ne( ?or+
for f!rther
constr!ction.
Plumbing
Ra( materials
man!fact!red in
-aton Ro!&e, La.
Pl!mbin&
prod!cts shipped
to B?o=C 0?o!r
BotherC
=areho!se1.
B?o=C acts as a
master distrib!tor
of the specialt"
pl!mbin& items.
Prod!cts are
shipped and
distrib!ted to
Home Depot
Retail /tores.
House 3ares
Ra( materials
man!fact!red in
E!rope and the
5ar East.
/hipments arrive
via *!ir.s Carta&e
Carrier to Port of
Charleston or
/avannah Harbor.
/hipments also
arrive b" air
frei&ht.
;lass?are
Ra( materials
&athered from
@e)as and Ohio.
/hipments arrive
at Home Depot
Imports
Distrib!tion
Center in
/avannah,
3eor&ia.
*aterial,
receivin&,
incomin& prod!ct
stora&e and order
pic+in& activities
are cond!cted
!sin&
conventional
distrib!tion
techni4!es.
Rolls of fiber
&lass are shipped
to /aint&eobain in
Dover, Ohio,
(here the" are slit
to retail si6e.
Home Depot then
b!"s direct from
/aint&eobain.
1:
%he Home "epot, Inc# G 11# Corporate Aalue Chain nalysis
@hese three e)amples depicted in the val!e chain represent the flo(
of the prod!ct c"cle. Home Depot is able to provide ever"da"
lo( prices d!e to their abilit" to eliminate distrib!tors. Instead,
Home Depot has their o(n line of distrib!tors to red!ce costs.
Information for this val!e chain (as &athered via phone intervie(
b" sales representative *ichael -!rns.


1;
,3F.s
0,!tomatic
3!ided Fehicles1
are !sed to relieve
materials handlin&
con&estion.
Prod!cts are
shipped to Home
Depot Retail
/tores.
3or,s Cited
5errell, O.C., and 3eoffre" Hirt. -!siness< , Chan&in& =orld. @hird Edition.
Ne( ?or+< *c3ra('Hill, #$$$.
Home Depot #$$# ,nn!al Report. Home Depot, Inc. Retrieved #G !l" #$$I.
Ohttp<88(((.homedepot.com8P.
BHome Depot Opens Ne( /o!rcin& Offices In China.C ?ahooM 5inance.
1$ October #$$#. Retrieved #G !l" #$$I. Ohttp<88finance."ahoo.com8P.
H!n&er, . David, and @homas L. =heelen. Essentials of /trate&ic *ana&ement.
C!stom Edition. %pper saddle River, Ne( erse"< Prentice Hall, #$$G.
BNational -!siness Partnership *atches @alented People =ith ob Opport!nities.C
?ahooM 5inance. $I !ne #$$#. Retrieved #G !l" #$$I. Ohttp<88finance."ahoo.com8P.
B/trate&" to be O!t Over Ne)t 1# *onths.C ?ahooM 5inance. $# December #$$#.
Retrieved #G !l" #$$I. Ohttp<88finance."ahoo.com8P.
B@he Home Depot ,nno!nces E)ec!tive ,ppointments.C ?ahooM 5inance.
$H December #$$#. Retrieved #G !l" #$$I. Ohttp<88finance."ahoo.com8P.
/li(a, Carol. BHome Depot %p&rades Point'of'/ale /"stems.C Comp!ter(orld.
0#$$#1 Iss!e I$, p1D.
Roman, *onica. BHammered.C -!siness =ee+ 0#$$#1 Iss!e G;1$, pID.
*alester, eff. BHome Depot, Lo(e.s Report /tron& 5is. QG /ales, Earnin&s.C
@=ICE< @his =ee+ in Cons!mer Electronics 0#$$#1 Iss!e #;, pIG.

17