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An Analysis Of The Home Depot Using Strategic Management Presented by: Geordan Hull, Dave An Analysis Of The Home Depot Using Strategic Management Presented by: Geordan Hull, Dave Rosu, and Jason Steinberg

DEFINITIONS • Strategic Management – A comprehensive and ongoing management process aimed at formulating DEFINITIONS • Strategic Management – A comprehensive and ongoing management process aimed at formulating and implementing effective strategies; it is a way of approaching business opportunities and challenges

DEFINITIONS • Depot* – A place of deposit for the storing of goods; a DEFINITIONS • Depot* – A place of deposit for the storing of goods; a warehouse; a storehouse – The headquarters of a regiment, where all supplies are received and distributed, [workers]s are assembled and instructed… and all the wants of the regiment are provided for * = Definition provided by Webster’s Revised Unabridged Dictionary

HD IN A NUTSHELL • The first Home Depot store opened in Atlanta on HD IN A NUTSHELL • The first Home Depot store opened in Atlanta on June 22, 1979 • First locations were attached to Treasure Island stores – In its first five years, The Home Depot expanded into Florida, Louisiana, Texas, and Alabama • World’s largest home improvement retailer – Currently, there are more than 1, 700 stores in the United States, Canada, Mexico, and Puerto Rico, and two sourcing offices in China • Sells a large assortment of lumber, building materials, home improvement, and lawn and garden products – The average Home Depot store is 109, 000 square feet and offers about 40, 000 products

HD IN A NUTSHELL • Second largest retailer in the United States • Bob HD IN A NUTSHELL • Second largest retailer in the United States • Bob Nardelli is the current Chairman, President, and CEO • Traded on the NYSE under the symbol HD

MISSION STATEMENT The Home Depot is in the home improvement business and our goal MISSION STATEMENT The Home Depot is in the home improvement business and our goal is to provide the highest level of service, the broadest selection of products and the most competitive prices

BUSINESS • Great shopping experience • Service – Knowledgeable associates • Merchandise – Endless BUSINESS • Great shopping experience • Service – Knowledgeable associates • Merchandise – Endless possibilities for improving and repairing your home – High quality • Shoppability – Clearly printed signs – Conveniently placed displays

PRODUCTS Paint & Decor Electrical Plumbing Kitchen & Bath Lawn & Garden Flooring Lighting PRODUCTS Paint & Decor Electrical Plumbing Kitchen & Bath Lawn & Garden Flooring Lighting & Fans Tool Rental Building Materials Lumber Millwork

STRUCTURAL UNITS • Business Development • Merchandising & Corporate • Global Logistics Operations • STRUCTURAL UNITS • Business Development • Merchandising & Corporate • Global Logistics Operations • Regional • Marketing – Eastern • Information – Central Technology – Western – Northwest • Human Resources

HOME DEPOT’S MANAGEMENT • Bob Nardelli – Chairman, President, & CEO – Joined in HOME DEPOT’S MANAGEMENT • Bob Nardelli – Chairman, President, & CEO – Joined in December 2000 – Elected Chairman of the Board of Directors as of January 1, 2002 – BS in Business from Western Illinois University, MBA from University of Louisville – Came from GE Power Systems where he was President and CEO – Was selected by President George W. Bush to serve on the President’s Council on Service and Civic Participation in January of 2003

HOME DEPOT STORES • Home Depot stores are designed to suit the needs of HOME DEPOT STORES • Home Depot stores are designed to suit the needs of the communities they are located in • How-to-clinics – Offer step-by-step instructions on do-it-yourself projects • Specialty product assortments, credit programs, and delivery programs – Options available for professional customers • At-Home Services – Offers installation on select products • National Brands – Account for nearly 90% of store merchandise • Designer/Exclusive Brands • Tool Rental Centers – Over 600 stores carrying more than 200 types of tools and equipment • Load ‘N Go Truck Rental – Allows customers to take large purchases home with them

CORE BUSINESS • Do-It-Yourself Homeowners (DIY) – Account for 70% of all Home Depot CORE BUSINESS • Do-It-Yourself Homeowners (DIY) – Account for 70% of all Home Depot sales

ENHANCING BUSINESS • Improve Store productivity & Enrich inventory – At Home Services • ENHANCING BUSINESS • Improve Store productivity & Enrich inventory – At Home Services • Caters to Do-It-For-Me (DIFM) customers • Installation service – PRO Program • Professional-specific services • Expanded to over 1, 100 stores – Appliances • Expanded appliance showrooms, targeted at the professional customer – Tool Rental Program • Customer can try a tool before buying it • Customer can rent tools – Urban Store Format • “Neighborhood friendly” stores focused on local needs • Store format is smaller and more compact

DIVERSIFIED BUSINESS • EXPO Design Center – One-stop home decorating and remodeling resource – DIVERSIFIED BUSINESS • EXPO Design Center – One-stop home decorating and remodeling resource – Products here were previously only available to professionals • The Home Depot Supply – Geared specifically to the needs of professional customers and large companies – Areas devoted to electrical, paint, plumbing, millwork, hardware, lumber, and building materials • The Home Depot Landscape Supply – Serves anyone from the professional landscaper to “do-it-yourself” garden enthusiasts

DIVERSIFIED BUSINESS • The Home Depot Floor Store – Offers the most comprehensive selection DIVERSIFIED BUSINESS • The Home Depot Floor Store – Offers the most comprehensive selection of flooring products and services available • Styles range from basic and durable to high-fashion decorator • The Home Depot Mexico – Acquired Mexico’s second largest home improvement retailer, Total HOME, in June of 2001 • Georgia Lighting – Specialty lighting designer • E-Commerce – Routes web-based orders through existing stores – Enables regional items to be offered across the country

EMPLOYEES • Home Depot associates are put through a two-week “intensive” training program EMPLOYEES • Home Depot associates are put through a two-week “intensive” training program

EMPLOYEE INITIATIVE PROGRAMS • Store Leadership Program – Home Depot is actively recruiting leadership EMPLOYEE INITIATIVE PROGRAMS • Store Leadership Program – Home Depot is actively recruiting leadership candidates – Associates are able to manage a store after two years of extensive training • E-Learning – Web-based curriculum – Teaches product knowledge with two terminals per store • Human Resource Professionals – 1, 400 new members (on-staff human resource professionals) – Ensures that every store is an employee-centered workplace

STRATEGIC PARTNERSHIP • National Hiring Partnership • U. S. Department of Labor – Recruit, STRATEGIC PARTNERSHIP • National Hiring Partnership • U. S. Department of Labor – Recruit, screen, refer, and prepare unemployed or dislocated workers for job opportunities

COMPETITIVE ENVIRONMENT • The Home Depot operates in an environment characterized by monopolistic competition COMPETITIVE ENVIRONMENT • The Home Depot operates in an environment characterized by monopolistic competition – Many firms (retailers) in the industry – Well-differentiated products are exchanged • Products can be differentiated from competing offerings on the basis of price, quality, or other features • All participants have some control over price – Firms involved can easily enter and exit the market without restriction – The success of sellers often attracts new competitors to the market

COMPETITION • Lowe’s, Inc. – – 2 nd largest home improvement retailer in the COMPETITION • Lowe’s, Inc. – – 2 nd largest home improvement retailer in the world More than 1025 stores across 45 states $30. 8 billion retailer Fortune Magazine’s 2003 and 2004 Most Admired Specialty Retailer • Sherwin-Williams Co. – Stores in 50 states, Canada, and parts of Latin America – A global producer with a core business in the sale of coatings and related products* – One of the world’s leading companies in the manufacturing, distribution, and sale of core business to various customers* * = Architectural coatings, industrial finishes, and associated supplies; professional, industrial, commercial, and retail customer

INTEGRATION STRATEGY • Vertical Integration – Forward Integration • Increased openings of their own INTEGRATION STRATEGY • Vertical Integration – Forward Integration • Increased openings of their own freestanding homedécor stores – Home Depot plans on opening 200 EXPO Design Center stores by 2005 • Web sites used to sell products directly to customers – Home Depot warned its suppliers not to compete with them in selling products online

INTENSIVE STRATEGY • Market Penetration – Home Depot is attempting to further increase its INTENSIVE STRATEGY • Market Penetration – Home Depot is attempting to further increase its market share for its products and services in the current market through greater marketing efforts • Attempting to attract an international client base

ADAPTATION STRATEGIES • Innovation – Next. Gen • Technology used to manage customer home ADAPTATION STRATEGIES • Innovation – Next. Gen • Technology used to manage customer home improvement jobs • Market Development – Pro Set • A desk for contractors staffed by licensed plumbers, electricians, and other professionals – New Store Formats • Refashioning stores – Brighter lights – Fewer products stacked – Better signs

ADAPTATION STRATEGIES • Acquisitions (recent) – Total HOME • Acquired in 2001 – Georgia ADAPTATION STRATEGIES • Acquisitions (recent) – Total HOME • Acquired in 2001 – Georgia Lighting, Inc. • Acquired in 1999 • Corporation Transformation – Home Depot does not plan on changing its form of business

CORPORATE LEVEL STRATEGIES Retrenchment Stability CORPORATE LEVEL STRATEGIES Retrenchment Stability

FINANCIAL INFORMATION • December 6, 2004 – Open: $41. 59 – Close: $42. 00 FINANCIAL INFORMATION • December 6, 2004 – Open: $41. 59 – Close: $42. 00 – Change (from yesterday’s close): + $0. 20 – High: $42. 18 – Low: $41. 586

FINANCIAL INFORMATION • • • P/E Ratio: 18. 90 Earnings/Share: $2. 21 Dividend/Share: $0. FINANCIAL INFORMATION • • • P/E Ratio: 18. 90 Earnings/Share: $2. 21 Dividend/Share: $0. 34 52 Week High: $44. 30 52 Week Low: $32. 34

FINANCIAL INFORMATION • Financial Summary for 2003 (in millions) – – – Net Sales: FINANCIAL INFORMATION • Financial Summary for 2003 (in millions) – – – Net Sales: $64. 8 billion (11. 3% increase from 2002) Net Earnings: $4. 3 billion (17. 5% increase from 2002) Gross Profit: $20. 6 billion Diluted EPS: $1. 88 Assets: $34 billion Cash: $2. 9 billion • 1 st Quarter FY 2004 Performance – – – – Revenue: $17. 6 (16. 2% increase from 2003) Gross Profit: $5. 8 billion Earnings: $1. 1 billion (21% increase from 2003) Cash: $4. 3 billion Total Assets: $38 billion Customer Transactions: 316 million New Stores: 33

FINANCIAL INFORMATION Information from December 6, 2004 FINANCIAL INFORMATION Information from December 6, 2004

FINANCIAL INFORMATION Information from most recent quarter (last three months) FINANCIAL INFORMATION Information from most recent quarter (last three months)

FINANCIAL INFORMATION Information from most recent year (12/2003 through 12/2004) FINANCIAL INFORMATION Information from most recent year (12/2003 through 12/2004)

FINANCIAL INFORMATION Information from the last five years FINANCIAL INFORMATION Information from the last five years

GROWTH TARGETS • 2004 – 10%-12% sales growth – 13%-16% earnings growth – Overall GROWTH TARGETS • 2004 – 10%-12% sales growth – 13%-16% earnings growth – Overall capital spending forecast of $3. 7 billion – Plan to spend $1 billion to support Home Depot’s Modernization Program

REPUTATION • Media – Good community relations • Charitable contributions • Financial Community – REPUTATION • Media – Good community relations • Charitable contributions • Financial Community – Consistently has solid balance sheets – Favorable ratings – Is expected to significantly outperform the market over the next six months with very low risk

SWOT ANALYSIS • Strengths – World’s largest home improvement retailer – Second largest retailer SWOT ANALYSIS • Strengths – World’s largest home improvement retailer – Second largest retailer in the United States – Ranked 13 th on the Fortune 500 – $64. 9 billion company – In the Fortune 500, ranked 5 th in Growth Sales out of the Top 13 Companies • Weaknesses – Relative inexperience of current CEO, Bob Nardelli, in this market – First time in history that it is without any of its founding fathers – Company’s size (1, 740 stores and a new one opening every 43 hours)

SWOT ANALYSIS • Opportunities – Advertising – New distribution centers • Positions high-velocity oversized SWOT ANALYSIS • Opportunities – Advertising – New distribution centers • Positions high-velocity oversized products closer to stores • Shipments will move direct-to-store without burdening the existing warehouse network – Implementation of new operating practices • SOAR (Strategic Operating and Resource Planning Process) – Focuses on expanding growth horizons by integrating industry and economic data into the business model • SPI (Service Performance Improvement) – Serve customers while store is open, and unload and restock after hours • Threats – Competitors • Lowe’s • Sherwin-Williams

TURNAROUND STRATEGIES • • Quality versus Quantity Temporary retrenchment Better trained staff Improve overall TURNAROUND STRATEGIES • • Quality versus Quantity Temporary retrenchment Better trained staff Improve overall organizational structure Remember humble beginnings Surveys Marketing Mix – – Product Price Promotion Place • Physical Distribution of products