MARKET ANALYSIS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Overall Market Size

 

The Home Depot was a pioneer in the home improvement warehouse retail business and even after more than 

twenty years, continues to maintain its leadership position in the US$ 134 billion home improvement industry. 

Although The Home Depot claims only 12% of the home improvement industry’s total market share, its 

year-end 1998 sales results  of US$30 billion dollars was still bigger than those its four leading competitors 

combined.

 

The U.S. do-it-yourselfer (DIY) market spent approximately US$100 billion in home improvement products 

for full year 1998; The Home Depot claims to capture approximately 8% of total market share of the DIY 

home improvement market. 

 

Estimated professional business customer sales across all channels in the U.S. totaled US$265 billion in 1998, 

substantially higher than the US$100 billion DIY market. Professional business customers in the home 

improvement industry include contractors, electricians, landscapers, plumbers, gardeners, remodelers  and 

property maintenance managers, to name a few. Excluding the heavy industrial sector, the majority of which is 

outside The Home Depot’s core business, the market opportunities for the company in the professional business 

customer segment total approximately US$ 215 billion. At the end of 1998, The Home Depot’s share of this 

market was less than four percent.

 

While overall market size of the home improvement retail industry will remain highly significant within the next 

few years and although The Home Depot’s share is projected to increase, its market share will still be relatively 

small versus the total market potential. The market attractiveness score, therefore, remains flat from year 

2000 to 2005: 4.

 

Annual Market Growth

 

Reflecting the demographic changes taking place within the U.S., the DIY market segment spending in home 

improvement products projected more than a 6% increase over the previous year. This all-important market 

segment  is projected to continue to grow larger in number as customers display an increasing level of comfort 

and confidence with home improvement projects every year.

 

The Home Depot initiated a formal study of the US$ 265 billion professional business customer segment in 

fiscal years 1997 and 1998. Although empirical results of the study have not been publicly released, the 

company has declared that its findings clearly indicate that its existing core business possesses the synergy to 

exploit opportunities and grow its current market share in the professional business customer market. The 

study concluded that this segment constitutes an important and growing part of the home improvement and 

housing-related businesses, thereby providing tremendous growth opportunities for The Home Depot.

 

However, market attractiveness and growth is vulnerable to macro-economic factors. The U.S. economy is 

powering ahead in the year 2000; economic indicators do show of a possibility that the U.S. Federal Reserve 

will be raising interest rates at intervals within the next few years. This could result in a decrease in business 

lending and lead to an economic slowdown. The home improvement market could be adversely affected. 

Market attractiveness could move from a value of 5 in the year 2000 to 4 in 2005.

 

Historical Profit Margin

Operating income grew by 26% to $606 million by fiscal 1998 and 17% to $457 million in fiscal 1997. 

Operating margins have shown a steady historical increase, from 24% in 1998 compared with 19% in 1997 

and 13% in 1996. The growth is attributable to higher net earnings and an increase in the overall number of 

store locations and while funding continues to support the Company’s relentless expansion of new stores, also 

reflects tighter control on total operating expenses. However, sales per individual store locations have 

historically decreased, possibly a reflection of market saturation in the home improvement sector. Market 

attractiveness moves from 5 in year 2000 to 4 in 2005.

 

Competitive Intensity

 

While The Home Depot remains firmly entrenched in its market leadership position at present, the pressure 

from its competitors is expected to intensify. As of fiscal 1998, the annual total sales of The Home Depot still 

outperformed the annual total sales of its four main competitors combined. That situation could change within 

the next few years as The Home Depot’s competition, e.g. Lowe’s, step up its efforts in areas such as 

e-commerce and home appliance retail sales, areas in which The Home Depot has not yet developed a core 

competency. While entry into the home improvement industry in 2000 might not be that attractive while The 

Home Depot remains to be such a dominant player, entry in 2005 could mean less attractive because of 

heightened competitive intensity. Market attractiveness could possibly dip from a value of 4 in year 2000 to 2

in 2005.

 

Technological Requirements

 

In line with its aggressive future growth targets, The Home Depot has realized that it needs to invest 

substantially in technology in order to maintain its market leadership position. Its technological requirements 

focus on two aspects of its business: the improvement of its value delivery network and the exploitation of 

growth opportunities offered by the Internet. From the home improvement industry perspective, technological 

requirements will definitely accelerate as the competition to increase market share intensifies within the next 

few years and as more and more home improvement retailing companies discover ways of doing business on 

the Internet. While The Home Depot will be making substantial technological investments within the next few 

years , so will its competition; consequently, market attractiveness value remains flat at 4.

 

Inflationary  vulnerability

 

While it continues expansion in markets outside the U.S. , The Home Depot could be adversely affected by 

fluctuating currency exchange rates and inflation in these markets. In addition, the threat of inflation within the 

United States could affect the stores’ everyday low prices  policy for products, as a result of the ongoing rise 

in the average absolute prices of goods in the economy. At the same time, the U.S. economy could remain 

strong, making the threat of inflation less tangible. Market attractiveness value remains flat at 2.

Energy requirements

 

The Home Depot is in the retail business, not in manufacturing, and does not require special energy requirements. 

However, the fluctuation in prices and supply of energy sources may significantly affect its manufacturing 

vendors and suppliers, which may in turn affect their business with The Home Depot.

 

Environmental Impact

 

Over the years, The Home Depot has recognized the environmental impact of its lumbe

products sales and grown increasingly committed to attaining a leadership position in
corporate environmental excellence. The first retailer to pioneer certified wood products

in the U.S., the company actively works with the Certified Forest Products Council in charting

a comprehensive policy aimed at increasing the sale and use of third-party certified forest
products and lobbies its suppliers to comply with its environmental initiatives.  New entrants into the home 

improvement industry can take advantage of the initiatives and the awareness of the impact of 

environmentally-friendly products. The market attractiveness value moves from 2 in 2000 to 3 in 2005.

Social-political-legal

There are currently no major social, political or legal issues facing The Home Depot. While it is true that the 

Company has faced and settled discrimination lawsuits with a few employees, these cases were handled 

with the minimum of publicity and seems to have no long-lasting harmful effects on the Company.

 

 

BUSINESS STRENGTHS ANALYSIS

Market Share (5 to 5)

 

Home Depot has 878 stores located in the United States, Canada, and Latin America.  It is the largest Home 

Improvement Retailer.  It has approximately 12% of the industry.   Home Depot plans to continue an aggressive 

expansion course.  All of the competition examined, Sears, Menard's, and Lowe's are all enjoying success in 

this industry.  Because of the financial strength of Home Depot, they can take a strategy of rapid growth in 

order to squeeze out the competition, particularly in large markets on the East Coast.

 

Share Growth (4 to 4)

 

Home Depot has approximately 12% of the Home Improvement industry.  This share should grow at a steady 

rate, but will not drastically be altered unless competitors merge, or Home Depot purchases a competitor.

 

Product Quality (3 to 3)

 

No change should occur here.  Home Depot offers a wide variety of products at variable prices.  One aspect 

of Home Depot's advertising slogan, "everyday low prices", gives an attractive reason to shop at this store, 

but it also gives off the impression, or perception that the prices are so low, that they must be of low quality, 

as well.  Despite this, Home Depot's actual product quality is on the rise.  This miscommunication is an issue 

that Home Depot must address.

 

Brand Reputation (5 to 5)

 

Home Depot has a brand name that will continue to be built up as the company strengthens.  Brand reputation 

is one of the most important business strengths that any Home Improvement retailer has.

 

Distribution Network (3 to 4) +

 

Home Depot should be increasing it emphasis on its Distribution Network.    The company is in currently 

focusing on buying its suppliers, so that it can control more of the value chain, such as its purchase of Apex 

Supply, a wholesaler of plumbing.  Expect more activity like this in the next five years.  Another development 

is that the company is employing EDI, or electronic date interchange, in order to maintain the best inventory 

management between its stores and suppliers.

 

Promotional Effectiveness (3 to 4) +

 

Home Depot spends more on advertising than its competitors, and is sponsoring sporting events, such as golf 

and racing.  They have identified their customers and should increase the focus on reaching potential 

Do-It-Yourselfers.

 

Productive Capacity (3 to 4) +

Productive Efficiency (3 to 4)  +

Unit Costs (2 to 3)

Material Supplies (3 to 4) +

 

With technological advances in retail speed, the increased production of its own Home Improvement goods, 

such as paints, and the advent of ecommerce, these two strengths, Productive Capacity and Productive 

Efficiency, should continue to be emphasized.  Home Depot will increase its own productive capacity and with 

the increased ownership on the value chain, the efficiency will also be increased.

 

The Unit Costs to what Home Depot produces itself will also be affected by this increased capacity and 

efficiency.  As the company continues to grow, its purchasing power will increase, and the unit price will continue 

to fall. Material Supplies’ increase is another beneficiary of these business decisions.  They all relate to each other.  

Home Depot’s own business strength make all for these measurements move up a notch in the next five years.

 

New Product & Service Development (3 to 3)

 

This research and development area should continue to be a minor business strength for the company.  

This business factor will emphasize new Home Depot products.  One particular aspect of the Home 

Improvement industry is that product innovation is readily copied and marketed by competitors.  Lowe's may 

take new product ideas from Home Depot, and Home Depot may take new product ideas from Sears.  

Home Depot is the innovator of the Home Improvement industry, but these innovation are difficult to use for 

an extended advantage because of the copying activity of the major players.

 

Managerial Personnel (4 to 5)

 

In-store personnel are the crux of the customer’s experience in the Home Depot stores.  Training and sales 

force effectiveness will continue to be emphasized over the next five years.  There is currently no 

customer-viewed differentiation between Home Depot in-store personnel, and that of some of its competitors.  

This much change and an increased business strength here needs to be put in place.

 

 

 

Product-Market Expansion Grid

  

According to the Product-Market Expansion Grid the best growth strategies for The Home Depot for 2005 are:

1.       Market-Penetration Strategy

2.       Market- Development Strategy

3.       Product-Development Strategy

 

Explanation:

 

1. Market-Penetration Strategy

 

On of the strategies that the company prefers is a heavy market penetration aimed at building a steady 

market share. 30% of all Home Depot stores is located in three areas: Florida, South California, and 

New York, New Jersey. In this way the company has built a strong entry barrier in those regions that 

prevents other home centers from entering the market. On of the ways to retain the current customer is 

the Internet. The company is confident that the Internet business will not take away from the customer 

base that shops in the store. Rather, Home Depot sees it as an opportunity to attract customers who know 

what they want and do not have time to browse in the stores.

 

Online Services

 

Even though Home Depot stayed away from E-commerce for a long time now it is making a big attempt to 

make up for its absence from the Net. One of the major advantages that the sore offers online is its manifold 

advice department aimed to individual home improvers. The range is wide from 'Fix It', 'Build It', 'Grow It' 

through 'Decorate It' to 'Install It'. Home Depot sees this department as a supplement to the real life services 

offered. What the company cannot do through its employees it wants to do through its educational department. 

After reading the step by step instructions customers should be able to complete their projects in there own 

without a need to pay an expert. Moreover, the instructions shown on Home Depot Website conform to 

national standards. And the company offers its instructions in easy to follow and enjoyable language e.g. 

'Plumbing is a lot like life' - one thing inevitably leads to another. Except in pluming it is almost never good news!

 

Market- Development Strategy

 

The emphasis in this strategy is placed on a relatively new for Home Depot market. Earlier its main target 

market consisted of professional contractors who possess necessary skills and needed only large quantities 

of supply. Now however, Home Depot with wide range of services enters a new niche. It consists if 

do-it-yourself home improvers who need guidance in choosing a product as much as in applying it later. 

Also, Home Depot sees women customers as more frequent purchasers. The need arises to re-launch its 

current products to the store’s newcomers and educate them how to use these products. Home Depot does 

that on two levels: local and international. Locally the company opened two new channels with which it can 

reach its customers: Villager’s Hardware and Expo.

 

Expo – design centers and installation service

 

Expo – a Home Depot company is a one-stop decorating destination for do-it-yourself home improvers. 

Its motto says that they are with a customer ‘100% of the way’. Starting with full service at interior design 

center, through assistance in the selection of products to contractors and installers who complete the job. 

Design services include:

 

    Kitchen and bath design, custom closet design and installation, window treatment design with in-home 

        appointments, carpet and hardwood flooring design, custom framing, lighting design, custom upholstery and 

        bedding, tile design for walls, floors, countertops, backslashes, custom glass tabletops and shelves

        Installation services include:

      Carpet, hardwood flooring, laminate flooring, ceramic tile, stone and marble, kitchens, countertops, 

        appliances, baths, custom bath and shower door enclosures, custom closets, custom shutters, custom mirrored 

        walls, faux finishing, wallpaper, window treatments, lighting.

 

The company plans to expand its services into areas still missing e.g. toilet installation.

Warranty: Expo Design Center works only with qualified, licensed and insured craftsmen. To ensure a 

complete customer’s satisfaction the company warrants the installation in writing for as long as the customer 

owns a home.

 

 Villager’s Hardware – smaller neighborhood stores

 

Another Home Depot Company geared at servicing individual do-it-yourself home improvers is Villager’s 

Hardware. Its first stores opened in June and November 1999 in New Jersey. Two additional stores are 

planned to open in 2000. This store calls itself more than a hardware store. At its Project Solution Center 

Villager’s offers a library of more than 250 ‘how-to’ and décor books, plus thee stations to view how-to videos. 

At its project Solution Theatre how-to seminars and product demonstrations are offered. There is even an 

advice channel At Tool Demo Center demonstrations on features and benefits of tools are shown. 

 

International Markets

 

After 40 stores in five Canadian provinces and its first venture in Latin America, the Home Depot is already 

planning to expand throughout the region. The first two home-improvement stores in South America opened 

in Santiago, Chile in 1998 and are reporting large volumes of sales and visitors. The store in La Florida, a 

Santiago neighborhood, sees 50,000 visitors on a normal weekend day. Three more stores are scheduled to 

open in Chile in 2000. And Home Depot will not stop there. Argentina is next and maybe Brazil and Peru 

after that. The company’s Chairman Bernard Marcus said that Home Depot would expand throughout South 

America but at an intelligent pace. ‘It took us 20 years to build what we have in the United States. We can 

wait 20 years to do it in Latin America.’The Home Depot with stores throughout the U.S., Canada, South 

America and Puerto Rico, is the world’s largest home improvement retailer that has aggressive growth 

plans. To support those plans the company intends to implement Catalyst WMS in its distribution facilities. 

Catalyst International, Inc is a leading supplier of warehouse management software.

 

3.      Product-Development Strategy

 

The Home Depot has shown the development of this strategy through balancing a wide range of products 

offered with services provided. Even though the company is established as a major supply store, it has always 

placed a great weight on services as well. As mentioned earlier, Home Depot takes all possible measures to provide the best service. All outlet associates- as the 

company names its floor customer attendants –undergo a training period to be helpful and knowledgeable. 

Simultaneously, the company works on expanding its present inventory. Presently, Home Depot carries 

16,000 appliances from General Electronics and it is adding new ones all the time. A PC based catalog in 

a store helps customers order from one of the models. Only 60% of the total number of appliances are 

stocked by Home Depot, the remaining 40% is shipped directly to people’s homes. After 2 years of 

successful testing of the new products the company decided to have appliances available in all of its stores 

by the end of the year 2000. The sale of washers, dryers, refrigerator, dishwashers, icemakers and 

water-heaters could bring Home Depot additional 1.2 billion in gross revenue. With those plans the company 

would become second biggest customer of GE after Sears.

 

 

 

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