Docstoc

Home Retail Businesses

Document Sample
Home Retail Businesses Powered By Docstoc
					                             2005
A Strategic Management Case Study


                                                                        1

®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
                        Overview
•   A brief history of The Home Depot             •Possible alternative
•   EOY 2004                                      strategies
      – Mission, Vision, Objectives, Strategies   •Our Recommendation
•   2005                                                –Strategies
      – New Vision and Mission                          –Long range
•   External Analysis                                   objectives
      – Opportunities & Threats                         –EPS/EBIT
      – CPM                                       •Implementation Issues
      – EFE                                       •Proposed annual
•   Internal Analysis                             objectives (goal) and
      – Financial Data                            polices
      – Strengths and weaknesses                  •Proposed procedures
                                                  for evaluation
      – IFE                                       •Epilogue
      – Financial ratios                          •Current Performance
•   Strategic Analysis                            •Resources Utilized
      – SWOT Matrix                               •Questions
      – SPACE
      – BCG
      – IE matrix
      – Grand Strategy Matrix
      – Matrix Analysis
      – QSPM

                                                                            2

    ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
  History of the Home Depot
• 1978 Founded by Bernie Marcus and Arthur Blank; zero locations; 20
       associates
• 1979 3 store location; 200 associates; $7 million in sales
• 1980 4 stores; 300 associates; $22 million in sales
• 1981 Stock goes public on NASDAQ, raising $4.1 million; 8 stores; 700
       associates; $51 Million in sales
• 1984 Moved to the New York Stock Exchange (NYSE) in
• 1986 Sales exceed $1 billion; 60 stores
• 1987 Day-in/Day-out pricing policy; UPC scanning system; health
       program for associates introduced; 75 stores; $1.45 billion sales
• 1988 Named retailer of the Year by Building Supply Home centers for
       second time; named High Performance Retailer for 7th consecutive
       year by Management Horizons; 96 stores; $2 billion in sales




                                                                                   3

           ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
  History of the Home Depot
• 1994 The company arrived in Canada with the acquisition of
       Aikenhead’s home improvement centers
• 1997 624 stores; 124,000 associates; $24.2 billion sales
• 1999 The Legend opened in the Atlanta Store Support Center; chronicles
       the history of The Home Depot and illustrates the values that set us
       apart
• 2001 Began flying its flag proudly in Mexico in 2001 through the
       acquisition of Total HOME
• 2002 1,532 stores; 300,000 associates; $58.3 billion in
       sales
• 2003 $64.8 billion in sales
• 2004 Sales reach 73.1 billion; over 1,818 stores and 54 EXPO centers
       making Home Depot the world’s largest home improvement
       retailer, 2nd largest retailer in the United States, 3rd largest retailer
       in the world



                                                                                    4

            ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
                     2004 Mission
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. We are a
values-driven company and our eight core values include the
following:
• Excellent customer service
• Taking care of our people
• Giving back
• Doing the "right" thing
• Creating shareholder value
• Respect for all people
• Entrepreneurial spirit
• Building strong relationships



                                                                                5

        ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
              Giving Back
       In 2004 Home Depot committed to its first
         ever week of service. 260,000 volunteers
        hours were donated by 34,500 associates.
       Completing 1,600 service projects. Due to
        its success we have decided to make it an
                      annual event.




                                                                        6

®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
2004 Strategies and objectives
 • Approximately $1 billion is being
   invested in infrastructure
   – Self check out computers
   – Product scanning devices
 • 175 new stores in North America
 • Modernize current stores



                                                                             7

     ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
                   2004 Issues
• Strong competition with Lowe’s is
  driving down prices
• Contractor shortages causing a backlog
  in home remodeling
• A class-action lawsuit alleges that
  Home Depot and rival Lowe's misled
  customers with interest-deferred credit
  card promotions in 2003

                                                                            8

    ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
            Exclusive Brands
•   The Home Depot carries several exclusive brands, including:
•   BEHR Paint
•   Chem-Dry (carpet cleaning, upholstery cleaning, tile and grout services)
•   Distinctions Cabinetry
•   Eco Options (store brand)
•   Feather River Doors
•   G.E. (Water Heaters)
•   Glacier Bay (faucets and bath)
•   Hampton Bay (lighting, ceiling fans & patio furniture)
•   Husky (tools)
•   Millstead
•   Pegasus (kitchen and bath items)
•   Ralph Lauren paint
•   Ryobi (power tools)
•   Thomasville cabinetry
•   Vigoro (fertilizer)
•   Workforce

                                                                                9

        ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Creating a worldwide presence

   Add the end of 2004 we had 44
 stores in Mexico and 117 in Canada




                                                                             10

     ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
                   A New Vision



     To be the first choice for affordable,
diverse, innovative, and modern products in
     the home improvement industry.




                                                                              11

      ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
               A New Mission

      The Home Depot’s mission is to be a superior retailer in the home
improvement business by providing an extensive range of products
worldwide. (2,3,7) We offer first-rate customer service to all home
owners and businesses, from housewives to contractors. (1) The Home
Depot values its relationship with it’s employees, shareholders,
customers, and the community as well as the environment and
maintains a high level of respect for all. (6,8,9) These relationships are
maintained through vast community involvement and a dedication to
increasing our presence internationally, thereby providing to those in
need and increasing profits to our shareholders. (4, 6,5) We utilize
technological advancements to assist in our growth and further
develop our innovated stores. (4)




                                                                            12

    ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
The home DepoT’s mission
The new mission answers the following questions
1.   Customers: Who are the firm’s customers?
2.   Products or services: What are the firm’s major products?
3.   Markets: Geographically, where does the firm compete?
4.   Technology: Is the firm technologically current?
5.   Concern for survival, growth, and profitability: Is the firm
     committed to growth and financial soundness?
6.   Philosophy: What are the basic beliefs, values, aspirations, and
     ethical priorities of the firm?
7.   Self-concept: What is the firm’s distinctive competence or major
     competitive advantage?
8.   Concern for public image: Is the firm responsive to social,
     community, and environmental concerns?
9.   Concern for employees: Are employees a valuable asset of the firm?




                                                                              13

      ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
   External Audit: Opportunities
•International expansion
•Consumer interest in one-stop shopping to save time and gas money
•Growth in global sourcing
•Hardware stores, home centers, and retail-oriented lumberyards, industry
expected to grow (from $236.3 billion in 2004 to $281.7 billion by 2008)
•Slow housing sales (people are likely to stay home and spend money on
remodeling and on improvements to make a home more attractive to
purchase)
•The growing number of woman who are making home improvement
decisions and spending an increasing amount of time on DIY (do-it-yourself)
projects



                                                                                   14

           ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
    External Audit: Threats
•   Competitors (Lowe's, Sears, Wal-Mart)
•   Reaching market saturation within North America
•   Contractor shortage causing backlog in home remodeling
•   Overlap between Home Depot and Lowe's
•   A class-action lawsuit alleges that Home Depot and rival Lowe's
    misled customers with interest-deferred credit card promotions in
    2003




                                                                                   15

           ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
              The Home Depot CPM
                                         Home Depot                   Lowe's                 Wal-Mart
                            Weights      Rating       Weighted    Rating       Weighted    Rating       Weighted
 Critical Success factors
                            0.0 to 1.0   1 to 4        Score      1 to 4        Score      1 to 4        Score
Market Share                      0.10            3         0.3            2         0.2            4        0.40
Inventory system                  0.07            4        0.28            3        0.21            3        0.21
Financial position                0.07            2        0.14            4        0.28            4        0.28
Product quality                   0.09            3        0.27            3        0.27            2        0.18
Consumer loyalty                  0.05            4        0.20            4        0.20            3        0.15
Sales distribution                0.07            4        0.28            2        0.14            4        0.28
Global expansion                  0.11            3        0.33            3        0.33            4        0.44
Organization structure            0.08            3        0.24            3        0.24            3        0.24
Production capacity               0.05            3        0.15            3        0.15            4        0.20
E-commerce                        0.08            3        0.24            2        0.16            4        0.32
Customer service                  0.06            4        0.24            3        0.18            2        0.12
Price competitive                 0.07            3        0.21            3        0.21            4        0.28
Management experience             0.10            4         0.4            3        0.30            3        0.30
Totals                               1                    3.28                     2.87                       3.4



                                                                                                         16

              ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
                The Home Depot EFE
                                                                           Weights      Rating   Weighte
                          Key External Factors
                                                                           0.0 to 1.0   1 to 4   d Score
Opportunities
International Expansion                                                          0.1         4       0.4

Consumer interest in one-stop shopping to save time and gas money                0.1         4       0.4
Growth in global sourcing                                                       0.08         4      0.32
Payback from IT Investment                                                      0.05         3      0.15
Hardware store, home centers, and retail-oriented, lumberyards, industry
expected to grow (from 236.3 billion in 2004 to 281.7 billion in 2008)          0.08         4      0.32
Slow housing sales (people are most likely to stay home and spend
money on remodeling and on improvements to make a home more
attractive to purchase                                                          0.07         2      0.14
Growing number of women who are making home improvement decisions
and spending an increase amount of time on DIY (Do-it-yourself) projects        0.09         4      0.36
Threats                                                                                                0
Competitors (Lowes's, Sears, Wal-Mart)                                           0.1         3       0.3
Reaching market saturation within North America                                 0.07         4      0.28
Contractor shortage causing backlog in home remodeling                          0.07         2      0.14
Overlap between Home Depot and Lowe's                                           0.07         3      0.21
A class-action lawsuit alleges that Home Depot and rival Lowe's misled
customers with interest-deferred credit card promotions in 2003                 0.06         2      0.12
Industry slowdown                                                               0.06         3      0.18
Totals                                                                             1             17 3.32

               ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Consolidated Balance Sheet




                                                                           18

   ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Consolidated Balance Sheet




                                                                           19

   ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Consolidated Statement of cash flows




                                                                             20

     ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Internal Audit: Strengths
• #1 home improvement retailer in the world
• #2 retailer in the U.S.
• Profits climbed 16% and revenues climbed 13%
  in for the fiscal year 2004
• Innovative methods of differentiating
• Dominant in the lumber and building materials
  industry
• Distinctive product range
• Efficient business model


                                                                              21

      ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Internal Audit: Weaknesses
• Rising expenses
• Store layout and appearance
• New store productivity remains weak
• Revenue growth is slower than industry
  average and Lowe's
• 18% decrease in cash and cash equivalents
  FY from 2002 and 2003 to 2004



                                                                             22

     ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
                     The Home Depot IFE
                                                                       Weights       Rating       Weighted
                            Key Internal Factors
                                                                                                     Score
                                                                      0.0 to 1.0   1, 2, 3 or 4
Internal Strengths                                                                   3 or 4
#1 home improvement retailer in the world                                   0.12              4           0.48
#2 retailer in the U.S.                                                     0.09              4            0.4
Profits climbed 16% and revenues climbed 13% in for the fiscal year
    2004                                                                    0.07              4           0.32
Innovative methods of differentiating                                       0.08              4           0.32
Dominant in the lumber and building materials industry                      0.08              3           0.24
Distinctive product range                                                   0.04              3           0.12
Efficient business model                                                     0.1              4            0.4
Internal Weaknesses                                                                  1 or 2
Rising expenses                                                              0.1              2            0.2
Store layout and appearance                                                 0.06              2           0.12
New store productivity remains weak                                         0.11              1           0.12
Revenue growth is slower than industry average and Lowe's                   0.07              2           0.16
18% decrease in cash and cash equivalents FY from 2002 and 2003 to
   2004                                                                     0.08              2           0.16
                                                                                                  23
                                Totals                                    1                            3.04
                  ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Financial Ratio Analysis
                FIRM                     FY 2004        FY 2003
                LIQUIDITY RATIOS

                Current Ratio              1.3 times     1.4 times
                Quick Ratio                0.4 times     0.4 times
                LEVERAGE RATIOS

                Debt to Total Assets          37.9%         34.9%
                Times Interest Earned    114.0 times   111.4 times
                ACTIVITY RATIOS

                Inventory Turnover         7.3 times    14.3 times
                Ave. Collection Period      7.5 days      3.1 days
                Fixed Assets Turnover      3.0 times     6.1 times
                Total Assets Turnover      1.9 times     3.8 times
                PROFITABILITY RATIOS

                Profit Margin on Sales         6.8%          6.6%
                Return on Total Assets        12.9%         25.0%
                Return on Net Worth           20.7%         38.4%




                                                                          24

  ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Financial Ratio Analysis
      FIRM                         HD         Lowe's       Wal-Mart
      LIQUIDITY RATIOS

      Current Ratio              1.3 times    1.2 times    0.9 times
      Quick Ratio                0.4 times    0.2 times    0.2 times
      LEVERAGE RATIOS

      Debt to Total Assets          37.9%        45.6%        58.4%
      Times Interest Earned    114.0 times   21.1 times   17.6 times
      ACTIVITY RATIOS

      Inventory Turnover         7.3 times   12.2 times    9.6 times
      Ave. Collection Period      7.5 days     0.0 days     1.8 days
      Fixed Assets Turnover      3.0 times    5.1 times    3.6 times
      Total Assets Turnover      1.9 times    3.4 times    2.4 times
      PROFITABILITY RATIOS

      Profit Margin on Sales         6.8%         6.0%         3.5%
      Return on Total Assets        12.9%        20.5%         8.6%
      Return on Net Worth           20.7%        37.7%        20.8%




                                                                          25

  ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
          Financial Ratio Analysis
                               Home Depot     Electronics &    Home Centers    Hardware       Other           Lawn &
                                              Appliances       (Paint &        Stores         Building        Garden Equi.
                                              Stores           Wallpaper                      Material        & Supplies
                                                               Stores)                        Dealers         Stores
FINANCIAL RATIOS


LIQUIDITY RATIOS

  Current Ratio                   1.3 times        1.6 times       1.1 times      3.1 times       2.2 times       1.8 times
  Quick Ratio                     0.4 times        0.6 times       0.8 times      1.1 times       1.2 times       0.5 times
LEVERAGE RATIOS

  Debt to Total Assets               37.9%            59.4%           48.1%          39.2%           54.3%           59.6%
  Times Interest Earned                   -                -               -              -               -               -
ACTIVITY RATIOS

  Inventory Turnover              7.3 times        7.6 times       5.1 times      3.6 times       7.4 times       3.9 times
  Ave. Collection Period                  -                -               -              -               -               -
  Fixed Assets Turnover                   -                -               -              -               -               -
  Total Assets Turnover           1.9 times        2.6 times       0.9 times      2.3 times       2.9 times       2.7 times
PROFITABILITY RATIOS

  Profit Margin on Sales              6.8%             4.7%            8.7%           4.1%            4.2%            2.8%
  Return on Total Assets             12.9%            13.0%            8.0%          10.6%           13.5%            9.1%
  Return on Net Worth                20.7%            23.7%           10.0%          14.4%           23.8%           18.1%




                                                                                                                   26

                   ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
     Financial Trends
(January 1999-January 2005)
                                    Avg P/E   Price/ Sales   Price/ Book   Net Profit Margin (%)
                            01/05   16.70     1.23           3.65          6.8
                            02/04   16.70     1.25           3.57          6.6
                            02/03   22.40     0.84           2.42          6.3
                            02/02   35.50     2.17           6.41          5.7
                            01/01   46.20     2.30           6.93          5.6
                            01/00   46.60     3.39           10.39         6.0
                            01/99   40.20     3.09           10.19         5.3

        Book Value/ Share   Debt/ Equity      Return on Equity (%)          Return on Assets (%)   Interest Coverage
01/05   $11.06              0.09              20.7                          12.8                   113.2
02/04   $9.93               0.06              19.2                          12.5                   110.4
02/03   $8.64               0.07              18.5                          12.2                   157.6
02/02   $7.71               0.07              16.8                          11.5                   176.1
01/01   $6.46               0.10              17.2                          12.1                   199.6
01/00   $5.36               0.06              18.8                          13.6                   92.9
01/99   $3.95               0.18              18.5                          12.0                   58.0
                       Financial data in U.S. dollars
                    Industry: Home Improvement Stores
                                                                                                                27

            ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
         The Home depot stock
             Performance
Source: moneycentral.msn.com
Dividends (    )
Splits (    )




                                                                                  28

          ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
          The Home depot Net Worth
(January 2005, in Millions of U.S. Dollars Except Per Share items)



  1. Stockholders’ Equity + Goodwill = $24,158 + $1,394                          $ 25,552

  2. Net Income x 5 = $5,001 x 5=                                                $ 25,005

  3. Share price = *$40.41/EPS(2.26) = 17.88 x Net Income $5,001 =               $ 89,418

  4. Number of Shares Outstanding x Share Price = 2,159 x $40.41= $ 87,245

  Method Average                                                                 $ 56,805



          *Stock price is based on a closing price at 1/28/2005 from finance.yahoo.com




                                                                                            29

             ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
   Strategic Analysis: SWOT
           Matrix
                                          Strengths – S                                 Weaknesses – W
                                          1. #1 home improvement retailer in the        1.  Rising expenses
                                               world / #2 retailer in U.S.              2.  Store layout and appearance
                                          2. Profits climbed 16% / revenues 13%         3.  New store productivity remains weak
            Home Depot                         in 2004                                  4.  Revenue growth is slower than
           SWOT Matrix                    3. Innovative methods of differentiating          industry average and Lowe’s
                                          4. Dominant in lumber/building                5.  18% decrease in cash and cash
                                               materials industry                           equivalents from 2002 to 2004
                                          5. Efficient business model

Opportunities – O                         SO Strategies                                 WO Strategies
1.   International expansion              1. Open stores in Europe or Asia-Pacific      1.  Expand product line to other areas
2.   Consumer interest in one-stop             markets (S2, S5, O1, O5)                     (W3, W4, O2, O6)
     shopping                             2. Buy out Kingfisher or OBI to expand        2.  Sell wider variety of products online
3.   Growth in global sourcing                 into those markets (S2, S5, T1, O5)          (W1, W2, W4, O1, O3, O7)
4.   Payback from IT investment           3. Experiment with different check-out        3.  Open Stores in Europe or Asia-
5.   Select industries expected to grow        methods (S3, S5, O2, O7)                     Pacific markets (W4, O1, O5, O6)
6.   Slow housing sales (more             4. Add more options such as fuel
     remodeling)                               centers or convenience stores (S2, S3,
7.   More “do it yourself” women               S5, O2, O5)
Threats – T                               ST Strategies                                 WT Strategies
1.   Competitors (Wal-mart, Sears,        1. Increase market share by buying out        1.  Open stores in every large U.S.
     Lowe’s)                                   Menard Inc., True Value, or Ace              market (W3, W4, T6)
2.   North American market saturation          Hardware (S2, S5, T1)                    2.  Open Stores in Europe or Asia-
3.   Contractor shortage / backlog in     2. Open stores in Europe or Asia Pacific          Pacific markets (W3, W4, T2, T6)
     home remodeling                           markets (S2, S5, T2, T6)                 3.  Supply contractors working in
4.   2003 Lawsuit                                                                           Middle East reconstruction efforts
5.   Overlap between H.D. and Lowe’s                                                        (W4, T1, T2, T3, T6)



                                                                                                                                 30

           ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Strategic Analysis: Space
        Matrix
   Financial Strength                    rating is 1 (worst) to 6 (best)                Ratings
        1   Cash Flow                                                                       3.0
        2   Working Capital                                                                 4.0
        3   Liquidity                                                                       4.0
        4   Return on Net Worth                                                             4.0
        5   Net income                                                                      5.0
   Industry Strength                     rating is 1 (worst) to 6 (best)     FS Total      20.0
        1   Growth Potential                                                                5.0
        2   Profit Potential                                                                6.0
        3   Slow Housing Sales                                                              3.0
        4   Financial Stability                                                             4.0
        5   Contractor Shortage                                                             3.0
   Environmental Stability               rating is -1 (best) to -6 (worst)   IS Total      21.0
        1   Competitive Pressure                                                           -4.0
        2   Increase in Fuel Prices                                                        -3.0
        3   Rate of Inflation                                                              -2.0
        4   Exchange rates                                                                 -2.0
        5   Technological Changes                                                          -1.0
   Competitive advantage                 rating is -1 (best) to -6 (worst)   ES Total     -12.0
        1   Market Share                                                                   -1.0
        2   Real Estate Ownership (own 86% its stores)                                     -2.0
        3   Highly knowledgeable and Service-Oriented personel                             -3.0
        4   Efficient Business Modle                                                       -1.0
        5   Distincitive Product Range                                                     -3.0
                                                                                                  31
                                                                             CS total     -10.0
 ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
     Strategic Analysis: Space
             Matrix
Home Depot has achieved moderate competitive advantages and financial
strength in a growing and stable industry.




                                                                                  32

          ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
  Strategic Analysis:
Grand Strategy Matrix




                                                                        33

®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Strategic Analysis: IE Matrix




                                                                           34

   ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Strategic Analysis: BCG Matrix




                                                                            35

    ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
                      Matrix Analysis
Alternative Strategies    BCG          IE              SPACE          GRAND            COUNT
Forward Integration       X            X               X              X                4
Backward Integration      X            X               X              X                4
Horizontal Integration    X            X               X              X                4
Market Penetration        X            X               X              X                4
Market Development        X            X               X              X                4
Product Development       X            X               X              X                4
Related Diversification                                X              X                2
Unrelated                 X                            X
Diversification                                                                        2
Joint Venture                                                                          0
Retrenchment                                                                           0
Divestiture                                                                            0
Liquidation                                                                            0




                                                                                           36

               ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
                  The Home Depot QSPM
                                                                                     Domestic              Global                Fuel
                        Key External Factors                                         Expansion            Expansion            Centers
                                                                         Weight     AS      TAS          AS      TAS          AS      TAS
Opportunities                                                                      1 to 4               1 to 4               1 to 4
International Expansion                                                    0.10             2   0.20             4   0.40             1   0.10
Consumer interest in one-stop shopping to save time and gas money          0.10             2   0.20             2   0.20             4   0.40
Growth in global sourcing                                                  0.08             1   0.08             4   0.32             1   0.08
Payback from IT Investment                                                 0.05             2   0.10             3   0.15             2   0.10
Hardware store, home centers, and retail-oriented, lumberyards,
industry expected to grow (from 236.3 billion in 2004 to 281.7 billion     0.08             3   0.24             3   0.24             2   0.16
Slow housing sales (people are most likely to stay home and spend
money on remodeling and on improvements to make a home more                0.07             4   0.28             2   0.14             3   0.21
Growing number of women who are making home improvement
decisions and spending an increase amount of time on DIY (Do-it-           0.09             1   0.09             1   0.09             1   0.09
Threats
Competitors (Lowes's, Sears, Wal-Mart)                                     0.10             4   0.40             2   0.20             3   0.30
Reaching market saturation within North America                            0.07             3   0.21             1   0.07             2   0.14
Contractor shortage causing backlog in home remodeling                     0.07             3   0.21             3   0.21             1   0.07
Overlap between Home Depot and Lowe's                                      0.07             4   0.28             2   0.14             2   0.14
A class-action lawsuit alleges that Home Depot and rival Lowe's
misled customers with interest-deferred credit card promotions in          0.06             2   0.12             1   0.06             2   0.12
Industry slowdown                                                          0.06             4   0.24             3   0.18             2    0.12
                                                   total should be 1.0         1                 2.29                  2.4                 2.03

                                                                                                                                  37

                     ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
                  The Home Depot QSPM
                                                                                      Domestic              Global                Fuel
                     Key Internal Factors
                      Key External Factors                                            Expansion            Expansion            Centers
                                                                        Weight       AS      TAS          AS      TAS          AS      TAS
Strengths                                                                         1 to 4               1 to 4               1 to 4
#1 home improvement retailer in the world                                 0.12             3   0.36             4   0.48             2    0.24
#2 retailer in the U.S.                                                   0.09             4   0.36             2   0.18             3    0.27
Profits climbed 16% and revenues climbed 13% in for the fiscal year
2004                                                                      0.07             3   0.21             4   0.28             3    0.21
Innovative methods of differentiating                                     0.08             4   0.32             3   0.24             2    0.16
Dominant in the lumber and building materials industry                    0.08             4   0.32             4   0.32             2    0.16
Distinctive product range                                                 0.04             2   0.08             3   0.12             2    0.08
Efficient business model                                                  0.10             2   0.20             2   0.20             2    0.20
Weaknesses
Rising expenses                                                           0.10             3   0.30             4   0.40             3    0.30
Store layout and appearance                                               0.06             2   0.12             2   0.12             3    0.18
New store productivity remains weak                                       0.11             3   0.33             3   0.33             2    0.22
Revenue growth is slower than industry average and Lowe's                 0.07             4   0.28             3   0.21             2    0.14
18% decrease in cash and cash equivalents FY from 2002 and 2003 to
2004                                                                      0.08             3   0.24             4   0.32             2    0.16
                                                  total should be 1.0         1                 3.12                  3.2                  2.32
                                                                                               5.41                  5.6                  4.35


                                                                                                                                     38

                     ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
           Possible Alternative
                Strategies
• Forward integration: As a retail outlet, Home Depot can acquire
  major distributors of plumbing equipment, construction
  equipment, and other Home Depot product related distributors.
• Backward Integration: As a retail outlet, Home Depot can acquire
  its major suppliers of Home Depot supplies such as installation
  services, steel mills, and logging companies of their own thus
  creating a supply that suits their quality, and amount that they
  need.
• Horizontal integration: Home Depot can acquire other home
  improvement companies taking greater control of the industry,
  and gaining more control in various regions.



                                                                                  39

          ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
          Possible Alternative
               Strategies
• Market Development: Home Depot mainly targets self builder
  construction companies and baby boomers. Home Depot can
  develop a market for newly weds, and new home owners who
  may want to improve their newly purchased home.
• Market Penetration: Go after Lowe’s, Ace Hardware and True
  Value’s market share




                                                                                 40

         ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
             Recommendations
• Strategy 1
Domestic Expansion
Open up more full service hardware stores throughout the united states
thus creating a presence in all areas within a state. Goal would be to have
at least 5 Home Depots per state, averaging 10 new stores per quarter. This
will make Home Depot a one stop shop for individual customers and
businesses alike.

Estimated cost of such an expansion:
$4 million per store
10 stores = $40 Million



                                                                                  41

          ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
              Recommendations
• Strategy 2
International Expansion
Acquire European home improvement company Kingfisher plc.
By acquiring this company, we will create a presence in Europe. This
will also give us presence and possession of companies that are part of the
Kingfisher group such as B&G (UK: Ireland: China: Taiwan and Hong
Kong), Brico Depot (France and Spain), Castorama (France: Italy: Poland
and Russia) Hombach Holding AG (21% Kingfisher stake), KOCTAS
(Turkey, and Screwfix Direct Ltd (England).

Estimated cost for such an acquisition: $10 Billion



                                                                                  42

          ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
             Recommendations
• Strategy 3
Provide fuel services
Aside from being a home improvement store, Home Depot will have filling
stations at select Home Depot stores. This will create a one stop shop for
customers, and businesses providing fuel, food, and other quick stop
necessities.

Estimated cost: 8 million




                                                                                  43

          ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
                     EPS/EBIT


Ammount Needed                               $10,000.00
                            Low       Normal      High
EBIT Range
                          $4,000       $8,000 $12,000 All amounts are in
Interest Rate                                       5% millions except for
Tax Rate                                           36% percentages and stock
Stock Price                                      $40.00        price.
# Shares                                             2,100
Outstanding




                                                                         44

 ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
                         EPS/EBIT
             Common
              Stock                              Debt
               Low     Normal        High        Low     Normal        High
  EBIT        4,000.00 8,000.00     12,000.00   4,000.00 8,000.00     12,000.00
  Interest           -        -             -     500.00   500.00        500.00
  EBT         4,000.00 8,000.00     12,000.00   3,500.00 7,500.00     11,500.00
  Tax         1,440.00 2,880.00      4,320.00   1,260.00 2,700.00      4,140.00
  EAT         2,560.00 5,120.00   7,680.00      2,240.00 4,800.00   7,360.00
  # Shares       2,400    2,400       2,400        2,100    2,100      2,100
  EPS             1.07      2.13       3.20         1.07      2.29      3.50
                 70% Stock - 30% Debt              30% Stock - 70% Debt
               Low     Normal      High          Low     Normal     High
  EBIT        4,000.00 8,000.00 12,000.00       4,000.00 8,000.00 12,000.00
  Interest      150.00     150.00      150.00     350.00     350.00      350.00
  EBT         3,850.00   7,850.00   11,850.00   3,650.00   7,650.00   11,650.00
  Tax         1,386.00   2,826.00    4,266.00   1,314.00   2,754.00    4,194.00
  EAT         2,464.00   5,024.00    7,584.00   2,336.00   4,896.00    7,456.00
  # Shares       2,275      2,275       2,275      2,175      2,175       2,175
  EPS             1.08       2.21        3.33       1.07       2.25        3.43


                                                                                  45

®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
  Implementation Issues
• Importing goods overseas
• Dealing with changes in supply chain with
  distributors
• Dealing with new cultures
  – Customers
  – Employees
• Environmental issues and regulations
• Hostile takeover
  – Hesitancy of KingFisher to sell



                                                                            46

    ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Proposed Annual Objectives
    (goal) and Policies
• Increase sales revenues by 20% annually for the next 3 years
• Reduce expenses by 20% annually for the next 3 years
    − by 10% in selling and store operating costs
    − by 10% in general and administrative costs
• New capital expenditure priorities; not over investing in a
  maturing business
    – 90% reduction in a new store development in domestic
    – 40% increase in remodeling older stores and upgrading IT
      systems
    – 50% increase in international expansion
                                                                              47

      ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
 Proposed Procedures For
       Evaluation
• Track competitors’ price changes
• Company ranking
  – SAP Top 100 retailers
  – Business Week
  – Fortune
• Quarterly financial reports
• Quarterly meetings to evaluate current plan
  and respond as necessary to changes

                                                                            48

    ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
                              Epilogue
• 2005 launches its high-end online home-furnishings store, 10 Crescent
       Lane, shortly followed by the launch of Paces Trading Company,
       its high-end online lighting store.
• 2005 Former employee Michael Davis filed a whistleblower lawsuit
       against the Home Depot, alleging that his discharge was in
       retaliation for refusing to make unwarranted charge backs against
       vendors.
• 2006 the Home Depot acquired Home Decorators Collection which was
       placed as an additional brand under its Home Depot Direct
       Division; Sales totaled US$90.8 billion; 10% increase in revenue
• 2006 Started testing with fuel centers at some of its stores. The first
       centers are expected to earn $5-$7 million per year. The fuel centers
       sell beer, hot food, snacks along with providing diesel at a separate
       island. This allows contractors with large trucks to be able to fill
       their vehicles. The fuel centers also offer car washes, which are
       large enough to accommodate full size pickups.
• 2007 Nardelli (CEO) was replaced by Frank Blake; sold its wholesale
       division HD Supply to a consortium of 3 private equity firms

                                                                                   49

           ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
Current Stock Performance




                                                                           50

   ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
                   Resources
• MSN Money
• CNN Money
• Almanac Business and Industry
  Financial Ratios 2008
• Edgar Online
• www.homedepot.com



                                                                           51

   ®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker
                 Questions


                ?


                                                                        52

®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

				
DOCUMENT INFO
Description: Home Retail Businesses document sample