Question

I require assistance in creating a current economic condition for Home Depot in the form of a 9 cell matrix.

Please help!!!

Answer 1

Home Depot is credited with having revolutionized the American home improvement industry. Since the recession, the company has witnessed phenomenal growth with the stock price growing by over 270% in the last five years alone. With services encompassing Do-It-Yourself, Do-It-For-Me, and Professional (Pro) customers, Home Depot has managed to carve its way to being the industry leader with an ~27% share. In this note, we analyze Home Depot’s business using the SWOT analysis to assess Home Depot’s strengths, weaknesses, opportunities, and threats. Using this, we look at what might be in store for Home Depot going forward.

Strengths

– Leadership: Home Depot’s top strength lies in its leadership. In spite of being highly dependent on macroeconomic factors for success, the retailer managed to stand its ground during the recession. When revenues were declining at an annual rate of 7-8% between 2008 and 2010, Home Depot did not let EPS numbers dip below the $1.37 figure that was recorded in fiscal 2008. Home Depot’s focus on cost saving and productivity enhancing strategies under the leadership of former CEO Frank Blake was instrumental in seeing the company through the global meltdown. Clearly, Home Depot has survived one of the worst economic situations and has a number of strategies up its sleeve that could safeguard it from tough economic conditions even going forward. Furthermore, current CEO, Craig A. Manear, with over 16 years of experience at the company, could very well continue executing the phenomenal leadership that has been seen previously.

– Productivity: Home Depot can be called the king of productivity. A comparison to arch-rival, Lowe’s, makes this clear. In spite of entering the home improvement market almost three decades after Lowe’s, Home Depot has managed to take the top spot. With a smaller store space than Lowe’s, Home Depot aims at maximizing revenue per square foot. This is evident when one looks at the metric in international stores — where Home Depot made ~$297 in average revenue per square foot, Lowe’s made ~$280, in fiscal 2014. Furthermore, Home Depot has continued to focus on productivity, both in-store and otherwise, rather than creating new revenues. This is evident in their initiatives regarding same-day delivery and in-store mobile technology. Last but not the least, Home Depot’s mastery of productivity enhancement is also evident from their continued modernization of the supply chain, which, after starting as late as 2007 has already reached over 18 centers, as opposed to 15 at Lowe’s.

– Diversification: Home Depot’s business has strength in terms of diversification, in terms of product portfolio, and operational areas. Home Depot’s business extends across a network of about 2,269 stores across the U.S., Canada, and Mexico. Their product portfolio ranges across kitchen, appliances, painting supplies, flooring supplies, building materials, plumbing, electrical, tools and hardware supplies, and more. Through this, Home Depot is able to adequately meet all home improvement demand under one roof, which gives it an edge over other competitors such as Wal-Mart and Costco. Furthermore, with a vast store network, Home Depot is able to capitalize on any skewed housing market recovery across the U.S. This has been key in Home Depot’s growth, outpacing that at Lowe’s recently since they were able to leverage the uneven housing market improvement in states like Florida and California.

– Macroeconomic Conditions: One of the biggest drawbacks for Home Depot’s business is its high dependence on macroeconomic factors. With ~90% of stores located in the U.S., Home Depot’s success is highly correlated with the performance of the U.S. economy. This is evident if one looks at the company’s performance right through the recession, when revenues dipped 7-8%, and on the recovery, when revenues started growing at 4-5%. Although U.S. macroeconomic fundamentals seem to be strong for now, any discrepancy in the economy could directly hurt prospects for the retailer. In this situation, it could make sense for Home Depot to diversify its operations across other countries to hedge against risks associated with any particular market.