Home Depot Analysis

Brief Overview

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Home Depot is a retailer of is an American company, retailing of home improvement as well as construction products and services. It offers installation programs that include but not limited to flooring, cabinets, and water heaters among others. They also offer professional installations that are sold through in-home sales programs like siding, windows, roofing, furnaces, central air system and more. Its headquarters are based in Atlanta, Georgia, and it has stores in the United States in over ten provinces in Canada and Mexico. It also has stores in all fifty states Puerto Pico, District of Columbia, Virgin Islands and the US. Home Depot was founded in 1978 by Arthur Blank and Bernie Marcus. Within a short span the company started changing the perspective of consumers on how they could improve their lifestyle as well as care for their homes. It came up with a concept which stated do-it-yourself. This concept was the founders vision of one-stop shopping. Their creative concept came into infuriation when they opened two stores in Atlanta, Georgia.

The associates of Home Depot have been able to offer the best services to their customers. They have given guidance to the customers through several projects such as changing a fill valve, taking care of power tool as well as laying tile. The reason that Home Depot has customer loyalty is because they have gone an extra mile to give knowledge training of how customers could learn to do them without any assistance. It has partnered with national brands in conjunction with proprietary products like RIDGID tools, LG appliances, Cub Cadet lawn equipment, Ryobi tool and Toro. Home Depot has, therefore, set the standard merchandise that is innovative with the concept of do-it-yourself and the professional contractor.

When it comes to Leadership, Home Depot is dedicated to serving customers and provide and extraordinary and ultimate shopping experience. The companys focus and commitment to serving customers create value to the stakeholders. Home Depot mission statement states that the business most emphasis is on quality and competitive pricing. Its vision statement indicates the purpose and underneath targets of the business where it keeps alive the values that are important; such as respect among people, professional and excellent customer service as well as giving back to the society. The condition that the company is in now indicates fulfillment and satisfaction of the original vision statement.

Strategic Analysis

The strategic business analysis includes business analysis, business strategy analysis and strategy evaluations and recommendations.

Industry Analysis

Home Depot is the largest retailer in home improvement all over the world. It deals with home appliances, lawn and garden products, building materials among other products. Home Depot market size was estimated to be $ 303 billion in 2014 in the U.S. $221 billion of the capital was estimated to be from consumer market while the other remainder was from the professional market. Consumer market includes sales from private homeowners while professional market includes builders and contractors. The industry was expected to grow by 5.7% in 2015 and at a compound annual growth rate of 4.5% from 2016-2019. Due to the concentration in the home improvement industry, the big box retailers dominate; Home Depot. It has a market share and a concentration of 27.2%. One of the main aims of the company is to provide a wide range of innovative products and value-oriented to their customers. In the year 2014, kitchen and garden products were the best-grossing products with revenue of 27% in that fiscal year. It is the fourth largest retailer in the U.S who give customers qualified professionals to help them in renovating their homes. Being the fourth largest in the U.S, it has been able to dominate the industry. Although there has been competition from other companies such as The Sherwin-Williams Company and Lowes Company Inc, customer loyalty is still strong.

Industry Structure

Industry structure is the description of the five forces of competition for each product market segment.

Customer segment

It is the bargaining power of buyers and customers, which is a very strong force in the Home Depot Company Inc. It is the number of customers that make up the market. Home depot has more than 1,900 across North America, operates stores in the United States including the 50 states Puerto Rico, Mexico and Canada. Additionally, Home Depot was ranked number 13 on Fortune 500 on the Fortune Magazine, owning a chain of higher-end home appliances stores and decorations. With the many stores across the world, it is clearly evident that the customers are in large size. Due to a large number of customers, they can be able to negotiate and deals that decrease the profitability of the company and saving them cost. There are three strong contributors to the bargaining power of customers in Home Depot which are;

High and population of buyers, which happens to be a weak force to the company

The products substitutes are high in number, which is a strong force to the company

The switching costs are low which is a strong force the company

Therefore, the size and growth of the segment can determine the level of competition and product development. Home Depot clients, therefore, have an upper hand as they can negotiate their prices down. A customer segment is, therefore, a strong force for Home Depot.

Competitors and their strategies

This is the competitive rivalry or the competition that exists with Home Depot. This force comes from competitors where they try to gain the market share by using various strategies. High competitors are Lowes Company Inc, who offer a set of products and services that give higher value to the product-market segment. There is low switching cost which makes it easy for clients to shift from Home Depot to retail shops that sell similar products of the same value and quality. Lowes is a company operating a chain of retail home improvement and home appliances in U.S, Canada, and Mexico. It is second to Home Depot, and operating in Australia. To take the first lead in terms of strategies, Home Depot has relied on a decentralized supply chain where products are shipped directly from the suppliers to Home Depot stores. As time went by, Home Depot came up with an ambitious modernization of program where there was network centralization of distribution centers. Lowes company also had its strategies, where it emphasized on improving customer service as its core objective. Although both companies have different strategies, there is one strategy that both companies share in common; they are both committed to allowing customers move in a perfectly consistent manner between offline and online channels. There are three factors that have contributed to the strong force of competition in Home Depot; a large number of strong firms, moderate exit barriers and low switching cost. Home Depot must, therefore, maintain a competitive advantage to address strong competition. Competition is, therefore, a strong force for Home Depot.

Industry Suppliers

This is the bargaining power of Home Depot's suppliers which happens to be a weak force. This is how suppliers impose demands. There are external factors that contribute to Home Depot's weak force in regards to the bargaining power of suppliers. They are;

High population of suppliers which is a weak force to the company

The size of suppliers is moderate, and it is a moderate force

Retailers exclusivity which is a weak force

The suppliers are in high population; therefore, they have a weak individual effect on Home Depot. Home Depot and Lowes try to maintain an exclusive business relationship with the suppliers. With these relationships, Home Depot's suppliers cannot conduct business with Lowes and vice versa. In such a situation, there is the weak impact of the supplier on Home Depot and the home improvement industry. In most of the times, suppliers control critical inputs that affect the firm's ability to compete. When it comes to suppliers, Home Depot has shipped products directly from suppliers to their company. They relied on the decentralized supply chain, supplying products straight forward to the firm. Due to the availability of products most of the time, Home Depot always leads the industry. As a result of outsourcing, there are lower entry barriers for the new competitors. The suppliers do not play a strong force for Home Depot.

Threat of Substitution

Substitutes in any market industry pose a significant threat to all business people. Home Depot, therefore, finds substitutes as a threat to them in the industry. There are external factors that contribute to strong threat of substitution namely;

Strong force in low switching cost

Highly available substitutes

A Strong force in high performance to price ratio of substitutes.

There are general merchandise stores like Wal-Mart offering similar goods as Home Depot. There are also improvement contractors who offer their professional expertise and advice to customers. Use of substitutes and getting satisfactory results possess a threat of substitution against Home Depot's products and services. This threat is, therefore, significant to Home Depot.

New Entry

This is the threat of new entrants in the industry. New entrants can have a great impact on Home Depot as they as it determines the potential impact of rising and new firms. For Home Depot, there are external factors that contribute to the threat of new entrants. They are;

High price of brand development which is a weak force

Moderation in cost of doing business

Minimum switching cost

Small firms can compete against giants like Home Depot. Therefore, the cost of doing business in home improvement market is moderate. The ease of moving from one company to another always threatens the ease of new entrants. There is a high cost in brand development which weakens the effects of new entry on Home Depot. When it comes to Home Depot, new joiners are regarded as a moderate threat and are to be considered during the Company's strategic formulation process.

Key success factors

These are the requirements and the trends that are needed to know the key success factors for the company.

Customer requirements- customers, are in search of products that will produce the value for money, as well as high-quality products. Home Depot has managed to put their focus on the customers by providing affordable products to all people at all levels. As a result of their customer focus, they clocked over 1.4 billion transactions in 2015 fiscal year. Most products sold were furnishings and home improvement, furniture, materials used in construction as well as garden products. The consumer market products are durable, ease to use, readily available and have high performance.

Competitive factors - often, competing companies use similar products but with different prices. Competition is based on price, delivery and quality. Each firm therefore has their own strategic weapons to help them gain a competitive edge over their competitors. Home Depot greatest competitors are Lowes. Lowes is a large company offering the same products as Home Depot but Home Depot has managed to win most of the customers. Customer service at Home Depot is exclusive as their staffs are professional and qualified. Customers are offered advice on what they would prefer to buy and why it is the best. Their staffs are also good in problem solving and this makes customers feel valued; Home Depot is a problem- solver. In comparison to Home Depot, Lowes are less focused on one activity and that is restocking shelves. Lowes concentrate their efforts in stocking their shelves instead of giving service to the customers. According to clients testimonials at Lowes, employees...