The Home Depot Inc.

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The Home Depot Inc.

founded: 1978

Contact Information:

headquarters: 2455 paces ferry rd.
atlanta, ga 30339-4024 phone: (770)433-8211 fax: (770)431-2685 email: [email protected] url: http://www.homedepot.com

OVERVIEW

Home Depot is the largest home improvement retailer in North America, boasting 690 stores in 43 states and 5 Canadian provinces. These warehouse-type stores, each averaging about 130,000 square feet (including garden center), stock 40,000 to 50,000 home improvement products and are aimed mainly at the do-it-yourself trade. The stores, however, also attract many professional building contractors. Products include lumber, floor and wall coverings, hardware, paint, plumbing supplies, and tools. Home Depot also offers facilities maintenance and repair products through its direct mail subsidiary Maintenance Warehouse, and custom window treatments by direct mail through National Blind & Wallpaper Factory. Much of the company's success has been attributed to its superior customer service, along with low prices and a broad selection of products.

COMPANY FINANCES

In 1997 Home Depot posted net earnings of $1.2 billion on revenue of $24.2 billion. This net earnings figure excludes a pretax, nonrecurring charge of $104 million. This compared with net income of $938 million on revenue of $19.5 billion in fiscal 1996. Per-share earnings of $1.64 in fiscal 1997 represented an increase of 27 percent from the $1.29 per share earned in fiscal 1996. In fiscal 1995 Home Depot's net earnings totaled $732 million on revenue of $15.5 billion, compared with net income of $605 million on revenue of $12.5 billion in fiscal 1994. Per-share earnings in fiscal 1995 were $1.03, compared with $.88 per share in fiscal 1994.

Approximately 34 percent of Home Depot's total revenue in fiscal 1997 was accounted for by sales of building materials, lumber, and floor and wall coverings. Sales of plumbing, heating, lighting, and electrical supplies brought in about 27 percent of the company's total revenue, while seasonal and specialty products accounted for about 15 percent. Sales of hardware and tools brought in about 14 percent of total revenue, and sales of paint and other products accounted for 10 percent.

ANALYSTS' OPINIONS

Home Depot stock, which went up 28,000 percent after the company went public in 1981, slowed almost to a halt in 1993. According to Patricia Sellers in Fortune magazine in March 1996, things looked grim and most analysts agreed that the stock and the company had hit a wall. In her in-depth article, Sellers pinpointed the problem as a lack of professionalism. The founders themselves agreed that the company had grown beyond their capacity to manage it in the way they had been doing up to that point. Sellers quoted Donald Keough, one of Home Depot's board members and the retired president of Coca Cola, as saying: "of course there are problems, but they are the problems of success."

In 1997, despite these dire concerns, Home Depot opened more stores in the United States and Canada and announced plans to enter the South American market with a store in Chile. The company unveiled its plan to open a store in Chile in January 1997. A month later, Lisa Goldbaum, writing in Barron's, observed that Home Depot stocks remained stalled and predicted that "growth will become increasingly difficult as the company matures and market share gains become harder to achieve."

HISTORY

Home Depot was born in 1978 when Bernard Marcus and Arthur Blank, executives with Handy Dan Home Improvement Centers, found themselves out of work after a corporate takeover at Handy Dan. Joined by Ronald Brill, another Handy Dan employee; and Pat Farrah, former owner of Homeco, the world's first home improvement warehouse, they mapped out a plan for a bigger and better store catering to the needs of do-it-yourselfers. The following year they opened three Home Depot outlets in the metropolitan Atlanta area, adding a fourth outlet in 1980.

Home Depot went public in 1981 and headed south from Atlanta to open four stores in the bustling south Florida market. The following year the company added two more stores in Florida and posted 1982 sales of $100 million.

Throughout the mid-1990s Home Depot was troubled by a series of lawsuits charging gender discrimination. The first of these were filed by female workers on the West Coast who alleged that they were not treated on a equal basis with male employees. In 1997 the company reached a $65 million out-of-court settlement in the class action suit that developed from this initial litigation.

In mid-1997 Blank took Marcus' place as Home Depot's chief executive officer while Marcus retained the chairmanship.

In late April 1998 Home Depot announced it had reached agreement with Canada's Molson Companies Ltd. to purchase for C$375 million Molson's 25 percent partnership interest in The Home Depot Canada. This transaction gave Home Depot total control of its Canadian operations. The company's partnership with Molson was formed in 1994 when Home Depot acquired 75 percent of Aikenhead's Home Improvement Warehouse, which then operated 7 home improvement stores in Canada. Since that time The Home Depot Canada has opened another 30 stores in 5 Canadian provinces.

STRATEGY

Home Depot boasts that the key to its strategy is listening to and heeding the wisdom of its associates. Claims of "keeping communications open at all levels, treating our associates with dignity, welcoming creative ideas, and rewarding entrepreneurial thinking by promoting from within" abound throughout Home Depot's promotional literature. By building a loyal workforce and creating good will within the community both through its employees and through its programs, Home Depot has made itself a household name. Offering lower prices, advice, and installation services gives consumers what they're looking for: a partner in home improvement.

Continuing to expand its customer base by opening stores in new locations while encouraging a team attitude among its associates has allowed Home Depot to give all its stores the same down-home feel offering advice, a warm welcome, and superior service. Most warehouse-type stores in the past had concentrated on price and selection but neglected customer service. By putting service first and making associates a part of the big picture, Home Depot quickly stepped to the front ranks of its market segment. Size has not diminished the company's commitment to service and community, making the chain welcomed in most areas.

INFLUENCES

One of the factors that has helped to shape the successful marketing strategy of Home Depot has been the recognition of the amazingly large interest among Americans in home improvement projects, both large and small. To cater to do-it-yourselfers whose goals extend beyond merely making repairs, Home Depot stores boast a design center staffed by professional designers who offer free in-store consultation for home improvement projects ranging from lighting to computer-assisted design for kitchens and bathrooms. The company has also set up EXPO Design Centers in a handful of key markets across the country. Unlike traditional Home Depot stores, the EXPO centers in Atlanta, Dallas, Miami, San Diego, and Westbury, New York, do not sell building materials. The centers focus on interior design and renovation projects, including lighting, floor and wall coverings, and kitchen and bath modernization.

CURRENT TRENDS

One of Home Depot's longtime trends has been that of superior customer service. This trend put Home Depot at the top and will not likely be abandoned. The same can be said of service to the community. Home Depot spotlighted community efforts toward building affordable homes as well as at-risk youth and the environment. The company has designated a $12.5 million philanthropic budget to help meet some of those needs.

FAST FACTS: About The Home Depot Inc.

Ownership: The Home Depot Inc. is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: HD

Officers: Bernard Marcus, Chmn. & Secretary, 68, $2.6 million; Arthur M. Blank, Pres., CEO, & COO, 54, $2.6 million; Ronald M. Brill, Exec. VP & Chief Administrative Officer, 53, $725,000; Larry M. Mercer, Exec. VP, Operations, 50, $530,000

Employees: 125,000

Principal Subsidiary Companies: Home Depot Inc. operates direct mail subsidiaries Maintenance Warehouse and National Blind & Wallpaper Factory.

Chief Competitors: As a large-scale retailer of home improvement products, Home Depot faces competition from other home improvement retailers as well as from major discount retailers that carry large stocks of home improvement products. Major competitors include: Hechinger; Lowe's; Ace Hardware; 84 Lumber; HomeBase; Kmart; Menard; Sherwin-Williams; Payless Cashways; TruServ; Wal-Mart; and Wickes.

Protecting the environment has been another of Home Depot's biggest concerns. Home Depot's environmental program was kicked off after Earth Day 1990. Through the 1990s Home Depot began to use more recycled and recyclable products, made an effort to sell "greener" home improvement products, published ENVIRONMENTAL PRINCIPALS, which were adopted by the National Retail Hardware Association, and led the industry in a switch to products that were not made from rain forest woods. This trend in environmental protection not only attracts buyers, but protects communities.

PRODUCTS

Home Depot's product line includes all manner of hardware, plumbing supplies, power tools, paint and wall coverings, floor coverings, lumber and building materials, how-to books on home improvement, gardening supplies and plants, and services for information dissemination and installation of products. Home Depot also offers home delivery in many areas.

Home Depot's new products include more of the same with an emphasis on supplying low-cost "green" options for customers. With a trend toward environmental care and awareness, Home Depot's widening selection of environmentally sound, or less destructive, products allows homeowners and contractors alike to build and improve with an environmental conscience.

CORPORATE CITIZENSHIP

With a philanthropic budget of $12.5 million for 1998, much of it directed toward affordable housing, at-risk youth, and environmental causes, Home Depot makes citizenship one of its primary concerns. Most of this budget is put back into the communities where Home Depot stores are located. Home Depot serves the concerns of its employees with a matching gift program and promotes volunteerism among its employees through its Team Depot program, which alerts employees to local volunteer opportunities within the community. Home Depot has also worked with Habitat for Humanity to build housing for those in need.

One of Home Depot's main thrusts in the 1990s toward corporate and world citizenship has been a responsibility toward the environment and toward the promotion of "greener" home repair/improvement products, as well as a reduction in its own wastes, a commitment to recycling, and giving money to environmental groups. In this quest, they have received awards from The national Environmental Development Association (1993), Renew America and the National Awards Council for Environmental Sustainability (1995), and were recognized with the President's Sustainable Development Award (1996).

Home Depot's environmental initiatives have been highly praised and used in the creation of environmental building standards. They publish an Environmental Greenprint to help consumers build and remodel with environmentally safe products and techniques and offer clinics to teach skills locally. Annually, Home Depot gives hundreds of thousands of dollars toward environmental safety, cleanup, and education.

CHRONOLOGY: Key Dates for The Home Depot Inc.

1978:: Founded by Bernard Marcus and Arthur Blank
1980:: Opens fourth store
1981:: Goes public on the stock exchange
1989:: Installs satellite communication network to continually train employees
1994:: Acquires 75 percent of Aikenhead's Home Improvement Warehouse
1996:: Receives the President's Sustainable Development Award
1997:: Begins joint venture with S.A.C.I. Falabella to open first store in Chile; opens 500th store by January
1998:: Buys out Molson's 25 percent share of Aikenhead

GLOBAL PRESENCE

In early 1997 Home Depot announced a joint venture with Chile's S.A.C.I. Falabella to open the chain's first store outside of North America. That outlet was scheduled to open in the Chilean capital of Santiago in August 1998.

SOURCES OF INFORMATION

Bibliography

berry, leonard l., kathleen seiders, and larry g. gresham. "for love and money: the common traits of successful retailers." organization dynamics, 1 october 1997.

goldbaum, lisa. "home depot has many fans, but some say growth may be harder to come by." barron's, 27 february 1997. available at http://kelsey.abcompass.com/abc/art/detail/7508.html.

home depot: greenprint. 5 may 1998. available at http:/www.homedepot.com.

"the home depot, inc." hoover's online, 10 may 1998. available at http://www.hoovers.com.

home depot fact sheet, the home depot: financial page, 5 may 1998. available at http://www.homedepot.com.

"the home depot to open a store in chile as its first south american location." chile press release, 1997. available at http://www.homedepot.com/fi/chile/htm.

"home depot eclipses 500 stores mark." opening of store press release, 1997. available at http://www.homedepot.com.

krass, peter. "home depot's bernie marcus." investors business daily, 5 february 1998.

"president's sustainable development award." home depot press release, 1996. available at http://www.homedepot.com.

sellers, patricia. "can home depot fix its sagging stock?" fortune, 4 march 1996.