EXTERNAL ANALYSIS FOR THE HOME DEPOT INC.

Introduction

The Home Depot Inc. or Home Depot is the private listed company based in United States. It

is one of the largest home improvement related products and services retailer company in the

United States (stores, 2009). The major business segments of the company includes home

improvement items, and construction related equipment. The product lines of the company

includes building materials, garding equipment etc and other related products and services. It

has over two thousand stores operating in the United States (USSEC, 2011) as well as in

various other countries in the world.

The area covered by an average store of the company is about hundred and ten thousand

square feet with around adittional twenty five thousand square feet area for the garden (Patti,

2007). The stocks of the company are listed in the New York Stock exchange under the symbol

HD.

SWOT Analysis

SWOT Matrix

The SWOT analysis of The Home Depot Inc. is as follows:

Strengths

Brand name and awareness Quality of products R&D Marketing strategies Business strategies

Weaknesses

Lack of innovation Product recalls Fluctuating revenues

Opportunities

Restructuring Diverse range of products Online shopping Target new segments

Threats

Economic conditions Unsatisfied customers Government regulations

Strengths

It enjoys the position of world’s leading retailer of home improvement equipment and

other products. As of 2010, the company earned the profits of US dollars 67.997 billion from its

sales (USSEC, 2011). It also enjoys the position of the largest retailer in the markets of Canada

and Mexico. It was ranked as number hundred and twenty seven in the Forbes Global list of

largest companies in the year 2008 (Home Depot, 2009). These rankings and the brand equity of

the company has increased the revenues in the international and national markets to many folds.

The company is employing aggressive market strategies to market and promote its

products to the customers. It is following cost leadership strategies to minimize the cost of doing

business and earn more revenue from the resources. The company’s R&D unit suggested

increasing the utilization of Rapid Deployment Centers. It has currently employed five Rapid

Deployment Centers and plans to open additional centers in 2010. This implementation will

increase the supply chain capabilities of the company (Smartbrief, 2008).

Weaknesses

The company suffers from lack of innovation in its product offerings and services. The

products are of typical style and designs that often causes customers to look for some innovative

products offering company. This results in the decrease of store sales in the company. In the case

of Home Depot, the sales of the company are fluctuating which is mainly due to the declining

economic conditions of the United States related to the reduced expenditures on contructon and

home improvement . The company is engaged in the practice of buying products from large

number of suppliers. This practice limits the control of the company and also makes it

vulnerable. Also it can suffer set backs in the markets due to the quality of the products which

may result in product recalls. This can severely affect the brand image of the company.

Opportunities

Number of opportunities lie in the market if Home Depot redefines its business strategies

in order to attain more attention of customers and build its market rapport. This can be achieved

by offering diverse range of product lines and services offering to the current and potential

clients. There is a scope in the development of tools and related items for the industries related to

construction and buildings. This market segment can give the advanced level of profitability to

the company in terms of sales and revenues. Likewise, Home Depot can offer online shopping

facilities to its customer base to keep in touch with the potential as well as current customers.

Threats

Due to the downgrading economy of United States many consumers have shifted their

shopping needs to the necessity requirements only. Spending on home improvement projects is

expected to decline at an annual rate of over twelve percent (Harvard, 2011). There is also a

likelihood that the company will suffer from number of litigations or government regulation for

not complying with the government rules and regulations. Lastly, the major threat faced by

Home Depot is that there is an alarming increase in the customer service complaints. The

customers are not satisfied with the untrained staff posted at the Home Depot stores to deal with

the customers.

PESTEL Analysis

The PESTEL analysis contains the analysis of Political, Economic, Social, Technological,

Environmental and Legal environments of a country with reference to a particular object. The

PESTEL analysis of The Home Depot Inc. is as follows:

Political

The company effectively takes part in the political activities for the best interest of the

company and its customer for the policies that can affect their business activities. The decisions

and policies of the government at state and federal level can have a great impact on the

profitability of the company. It complies with all the legal and other requirements necessary for

making political contributions and interaction. It encourages the company employees to take part

in the political process but it do not in any way permit them to use the company resources for

their personal political matters. Home Depot has established a political action committee called

Home Depot Political Action Committee (PAC) for making political contributions to the

officials supporting the company and its business line (Home Depot, 2008).

Economic

Improvement in the economic condition of the country is crucial for a retailer like Home

Depot. Many people are positive about the improvements in the national economy. The stock

market, represented by the Standard & Poor's 500-stock index, is up more than 30% in three

months (Steverman, 2009). The fate of the company is associated with the economic conditions

of United States. The economic downturn has limited the people from making huge spending on

these items. The related market is decreasing leaving its impact on the businesses and revenues

of the companies’ associates.

Social

The company has launched various societal campaigns to promote education, safe working

practices and jobs assurance to the people. The company has established a foundation called the

Home Depot foundation. This foundaiton which has invested millions of dollars in communities

across the country to leverage the living standards of the people by providing affordable options

for living and working in the healthy environment (Home Depot Foundation, 2011). The

Community efforts of the company focus on four key areas: “building and refurbishing

playgrounds; ensuring the safety and accessibility of community gathering spaces, building and

refurbishing affordable and transitional housing; preparing communities for emergencies”

(Home Depot, 2011).

Technological

The role of technology in the success of any company in today’s markets cannot be over

looked. The company made huge investments in the previous year to upgrade the technological

equipment to facilitiate its employees and smooth operations thoughout its business units. These

gadgets cost it nearly sixy million US dollars. According to the company, these devices will help

it vault past the competition like Lowe, which has been using hand held wireless technology in

their stores since 1995 (Richmond times, 2011).

Environmental

The Home Depot strives to make improvements in its operations to reduce the emission

of carbon dioxide, energy consumption and water use. They believe in delivering a positive

impact by offering conservation minded and environmentally friendly products to the customers.

Home Depot is working on providing innovative green products and offer choices of selection

based on their environmental claims and impacts. The company issued its 2010/2011 report

which stated that the Home Depot will host the solar panel programs in America to promote their

installation. It announced aa goal of cutting energy use in its stores by another 5% by 2015,

resulting in a total reduction of 20% since 2004. The Home Depot pledged to remove 20% of

greenhouse gas emissions from its domestic supply chain by 2015. That's equivalent to cutting

200 million distribution miles of travel - about 8,000 trips around the earth (Environmental

milestones, 2011). 

Legal

The operations of the company are subject to various rules, regulations, laws imposed by

the local and international governments based on the food production, safety, manufacturing,

packaging etc. of products. The company business units where the integrated processes related to

the business are conducted are also subject various laws relating to the protection of the

environment, including discharge of materials into the environment, health and safety issues of

employees.

The company operations are as per the prescribed rules, laws and regulations which are

coherent to the safety laws and other operating standards. It strictly tries to follw the these

regulations when making its business operations. Some of the legal regulations which it has to

follow are related to the marketing, antitrust, confidentiality, conflict of interest, fair dealing,

environmental and many others (Home Depot Code Of Conduct, 2011).

Porter’s five forces analysis

Porter’s Five Forces Analysis helps the managers to understand the market position and

the effectiveness of business strategies of a firm with reference to five micro and macro level

environments (Porter, 2008). These five forces include Competition, New Entrants, and Buyers

Power, Suppliers Power and Substitute Products and/or services respectively. The Five Forces

Analysis for the Home Depot is as follows:

Rivalry among established competitions

The level of competition among the existing established competitors in the home

improvements industry is very high. Home Depot has more than 10 competitors including Sears,

Ace Hardware, Frank’sNursery, and Lowe's. Home Depot faces cut throat competition with

Lowe’s Companies. These competitors are engaged in the prices wars in order to get a chunk of

its counterpart’s market share.

Bargaining power of suppliers

The Home Depot is engaged in the practice of taking merchandize from the large number

of suppliers in both local and international markets. This means that the suppliers have no power

to control the company to earn increased profits. To remain a part of Home Depot’s network

many suppliers gives offers to the company like discounts, collaborative advertising etc.

The bargaining power of buyers

The customer needs and wants tend to change over time; therefore they impose moderate

level of threat to the business operations of Home Depot. Home Depot has three distinct

customer segments to attract its customer base. These segments are DIY (do-it-yourself) BIY

(buy-it-yourself) andProfessional customer.

The threat of substitute products or services

The threat of substitute products in case of Home Depot is very low. It does not have

many substitutes. It means the company enjoys its market position without the fear of being

replaced by the substitutes. The only substitute that exists is in store home improvement-

Internet.

The threat of the entry of new competitors

The industry imposes certain barriers to the entry of the new companies in the markets.

This means that the level of threat of new entrants is relatively low in the industry. There are

varying reasons to the low rate of entry. Among them is the entry barriers imposed by the

industry. The new entrants will have to comply with the governmental regulations in order to

make their entry in the markets. Then the existing players are protected by the number of barriers

which makes it difficult for the new entrants to give hard time to them. Among them are: entry

restrictions, tariff rates, high capital requirement, distribution channels etc. These barriers limit

them to compete against the existing market players.

Recommendations

This study provided brief overview on the external environment analysis of Home Depot.

The findings of the study suggested that Home Depot should focus on the following factors in

order to excel its business and social image in the world:

1. Offer product diversity to its existing and potential clients by using innovative ideas.

2. Properly train the employees in order to remove the customer service related issues

associated with the image of Home Depot.

3. Revise its supply chain strategies to impose strict control over its vendors in order to deal

with the product recall issues

4. Shift its focus from traditional ways of doing business to the more latest sources like

internet

5. Tap new market segments like power tool manufacturing etc. to obtain the attention of

business to business clients as well as others.

References

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1_5_a_new_decade_of_growth.pdf

Home Depot Code of Conduct, 2011. Compliance with Laws, Regulations, Corporate Compliance Policies, and Standard Operating Procedures, Retrieved on June 21, 2011 from

http://ir.homedepot.com/phoenix.zhtml?c=63646&p=irol-govConduct

Home Depot, 2011. Environmental milestones, Retrieved on June 21, 2011 from http://corporate.homedepot.com/wps/portal/Environmental_Milestones

Home Depot Foundation, 2011. Community Involvement, Retrieved on June 21, 2011 from http://www.homedepotfoundation.org/

Home Depot, 2008. Political Activity and Government Relations Policy, Retrieved on June 21, 2011 from http://ir.homedepot.com/phoenix.zhtml?c=63646&p=irol-govpoliticalactivity

Home Depot, 2011. We Build Community, Retrieved on June 21, 2011 from https://careers.homedepot.com/cg/content.do?p=community

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Patti Bond, 2007. Home Depot to test superstores, mini-stores. Atlanta Journal and Constitution (Georgia), Retrieved on June 21, 2011 from http://www.allbusiness.com/retail/retailers-building-supply-hardware-stores/11898392-1.html

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Smart Brief, 2008. Home Depot rapid deployment center yields positive results, Retrieved on June 21, 2011 from http://www.smartbrief.com/news/naw/storyDetails.jsp?issueid=96FE73E3-A000- 4BBA-8478-EDE440F34437&copyid=24BED80F-9AA4-4EC5-98F9- 9351BBCAE4C5

Steverman, B., 2009. Home Depot's Higher but Fragile Hopes, Business Week, Retrieved on June 21, 2011 from http://www.businessweek.com/investor/content/jun2009/pi20090610_564023.htm

The Home Depot, 2006.The Home Depot Names Helen Johnson-Leipold to Its Board of Directors. News Releases. Retrieved on June 21, 2011 fromhttp://ir.homedepot.com/releasedetail.cfm?releaseid=219054

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