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Home Depot is the largest home improvement retailer in the world and one of the biggest retailers. It has consistently grown over the past decades, since its start at the end of the 1970s, and has expanded into Canada, Mexico and China. It has diversified its network of suppliers and continues to offer a large array of products to its clients.
Competition remains significant, both with the presence of Lowe's on the market and with that of local hardware stores. Particularly Lowe's, which is in a different stage of its life cycle, has opened new stores and continues to remain an important competitor, benefiting from its no.2 position on the market.
This paper aims to look at Home Depot's history and to have two types of analysis that will show the company's position on the market. The first is a SWOT analysis, the second is an analysis of Porter's Five Forces. Based on these, the paper will conclude with several recommendations regarding potential venues for development into the future.
The first two Home Depot stores were opened in Atlanta, Georgia, in 1979. The concept was to create a huge hardware store that would provide all necessary things from the do-it-yourself sector. The concept was intentionally grand, to the degree to which not only the warehouse was enormous, but boxes were piled up high to maximize the impression of huge space occupied by products.
Home Depot was listed on NASDAQ as early as 1981 and then moved to the New York Stock Exchange in 1984. The 100th store was opened in 1989, marking a decade of continuous growth that went on into the 1990s. In 1994, the company expanded into Canada, and, in 2001, on the Mexican market. In both cases, this was done through the acquisition of local retail players, Aikenhead in Canada and Total HOME in Mexico. In 2006, Home Depot moved outside the American continent, entering the Chinese market. This was also done through the acquisition of a local chain, namely The Home Way
SWOT analysis diagram
Size. Home Depot is the largest home improvement retailer in the world. The company's size allows it to create economies of scale and to benefit from this on the market as well.
Global outreach. Not only has The Home Depot expanded to Canada, Mexico and China, but it also has procurement offices in Canada, China, Mexico and India. This gives it the opportunity of finding the best prices and of maximizing its profit margins.
National brands and proprietary products. Home Depot has several national brands and proprietary products, including Ryobi® tools, RIDGID® tools, BEHR® paint, LG® appliances, and Toro® and Cub Cadet® lawn equipment
Innovation. Home Depot's expansion was based on its continuous innovation, both of its business model and the products it sells.
Constant revenues. Even if the U.S. And the world went through the hardest economic recession since the Great Depression, Home Depot's revenues dropped with only 2.31% from 2008 to 2012, which is encouraging and shows sustainability.
Saturation of the U.S. market. The Home Depot has as many as 2,234 stores in the U.S. And one can analyze the potential saturation of the U.S. market.
Debt. Home Depot has as much as $10.8 billion debt on its balance sheet
. A financial analysis would probably reveal how much of a problem that is, but, in absolute terms, this appears as a weakness.
Foreign markets. On one hand, the Chinese market, where Home Depot has entered in 2006, is still growing and is very promising. On the other hand, new markets such as those in Latin America (Chile and Argentina) or Europe show great potential.
The online market. Home Depot should be able to capitalize, in the future, from increased online purchasing, with more clients preferring to buy via the Internet rather than go to the local Home Depot.
Local competitors. In the U.S., as well as in some of the foreign markets, some of the clients may prefer the local hardware store next door to a drive to the nearest Home Depot outside the town.
The downturn in the housing market/economy. The fact that fewer houses are built during the economic crisis may affect, overall, the demand for some Home Depot products, particularly more costly ones that are used during the construction process.
Porter's five force's model
Threat of new entrants. This threat is considerably low, because of several arguments. First, Home Depot, along with its primary competitor, Lowe's are too well established on the market for them to be in any way vulnerable to the threat of new entrants. Second, it is very difficult for a new company to enter the market because of (1) the presence of Home Depot and Lowe's on the market and (2) the high initial costs that setting up such a business involves, as well as the need to develop a huge network of suppliers.
Threat of substitute products or services. This threat is also low, mainly because there are not so many potential substitute products or services to the home improvement ones. On a larger scale, there are a couple of things that could be considered, even if this doesn't really change the evaluation regarding this threat. One related to potential technological substitutes, accepting the idea that some home improvement processes can be undertaken with different, more efficient technologies. Another is that people may prefer to use a specialized company rather than a do-it-yourself process, in which case Home Depot could lose customers.
Bargaining power of customers. The bargaining power of customers is low to medium. Customers have other alternatives, namely Lowe's or a local hardware store, but one would assume that Home Depot is able to dominate the bargaining power of customers with a large network of stores and a continuously improving customer service. Additionally, Home Depot seems to be managing every aspect of its relationship with the consumer, including the way the products are arranged on the shelves.
Bargaining power of suppliers. The bargaining power of suppliers is low, mainly because Home Depot has a large and diversified network of suppliers. As previously mentioned, this network is spread around the world, including countries such as India or China, where the costs are likely significantly lower. By properly managing this large network of suppliers, Home Depot is able to reduce the bargaining power of suppliers, including by threatening to shift to a different supplier.
Intensity of competitive rivalry. This is a real threat, particularly given the competitive rivalry coming from Lowe's. There are several aspects worth pointing out. Home Depot is in a different phase of development: with a large number of stores, it has virtually saturated its share of the U.S. market and aims, in the present, to expand its business through international expansion, while, at the same time, maximize its profits per store. Lowe's continues to open new stores, building its market share and further expanding on the U.S. market. At the same time, Lowe's seems to appeal to a different category of consumers, particularly to the women segment, capitalizing on its differences from Home Depot. Another category of rivalry may also come from the traditional, local hardware stores. While these cannot compete with Home Depot when it comes to home improvement, they can do so on a smaller scale, offering more personalized services.
Following the SWOT analysis and the Five Forces analysis, one of the conclusions is that the U.S. market is becoming saturated for Home Depot. With this in mind, one of the recommendations is to continue the international expansion that has been started with Canada, Mexico and China. The Chinese market, for example, offers enormous opportunities. Certainly, the company needs to take into account a large range of issues, from cultural differences to the political…[continue]
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