Strategy Management
Current Situation
Home Depot is a "category killer" retailer, selling supplies for home and garden. Home Depot operates with a cost leadership strategy, as it seeks to use its buying power in particular to offer customers a low price. Home Depot also incorporates a service element to its business model, something it hopes will give it a competitive advantage. Home Depot is currently undergoing a change in terms of its structure and culture, and this has caused some disruption. That said, Home Depot is the second-largest retailer in America behind Wal-Mart and has experienced strong sales improvements during the Nardelli years.
The competitive situation is intense. Home Depot is a dominant competitor in the industry, but faces strong competition from Lowe's, which is almost the same size. These two competitors operate as something of a duopoly, although in other businesses there are specialist firms that are strong competitors. Home Depot believes that significant market growth opportunities remain. The competition with Lowe's has an impact on Home Depot's pricing power. The company retains strong bargaining power over suppliers due to its size, but buyers often face a choice of visiting Home Depot or Lowe's. Of the two, HD has the better service, but the two firms do engage in price competition with each other. For a small company, this industry would be an unfavorable one in which to operate, but Home Depot makes the industry more favorable with its strong brand and substantial bargaining power.
Home Depot's in-store culture has often been considered to be one of its major strengths, in particular the service focus of its employees. The sheer size of the company, with its market reach and its bargaining power, is another source of strength. The systems that Home Depot has utilized, especially since Nardelli took over, are a positive for the organization, as they assist...
That said, Home Depot does have some weaknesses that could harm it. There remains some lack of cohesion between the culture Nardelli wanted for the organization and the culture that preceded him. As a result, Home Depot has been described as being in a state of turmoil. Another weakness of Home Depot is that the company is strictly focused on home improvement supplies. While the company has been able to expand into new service areas, Home Depot has demonstrated no ability to move into other product categories.
Home Depot sees opportunity in a couple of key areas. It sees growth in a number of segments within the home improvement business. There is also growth outside of that business, should Home Depot want to attempt to move into other product lines. The Internet is a source of new sales that Home Depot has not fully taken advantage of. Additionally, while Home Depot is in Canada, the company in general has a lot of opportunity deriving from geographic expansion.
There remain threats to the company in the external environment. Home Depot's business is strongly correlated with housing sales (both new housing starts and aftermarket housing sales), so any disruption in these metrics in the U.S. would cripple the company's business. Additionally, Home Depot faces intense competition from Lowe's. Worse, it could face competition from several other major players like Wal-Mart, Target or Costco, in product lines that Home Depot sells. There are several very large and well-run firms that could encroach on different elements of Home Depot's business.
All told, Home Depot is a very strong company, strong enough to take advantage of the opportunities in the marketplace, but it also faces both threats and constraints to growth. The company is currently seeking new ways to grow, as it feels that growth has slowed.
There are a number of options on…
