Home Depot's customer service problems and financial recovery challenges

Home Depot is the second largest retailer in the world, but like every other company there are issues that can make even this business more productive. The home products market is very competitive around the world and The Home Depot has taken advantage of much of the American market while leaving the international market largely untouched. This analysis will diagnose the company's situation, determine what issues need to be addressed with a SWOT analysis, use the five factor model to probe the identified issues, and then give recommendations for changes that can be made.

Diagnosis

The Home Depot has experienced soft sales since 2006 (Wagner, 2010). One of the reasons for this is that the entire market was seeing a decline in sales especially after the market downturn in 2008, but The Home Depot had more serious problems. In 2008 the company reported fourth quarter losses of $54 million (Wagner, 2010), and they have not completely recovered those numbers in the meantime. The company has tried several different strategies to recover such as cutting over 7,000 employees in 2009, but the soft growth continues. It is easy to blame the problems that have occurred because of the market downturn, but there seem to be more serious problems with the company than just a loss of sales over the past four years.

In researching the company, it is easy to see that they have had a substantial uptick in complaints over the past five years (Consumer Affairs, 2011). The breadth of the charges of poor customer service have been growing because people are dissatisfied with the service that they are receiving, and the fact that customers seem to think that the associates are impersonal. The major issue seems to be that the company is using contractors that have not been properly vetted for the jobs that they are supposed to be performing. Complaints to Consumer Affairs range from simply forgetting tools at the site and not cleaning up, to major installation problems that cause the customer further expense since they have to get another professional to repair the damage done by Home Depot installers. The financial situation of many retailers have gotten much better (including The Home Depot's major U.S. competitor, Lowe's), but The Home Depot has continued to face financial issues and a loss of business because they have consistently poor customer service numbers.

Problems and Issues

One of the best ways for an analyst to look at the problems a company has is to first conduct a SWOT (strengths, weaknesses, opportunities and threats) analysis of the company. Many sources, including The Home Depot itself have conducted SWOT analyses to determine where the company is going right and where the need to increase resources. The issues facing the company are detailed in the weaknesses and threats sections, but a rapid decline could occur in the company's strengths and opportunities if problems are not addressed. The following is from The Home Depot's own SWOT analysis (2011).

Strengths

The Home Depot has many strengths based on the fact that it is a large company with a great amount of resources.

1. rapid expansion

1. Establishing a brand name

1. corporate structure:

1. training

1. Personal involvement of CEO - store managers

1. Bottom-up training - train the carry-out people first - C225

1. Use of technology

1. Satellite communications

1. UPC scanning - 1989

1. Customer service

1. Differentiation based on service

1. Human resource

1. Stock options

1. Reduced cost in shares (15% discount)

Analysis Tool

One of the best ways to determine what problems exist with a company and determine how those problems can be solved is by conducting a five forces analysis. The Home Depot always has the threat of new competition, and since the main issue facing the company is customer service this issue is exacerbated. New competition can focus on the issue of making sure that the services they sell outperform those sold by The Home Depot. The new companies can then offer similar services to those offered by The Home Depot, but make sure that they carry a guarantee of satisfaction that The Home Depot has not been able to match. It is always an issue in the retail business that the customer has a great deal of power. The complaints that Home Depot is receiving are largely as a result of poor home services that customers have received. This means that any company which promises to provide better home service (such as kitchen installation) is going to start taking customers away from Home Depot. The suppliers do not affect a company as large as The Home Depot though because there is always someone else who is willing to do the job cheaper. The largest problem is the final one. Even as large as it is, The Home Depot is still subject to the fickleness of the market and the intense competition that exists for every customer among market rivals.

Recommendations

As discussed above, the main issue for The Home Depot is that the company is losing a large amount of business to competitors because of poor customer service. In the stores, Home Depot actually has a good reputation. However, when it comes to home services, the company has received such a large amount of complaints that it has significantly affected the bottom line. The Home Depot has realized losses in this area of the business each of the last four years (The Home Depot, 2011). This is not Home Depot's fault on one hand because Home Depot employees are not the ones providing these services. The at-home services are contracted out. However, The Home Depot is at fault because it does not properly vet all of the people that it uses to perform these services. The reputation of the company is at stake, and the company is losing business, money and customers as a result.

The best way to counter this loss is to make sure that the installers and outside contractors hired meet the standards that the customers expect. The Home Depot needs to have stricter guidelines for its installers, and the company needs to reestablish itself in the community by making these standards public. If an installer does not meet the standard, they need to be fired unless there is a very good explanation. This process also needs to be made known to consumers. Also, the company has to take more responsibility for the problems caused by its outside contractors. These steps should start to address the complaints that have become so prevalent.