Home Depot 2010

Jan 20, 2006
George Anderson

By George Anderson

Home Depot is looking to slow things down a little. The “things” being the rate at which the company opens new stores.

Since Bob Nardelli took over the reigns at the DIY retailer back in December of 2000, the company has opened nearly 950 stores. Over the next five years, the company announced it was looking to open between 400 and 500 new locations.

Does the slowdown indicate trouble at Home Depot?

Far from it, says the company. Between now and 2010, Home Depot is looking to grow sales by an annually compounded rate of between nine and 12 percent while increasing operating margins by 50 to 100 basis points. If all goes according to the company’s five-year plan, compounded earnings per share will grow up to 14 percent.

“In 2000, we established our strategic platform from which to grow The Home Depot, and we’ve been successful in growing the business by 76 percent to over $81 billion since then,” said Mr. Nardelli in a released statement. “We expect to achieve our 2010 goals by staying on strategy to enhance our core with innovative merchandise and new categories; to extend the business through new stores, new formats, services and channels; and to expand the market into new areas and geographies.”

Although do-it-yourselfers have been a large part of its success, Home Depot says its Services division continues to grow as more consumers are opting to have someone else do the work instead.

According a company release, “The increasing do-it-for-me trend continues to drive double-digit growth in The Home Depot’s services business. By 2010, the company expects that 5-6 percent of its sales will come from services, a $110 billion market opportunity. Today, the company offers 25 national service programs through its At-Home Services division, including flooring, fencing, roofing, cabinetry and a host of other interior and exterior services.”

Home Depot is also looking to boost the business it does in the $410 billion professional market. By 2010, Mr. Nardelli and company are looking for Home Depot Supply to account for 18 or 19 percent of company sales. If it attains its goals, Home Depot Supply will become the largest diversified wholesale distribution business in America.

“We are poised for dramatic growth over the next five years across our business,” said Mr. Nardelli. “Our planned acquisition of Hughes Supply is a great example of how we are rapidly replicating in the professional market the same type of transformation that we brought to the home improvement retail market.”

While still a small part of its overall business, Home Depot is looking for its consumer direct businesses, including homedepot.com and catalogs such as 10 Crescent Lane and Paces Trading Company, to generate additional income. Home Depot believes its consumer direct business could achieve a billion dollars in sales by 2010.

Moderator’s Comment: What is your reaction to Home Depot’s five-year plan? What current areas of strength and/or weakness will it need to address to
achieve its goals?

George Anderson – Moderator

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5 Comments on "Home Depot 2010"

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Mark Lilien
15 years 1 month ago

The key to success: will the head of each business keep an entrepreneurial culture that can simultaneously work with the other businesses to gain maximum leverage? Sometimes division chiefs erect silos that handicap profitability. Sometimes the opposite extreme occurs: very slow implementation because all work needs to be done cooperatively. Home Depot has 3 great advantages: easy access to lower-cost capital; tremendous scale; and Mr. Nardelli.

Al McClain
Al McClain
15 years 1 month ago

And, they probably only have to do a “B+” job on this to generate “A” results, because they are in a thriving business – home improvement. With “how to” TV shows and web sites everywhere, and the enormous growth in real estate values over the past 5-10 years, consumers are going to invest in their homes for the foreseeable future, even if prices dip, in order to make them more saleable.

Bill Bishop
Bill Bishop
15 years 1 month ago

The five-year plan is logical and internally consistent. You can almost see the fingerprints of a large consulting firm on the thinking.

So, if you really can’t critique the form and the logic, what can you do? You can ask about the practical detail and how well it’s baked into their culture. This’ll tell you a lot about the strengths and weaknesses of their plans. Three specific areas to look are:

>How well are stores performing versus the sales potential used to approve the construction of the store, i.e., have they done a good job of matching stores to market potential?

>What’s happening in terms of shopper loyalty? Are they increasing share of requirements for their target customers?

>Are the marketing plans being executed consistently across the chain?

If we could grade Home Depot on these three fairly practical and important criteria, we’d be in a better position to evaluate the likely success of the five-year plan.

M. Jericho Banks PhD
M. Jericho Banks PhD
15 years 1 month ago

Harvesting low-hanging fruit is different than feeding the tree. Home Depot is great at trend-surfing, hopping from wave to developing wave in an almost prescient way. But, for the day when Lowe’s and others catch up and match their Brand Development Index, how will Home Depot’s historical customer care continue to produce fruit? How well did they feed the tree? Once famous for helping customers, HD is infamous for the same thing today.

Stephan Kouzomis
Stephan Kouzomis
15 years 1 month ago

Home depot has been through the analysis of maximizing current outlets within the channel, and marketing outside the stores… maybe with or without outside counsel.
HD has tried upscale stores that offer interior decorators and other services. HD didn’t quite execute to the concept and provide the ambiance.

Direct sales efforts to the construction, contract, and supply
builders makes a lot of sense; especially in the business / office sector.

But, what is of prime strategic sense is to expand into the moderate to upscale retail home furnishings and mass merchandising

Shoppers might be saying, I go to HD for the small house repair or furnishing needs; but if I want to consider Persian rugs, or a contemporary kitchen decor and high tech appliances, why can’t HD provide that too? Hmmmmmmmmmmmmmm


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