How Depot Divides Its Market Share White Paper

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Company Description

Established in Atlanta in the year 1978 by Arthur Blank and Bernie Marcus, The Home Depot basically aims at changing consumer perspectives regarding home improvement and care. Current headquarters of the retailer are still in Atlanta, though it has over 2,200 stores across the U.S. (including U.S. Virgin Islands, Puerto Rico and Guam), Mexico, Canada, and China. With a workforce of over 300,000, Home Depot is the largest specialty retailer in the world in the home improvement sector, and USA's fourth largest retail chain; its retail sales in 2009 amounted to 66.2 billion dollars (Rife, n.d.).

Strategic Positioning

The retailer has an explicit operating strategy, implemented via four major, management-designed initiatives (Clissold, 2013).

Customer Service

Home Depot's first initiative, customer service, revolves around forging an emotional bond with clients, putting their needs first, and caring for business associates. It retrained all U.S. business associates in 2012, for its newly developed program, 'Customers FIRST'. Surveys reveal that from the time this program was implemented, there have been improvements in customer satisfaction; also, management continually aims to enhance customer satisfaction. Furthermore, Home Depot rewards its workforce with incentive opportunities and competitive wages for attracting, retaining and motivating associates to remain focused on organizational objectives (Clissold, 2013).

Product Authority

This initiative deals with delivering product value, innovation, and assortment. Through a merchandizing data and selection strategy, the initiative emphasizes reinstitution of a goods-driven business, offering building devices for successful implementation, and merchandise that meet the requirements of customer projects (Clissold, 2013).

Disciplined Capital Allocation, Productivity and Efficiency

The retail chain's strategy to driving efficiency and productivity begins with well-organized capital allocation. This is centered on building top-class competitive edges in supply chain and information technology, in addition to building of shareholder value via good returns on their investment and high overall value returned to them in share repurchases as well as dividends. Since 2002, the retailer has repurchased common stock worth nearly 37.6 billion dollars (Clissold, 2013).

Interconnected Retail

This business-wide initiative connects all the above initiatives and attempts at providing increasingly-demanding customers with a smooth shopping experience. Managers feel that delivering a smooth and uniform shopping experience over multiple channels generates success in future (Clissold, 2013).

Business Segments/Target Market

Home Depot retail stores cater to 3 key customer segments: Do-It-For-Me, Do-It-Yourself and Professional Customers. Company operations occur in these segments, with an aim to deliver appropriate goods and services to each client (Rife, n.d.).

Customers:

Do-It-Yourself ("D-I-Y") Customers

These are usually home owners purchasing merchandise and completing installations and projects by themselves (Rife, n.d.).

Do-It-For-Me ("D-I-F-M") Customers

These are also home owners, purchasing materials by themselves, but hiring the services of third party companies for completing their installation or project. Home Depot, in collaboration with competent independent contractors, arranges for installing various Home Depot (HD) merchandise (Rife, n.d.).

Professional Customers

These represent professional remodelers, repairmen, general contractors, tradesmen and owners of small businesses. Many HD stores provide numerous programs, including delivery, expanded credit, dedicated staff and will-call options, to such customers (Rife, n.d.)

Products:

The average HD store stocks roughly 30,000-40,000 products throughout the year; these include propriety as well as national brand name products (Rife, n.d.).

Services:

HD provides a range of installation services, targeted at the D-I-F-M client base (these customers select and buy products plus installation from HD). The programs cover products like cabinets, flooring, carpeting, water heaters and countertops. Additionally, HD offers professional installation for various products (central air conditioners, furnaces, generators, etc.) offered via their in-house sales programs (Rife, n.d.).

Merchandising and Marketing Strategy:

The retail chain responded to trailing economy by making active changes in developing corporate strategy (Rife, n.d.):

Promotion shift: Stores decreased frequency of one-time discounts, transferring efforts on providing everyday values.

Inventory Reduction: Home Depot decreased inventory in 2009, while at the same time, improving in-stock rates

Improved brand focus: HD strengthened strategic bonds and exclusive ties with select suppliers for marketing goods under numerous well-known brand names, continually launched unique & innovative products, and included Martha Stewart Living among their alliances.

Business Growth Strategies

HD managers establish long-term operational goals to drive company growth, organically as well as via acquisitions. The retail chain's management, in 2012, established one such target (deadline- 2015) of 24% return on investment and 12% operating margin (Clissold, 2013).

Geographic Expansion

HD continually fuels growth via expansion of its geographic scope; HD's retail stores in Mexico increased in number from 60 in the year 2009, to 100 by November 2012. Mexico is the second largest South American economy, with a growth rate similar to Brazil.

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Its economic data indicates that the country is projected to add nearly 14.6 million houses until the year 2040, denoting a significant growth opportunity for the company (Clissold, 2013)

Though its expansion venture in Mexico offers HD a great growth opportunity, more than 90% of its income originates from the United States. The retailer has a sound geographical footprint in the U.S., Canada and Mexico. Its biggest rival store, Lowe's, only has two Mexican retail stores, and about 500 lesser stores than HD, in Canada and U.S. combined (Clissold, 2013)

All seven Home Depot stores situated in China were closed down in September 2012, owing to weak economic growth in China. Frank Blake, Chief Executive of Home Depot, maintained that the company was unable to make its way through the Chinese distribution channel to accord Chinese clients with its wholesale prices, leading to closure of all stores in the country. However, this move has enabled the company to concentrate on improvements in its existing outlets (Clissold, 2013).

Acquisitions

While acquisitions do not form a key aspect of the retailer's business strategy, it has made a number of strategic acquisitions, of late. These acquisitions have centered on improvements in clients' home improvement and care experience. The website, Red Beacon, which assists D-I-F-M clients in finding professionals to aid with completion of their home improvement projects, was acquired by Home Depot in the latter part of 2011. The company, in 2012, acquired a bath and kitchen refacing firm, as well as a flooring-measuring firm, for the purpose of providing required services to clients, and strengthening and unifying client experience with the Brand. In the same year, HD acquired pricing and data analytics business, BlackLocus. Through this acquisition, HD management will have access to additional capabilities and tools for supporting its merchandising team. The company is focusing on designing computerized in-aisle inventory management tools, at present (Clissold, 2013).

Demographics & Psychographic Characteristics

Demographics deals with a study of race, gender, age, education, home ownership, income, and other population characteristics, whereas psychographics deals with a study of values, opinions, attitudes, activities, interests, and similar characteristics. Firms marketing consumer goods focus particularly on psychographic information, allotting substantial funds towards proprietary research for gathering psychographic data. On the other hand, demographic data is relatively easy to procure, with governments producing tons of information on populations every year or so; also, staffing clients are normally familiar with demographic data. However, psychographic expertise is seldom found; experts in this field are generally individuals who have, by way of research and practical experience, developed an excellent understanding of the market. These individuals are aware of the talent available, how and where one must look, in addition to current thoughts of candidates, their needs, and how the firm can cultivate those needs (Earle, 2011).

Home Depot and other such retailers already make use of refined demographic information for locating specific talent pools (e.g., skilled construction personnel) in specified geographies wherein they wish to employ people for new stores or improve their customer service. They also make use of advanced competency and personality assessment tests for identifying which construction workers are capable of successfully transitioning from an out-of-doors job at a construction site to working in a store and interacting with store clients (Earle, 2011).

Pitney Bowes MapInfo executive, Brian Hill states that a combination of demographics and psychographics led HD to launch retail outlets in New York. While research findings indicated that the city lacked in typical HD customers (i.e. nuclear-family homeowners), demographic data illustrated that New York's population density could possibly support a major home improvement retailer. Hill further stated that while customers coming in for roof shingles are few, a lot of clients purchase nails, hammers and the like, from the store (Prees, 2008).

Behavioral Characteristics

Home Depot's corporate culture is an important asset, emphasizing a decentralized management approach, and encouraging business innovation as well as high-level commitment, enthusiasm and teamwork by its partners. HD's unprecedented expansion campaign (doubling of its stores' numbers) necessitates qualified assistant store managers, capable of training store associates and providing effective leadership. HD enlisted the services of Outward Bound Professional for providing managers with key skills, to manage its associates, which are the company's most important resource (The Home Depot, n.d.).

In an action-oriented, dynamic setting, the advanced objectives of these one-day, continuous custom training programs is increasing managers' effectiveness as leaders, through creation of insight and awareness of three major areas, namely,.....

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