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Home Depot

What is being offered?

The Home Depot, Inc. is the world's largest home improvement retailer based on net sales for fiscal 2017. The company offers its customers a wide assortment of building materials, home improvement products, lawn and garden products, and décor products and provides a number of services, including home improvement installation services and tool and equipment rental. As of the end of fiscal 2017, HD had 2,284 stores located throughout the U.S., including the Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam, Canada, and Mexico.

Who is buying?

Home Depot stores serve three main types of customer groups:

  1. Do-It-Yourself (DIY) customers: These customers are typically home owners who purchase products and complete their projects and installations on their own.
  2. Do-It-For-Me (DIFM) customers: These customers are typically home owners who purchase materials themselves and hire third-parties to complete their project or installation, or both. Home Depot arranges for product installation through qualified independent contractors.
  3. Professional customers: These customers are professional remodelers, general contractors, repairmen, small business owners, and tradesmen. Home Depot offers programs like delivery and will-call services, dedicated staff, extensive merchandise selections, and expanded credit programs to increase sales.

What buyers care about:

  1. Lower pricing and better discounts than competitor offerings
  2. Shopping convenience in terms of store location and internet shopping ease of use
  3. Friendly, dedicated, and well-informed staff
  4. Professional customers need immediate and effective delivery response at short notice
  5. Well organized product lines and fast billing process

Competitors:

Home Depot is the largest retailer of home improvement goods in the world. Its principal competitors include Lowe's, Lumber Liquidators, Menard Inc., Builders FirstSource, Sherwin Williams, Sears, Do it Best, Ace Hardware Corporation, Rona, Canadian Tire Corp, and Home Hardware Inc.

In addition, Home Depot also competes with discount stores, local, regional, and national hardware stores, mail order firms, warehouse clubs, and independent building supply stores.

Top selling points:

Exclusive brands offered in its product portfolio

Home Depot maintains strategic alliances with popular brands like Behr, Hampton Bay, Vigoro, Husky, RIGID, Ryobi, Pegasus, and Glacier by exclusively marketing their products. Home Depot can leverage its leadership position in the home improvement market and can have more of such exclusive alliances with manufacturers, giving it an edge over competitors. These exclusive agreements allow Home Depot to sell products at lower prices, and thereby attract customers.

Strong & efficient global product sourcing network

Home Depot directly sources high quality products from manufacturers around the world through its store support center and maintains a global sourcing merchandise program. The product development merchants identify and purchase market leading innovative products directly for their stores. This gives Home Depot's customers access to a vast range of products from around the world at lower prices due to the elimination of third-party intermediaries.

Home Depot's Weaknesses

Consumers' perception of Home Depot being interchangeable with Lowe's poses a potential weakness to the company, which, in turn, can decrease customer loyalty. When Lowe's enters a market that is only served by Home Depot, Home Depot's sales have a tendency to decrease by up to 15%.

Number of Stores

This refers to the number of stores operated by the company throughout the U.S., including the Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam, Canada, and Mexico.

By focusing on an integrated channel strategy, Home Depot has been able to increase revenues per square foot, rather than generating revenues from new square footage. This has ensured that its existing store network is being effectively used to drive revenues. Consequently, the company does not rely on increasing its store count, with the number of stores increasing modestly, from 2,263 in FY 2013 to 2,294 in FY 2017.

Chart: Number of Stores

Square Footage per Store

This refers to the average square footage per Home Depot store.

Optimal use of square footage. A typical The Home Depot store stocks approximately 30,000 to 40,000 products during the year, including both national brand name and proprietary items. To enhance its merchandising capabilities, HD continues to make improvements to its information technology tools in fiscal 2017 to better understand its customers, provide more localized assortments to fit customer demand, and optimize space to dedicate the right square footage to the right products in the right location.

The Square Footage Per Store has remained fairly stable at 104 thousand square footage per store.

Chart: Square Footage per Store

The Revenue per Square Foot

This is the total dollar sales of the company divided by the total square footage.

The revenue per square foot for Home Depot has increased at stellar rates in the past few years, ranging between 5.5% and 7% during 2014 to 2017. This impressive performance has been a result of an improving housing market and stable economic conditions. Furthermore, the development of the company's omnichannel strategy has helped spur growth in the metric.

Chart: The Revenue per Square Foot