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The Home Depot : company profile

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Home Depot is the world's biggest home improvement retailer by a considerable margin. Each of its massive stores in North America stocks up to 40,000 different kinds of building materials, home improvement supplies and lawn and garden products, catering to professionals as well as amateur DIYers. However the slowing US housing market has prompted disappointing financial performance since 2007 including, that year, the first fall in comparable annual sales in the company's history. Despite its size, Home Depot has been cautious about moving beyond its home country, although it has operations in Canada and Mexico. An attempt to establish a presence in China failed to take off and was abandoned at the beginning of 2011. Nevertheless, it has often been highlighted as a potential bidder for Europe's DIY giant Kingfisher.

Advertising

Who handles Home Depot's advertising? Click here for agency account assignments for Home Depot. The group declared gross advertising expense in fiscal 2016 of $955m. In the US, Kantar (in Advertising Age) reported measured expenditure of $356m for 2016, out of an estimated total of $874m.

Competitors

See also Retail Sector indexfor other companies.

Brand & Activities

Home Depot has defined the model for home improvement retailing worldwide, and several of its innovations, not least the orange box logo and aprons to teams of in-store DIY experts, have been adopted by international competitors. Size allows Home Depot to undercut most rivals on price and beat them on range, but the group now has comparatively little room left in which to grow its core US business. It has pushed aggressively into developing neighbouring markets in North America, but expansion into China proved unsuccessful.

As of early 2016, the group operated 2,275 outlets in total, including 1,977 in the US, spread across all 50 states. All stores carry the main Home Depot brand, with its familiar "orange box" logo. Until recently the group also owned subsidiary retail chain EXPO Interior Design Centers, specialising in big-ticket kitchen, bathroom and bedroom renovations. These stores were closed during 2009 or converted to the main Home Depot brand.

Internationally the company is also the #1 home improvement retailer in Canada with 182 stores, as well as in Mexico. In 2004 the group added to its existing Mexican chain Total Home by agreeing to acquire rival chain Home Mart. Both chains were rebranded as Home Depot, and further openings have brought the total number of outlets in Mexico to 116. However, the group closed down its operations in Chile and Argentina in 2000 and 2001. Home Depot has long been highlighted as a potential bidder for Europe's DIY giant Kingfisher, but in 2004 the group ruled out any such bid as a result of the weak dollar. Instead it announced plans to establish operations in China. At the end of 2006 it agreed terms for the purchase of The Home Way, China's first "big box" home improvement retailer when it launched in 1996. Based in Tianjin, it had 12 warehouse-style stores in six cities including Beijing. However the lack of a Western-style DIY ethos in China created significant problems for the business, and Home Depot gradually closed its stores there. In 3Q 2012 it said it would close all its remaining big box stores in China; that was process was completed by the end of 2013.

Home Depot has long placed an emphasis on high quality service as well as extensive education facilities. During the 1990s, the group made a point of hiring employees with skills in carpentry, plumbing and other home improvement disciplines, encouraging them to offer their knowledge and advice to bewildered shoppers. It still offers free weekly how-to clinics in all stores, but has also rolled out an increasing number of services, so-called DIFM or "Do It For Me" instead of Do It Yourself. The store now offers customers a network of third-party contractors who can supply installation in more than 20 different areas, including roofing, garage doors, boilers, heating and air conditioning, even decking and fencing. In early 2006 the group acquired carpet and upholstery cleaning company Chem-Dry, which operates nearly 4,000 franchises worldwide, including 2,500 in the US. In-store, Home Depot offers a variety of private label or exclusive brands including Husky tools, Behr paints, Charmglow grills, Hampton Bay lighting, Vigoro lawn products, Ridgid and Ryobi power tools, Glacier Bay bathroom fixtures and Traffic Master carpet. It is also the exclusive distributor of Ralph Lauren paints and GE's Adora line of appliances, and offers an exclusive line of Martha Stewart home improvement products.

With logistical limits on the number of new consumer superstores it can open, the group has begun to develop smaller formats. Villager's Hardware, a small-store format tested in the 1990s, was later abandoned. However, the first mid-size store opened in New York in 2002. With around 60,000 square feet of selling space, it is roughly half the size of traditional Home Depot stores. At the same time the group has increasingly targeted niche audiences of professional builders and housing managers, while still providing the vast array of products demanded by general consumer shoppers. It is intent on developing its position in the home appliance market, currently dominated by Sears and arch-rival Lowe's, as well as installation or maintenance home services. Home Depot Direct is a fast-expanding internet retail service.

The group's fastest-growing division for several years was its professional wholesale supplies operation, latterly consolidated under the umbrella brand HD Supply. More than twice the size of the consumer home improvement sector, this sector appeared to offer considerable room for growth. Home Depot acquired a number of businesses over the years including Maintenance Warehouse (building repair products for managers of apartment complexes and commercial properties), National Blinds, Apex Supply, lighting distributor Georgia Lighting, plumbing distributor Your "Other" Warehouse, flooring contractor HD Builder Solutions, and White Cap Construction Supply. Its biggest deal in this sector was the purchase of Hughes Supply, a distributor of construction and building maintenance products. However the slowdown in the US construction industry persuaded the group to divest its wholesale arm in 2007. An agreement was made mid-year to sell the entire HD Supply division to three private equity firms for $10.3bn. However the subsequent credit crisis made it more difficult for the private equity buyers to raise funding, forcing both sides into tense renegotiations. Home Depot eventually agreed to a reduction in price to $8.3bn and a 12.5% shareholding in the divested business.

Financials

As the rapid growth that marked the company's first two decades slowed, it began to feel renewed competition from rivals, especially #2 home improvement chain Lowe's, which has followed in Home Depot's footsteps, growing from a regional to a national player. Sales growth picked up again between 2003 and 2006, before slowing in the difficult economic conditions after 2007. There has been another steady growth curve since 2010.

Revenues topped $80bn for the first time in ye 2015. For the year ending Jan 2016, revenues rose another 6% to $88.52bn. Only $8.5bn was generated outside the US. Net earnings jumped 10%, exceeding $7.0bn for the first time.

There was another strong performance in ye 2017, with revenues up 7% to $94.60bn, while net earnings popped 14% to $7.96bn. The number of individual customer transactions exceeded 1.5bn for the first time in ye 2016, rising to 1.54bn for ye 2017. Average value of each sale topped $60 for the first time in the latter year.

Background

Bernie Marcus and Arthur Blank developed the blueprint for Home Depot in the late 1970s, after leaving mid-size DIY retailer Handy Dan. While searching for the right formula for their own home improvement store they visited Homeco, a huge 120,000 square foot warehouse in Southern California. This inspired them with the idea of opening a similarly vast store which catered to literally every sort of DIY interest. They formed a partnership with Homeco's owner, and opened the first three Home Depot stores in fast-developing Atlanta, Georgia in 1979.

The business proved an immediate success. Within two years, sales had leapt to over $51m. The partners opened four new stores in Florida, and floated the business to raise more development capital. On the back of new store openings in Arizona and Louisiana, sales more than doubled in 1982 and again in 1983. A year later the group acquired Texas-based Bowater Home Centers, bringing the total number of stores to 31. By 1986, the portfolio had leapt to 60 stores around the US, while sales broke the $1bn mark, overtaking established US home improvement retailer Lowe's, then primarily a regional player. Sales had doubled again by 1988 to over $2bn, and once again by 1991 to over $5bn.

That year the group opened the first EXPO Design Center. Shrugging off the effects of the 1990s recession, the group powered its way through the decade, notching up record financial performance every quarter for more than 10 years between 1986 and 1996. In 1994 the group took its first steps outside the US, acquiring a controlling stake (and later full ownership) of Canadian home improvement retailer Aikenhead. The following years saw further diversification. In 1997, Home Depot moved into the mail order market, acquiring Maintenance Warehouse and telesales outfit National Blinds & Wallpaper. It also agreed a joint venture with Chilean retailer Falabella to open the first Home Depot stores in Latin America. Other purchases included Georgia Lighting and Apex Supply Company, a wholesale distributor of plumbing, HVAC and other professional products, in 1999.

Meanwhile the pace of expansion was maintained, with two new stores opening every week through much of the late 1990s. In 2000, the group tested a new concept, opening a specialist Home Depot Floor Store in Texas. There were also further forays into Latin America as stores opened in Argentina. In 2001 the group bought Total Home, a chain of four home improvement stores in Mexico, but it later sold its interests in Argentina and Chile to focus on this business.

Yet at the same time the relentless, awe-inspiring growth which marked the company's first two decades had begun to slow. In 1998 company figurehead Bernie Marcus passed over the role of CEO to his co-founder Arthur Blank, while remaining chairman. A fine accountant, Blank was regarded as a less inspiring CEO than his partner, and in 2000, the Home Depot board replaced him with former General Electric executive Bob Nardelli. Blank left later that year; Marcus followed in 2002, although he remains actively involved in the company, and is its biggest shareholder. Nardelli's brief was to impose a tighter corporate structure on the generally loose management style pioneered by Blank and Marcus, while finding new routes for expansion. That strategy worked successfully for several years, and revenues doubled during Nardelli's reign. However he came under increasing pressure from shareholders during 2006 for the poor performance of the company's share price (which had actually declined since he was appointed despite revenue growth), as well as his lavish pay package. Nardelli eventually stepped down in January 2007, but not before fuelling renewed shareholder outrage over a further $210m payout for services rendered. He was replaced by Frank Blake, formerly vice chairman and EVP of business development & corporate operation. Craig Menear succeeded Frank Blake as CEO in early 2014 and then added the role of chairman a year later

Last full revision 7th June 2016

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