Industry Analysis Home Depot Business Analysis Eric Baker

Industry Analysis Home Depot Business Analysis Eric Baker, Joshua Benjamin, Tiffany Jesko, and Berkley Stell

SWOT Analysis The SWOT Analysis is a organized list that appropriately determines all the strengths, weaknesses, opportunities and threats of a business. This is used to help a business excel in their strengths, understand all areas of weakness, foresee opportunity and potential growth options, as well as risk mitigate and fight against any potential threats.

Strengths 1. HIghly structured leadership team 2. Good Quality work performance 3. Valued and respected brand loyalty 4. Heterogeneous product line 5. Relationship Oriented management approach 6. Online technology resulting in increased customer satisfaction When referring to the strengths of a business, the primary focus of the SWOT analysis is to notice key factors that allow Home Depot to excel, grow, and make more of an impact on the market over other businesses.

Weaknesses 1. Sole dependency on the U. S. market 2. 65% dept of the balance sheet a. Shareholder returns b. Minimal increased income When referring to the weaknesses of a business it is important to pinpoint areas that need improvement, areas that are done with little excellence or areas that hinder growth.

Opportunities 1. International market growth 2. Product line and mix growth 3. Online technology growth When regarding the opportunities of a business, anything that can potentially bring growth to a company is seen as opportunity. This can range from anywhere from international growth to technological growth to product growth.

Threats 1. Competitors a. Lowes, Walmart, Ace Hardware and Sutherlands 2. Substitutional products 3. Online theft When regarding the t hreats of the business, anything that hinders the success of a business or causes detrimental failure to a company is viewed as a threat.

SWOT Summary ● Understanding the SWOT analysis of your business is important ● After gathering all the information regarding the SWOT analysis: ○ Next step to have a successful business is to prioritize the information by categorizing them in order of severity ● An action plan should be created in a way that implements a promotion of the strengths within a business ○ Even Home Depot needs to make strategic changes to compete in the industry

Potential Rate of Growth of Industry ● 3 -6% �(4. 46%) ● 2013 -2017 Industry growth rate: 4. 95% ● 2018 -2022 Predicted growth rate: 4. 46%

Potential Rate of Growth of Industry Cont. ● Average GDP growth rate: ~2% growth rate of the U. S. economy ● This shows that the expected growth rate of the industry is above that of the markets rate which is promising.

Ease of Entry of New Firms into Industry ● Home Depot is operating within a red ocean - market is already well established and filled with competitors. ● Along with Home Depot, stores like ACE Hardwares, Lowes, and Walmart have over 14, 000 stores in North America alone. ○ While it is possible for new firms to enter the market, it is unlikely due to how crowded the market already is with well established firms ○ Cost of entry for the home improvement industry is low, yet the expenses to build a high name brand such as Home Depot is high- therefore it is offset into a weak force. No barriers - ____: ____: _ �_: ____ - virtually impossible to enter

Intensity of Competition Among firms Intensity of competition: How well other competitors are competing within the same marketplace. ● Measured by anything that makes one firm be above other firms within competition. ● Home Depot holds the dominating role within the marketplace however there are several other businesses that compete within the market as well. ○ Lowes ○ Walmart ○ Ace Hardware ○ Sutherlands Extremely competitive - ____: _ �_: ____: ____: ____ -Almost no competition

Degree of product substitutability: refers to the amount of products that function the same however at different prices. ● The goal of Home Depot is to compete in a market with products that operate the same however are sold as a much lower cost. ● Due to the amount of competitors, product substitutability is high for Home Depot Many substitutes available - _ �_: ____: ____: ____ -No substitutes available

Degree of Dependency on Complementary Products and services The Degree of dependency: The amount of dependency that a business has towards a certain product or a certain object to maintain operation or increase sales. ● Home Depot is dependant on the U. S. market ● Home Depot is independent when it comes to bringing in their own product mixes and expanding product diversification. Highly dependent - ____: ____: _ �_: ____ -Virtually independent

Degree of Bargaining power buyers and customers possess Majority of the bargaining power lies with the buyers/customers. ● Home Depot primarily competes on cost ○ ● offering items at the same or lower price than their competitors. Home Depot offers a price-match guarantee Buyers dictate terms - ____: _ �_: ____: ____: ____ -Purchasing firms dictate terms

Degree of Bargaining Power Suppliers and Vendors ● The influence of home improvement suppliers is weak due to different supplier brands ● Home Depot’s large size and well established brand name gives them more control over these suppliers. Suppliers dictate terms - ____: _ �_: ____: ____: ____ -Purchasing firms dictate terms

Degree of Technological Sophistication in Industry The degree of technological sophistication: The amount of technical involvement within the business and what tools they use to operate and gain growth in sales. ● Home Depot has a relatively low technological involvement. ● Most technology is embedded in their supply chain management ● Home Depot does offer mobile apps for their consumers to shop online, check inventory and locate items in-store but does not incorporate many other technological tools or benefits when operating their day-today business. High-level technology - ____: ____: _ �_: ____ -Very low-level technology

Rate of Innovation of Industry ● Home depot has centered their innovative attention on developing and improving their online capabilities, as well as their mobile app, and advanced shipping features. ● Home Depot has focused on making their website and mobile app secure and easy to navigate. ● Home Depot offers a “ship to store” feature free of charge, which allows people to pick up online orders at their nearest store ○ Almost 45% of online orders are picked up in store. Rapid innovation - ____: ____: _ �_: ____ -Almost no innovation

General Level of Management Capability The General Level of Management Capability: The amount of involvement from either their leadership team, their management approach, or even corporate involvement. ● Home Depot recruits mid-to-low level management straight from their staff members. ○ ● Most managers have ample knowledge and experience with Home Depot, and thus require minimal training. Multiple corporate offices in China, and India also allows Home Depot to strengthen relations with suppliers. Many very capable mgrs - ____: _ �_: ____: ____: ____ -Very few capable mgrs

PEST Analysis A PEST analysis has recently become a popular environmental scanning framework for an industry. This analysis identifies different environmental factors that might affect a firm externally, including… ● ● Political Enomic Social Technological It is through analysing these basic forces that a business is able to better understand how their company might transform through already existing competitive conditions within the industry.

Political Factors ● Larger portion of customers are Government Contractors ● This makes Home Depot susceptible to changes in political stability ● Many of Home Depot’s products are made overseas ○ ● Tariffs can impact cost of goods sold Affected by international trade barriers, laws and restrictions ○ This can help or hurt international expansion

Economic Factors ● As with any industry, overall industry success is greatly related to other economic factors like inflation ● Economy and housing market in recovery ○ ● Increased home goods sales Millennials choosing renting and apartment living over home ownership ○ This affects the future market for home goods ○ Can Home Depot adapt?

Social Factors ● Middle class families make up a majority of Home Depot’s target market. ● Middle class size and buying power is decreasing. (PEW Research Center) ● Due to large amount of available substitutes ● ○ Need for strong positive public relations ○ Brand loyalty Home depot offers low cost, non-premium products ○ Expansion may increase market share

Technological Factors ● Rapid Deployment Centers ○ ● ● ● Increased supply chain management technology Website and App ○ Live inventories ○ Finding in-store items Ship to store capabilities ○ In-store pickup ○ Also delivery options for contractors

Two Types of Competing Markets 1. The Market for Inputs a. 2. The expenses an industry must incur before producing any profit. i. Cost of labor ii. Overhead expense of product from suppliers iii. Cost of store buildings, trucks for deliveries, and tools/equipment for employees The Market for Outputs a. What an industry does in order to receive income from customers i. Any goods or services that an industry distributes to consumers ii. Goods: appliances, lumbar, carpet, tools, equipment, or other similar products (aimed to satisfy customers who like to take on projects themselves) iii. Services: delivery, installation, and repairs

Porter’s Five Forces is a guideline created by a Harvard business student, Michael Porter, to analyse the severity of competition within different industries. It bases the profitability of an industry based on five different forces including. . ● ● ● Competition from substitution The threat of entry Rivalry between established competitors Bargaining power of buyers Bargaining power of suppliers The strength of these competitive forces is then used to determine the overall attractiveness of the market

Competition from Substitution A strong force for Home Depot. ● ● ● Biggest competitor: Lowe’s High availability of substitution, low switching costs, and high performance-to-price ratio Cost of creating a business in the home improvement market is low, so even small businesses can become competitors. However, Home Depot has developed their brand so well that it is hard for those small businesses to seriously compete. Therefore, the high expenses of brand development weakens the threat of new entries for Home Depot.

The Threat of Entry A moderate force for Home Depot. ● The cost of creating a business in the home improvement market is low, so even small businesses can become competitors. ● However, Home Depot has developed their brand so well that is hard for those small businesses to seriously compete. ● Therefore, the high expenses of brand development weakens the threat of new entries for Home Depot.

Rivalry between Established Competitors A strong force for Home Depot. ● Closest competitor: Lowe’s ● Other smaller brands, such as Ace Hardware, have grown in significance as well. ● Home Depot remains a top home improvement store because of it’s high brand popularity, that has been built through customer satisfaction.

Bargaining Power of Buyers A strong force for Home Depot. ● Technology has advanced and given customers more power. ● Able to view products and compare cost-to-quality ratios online. ● No brand loyalty when it comes to home improvement store.

Bargaining Power of Suppliers A weak force for Home Depot. ● The bargaining power of suppliers force is weak for large companies like Home Depot. ● There are not any large, influential suppliers in the home improvement industry, which gives a big brand such as Home Depot more control over the supplier. ● Suppliers are still ultimately in control of themselves, but they can’t afford to lose big brands, which gives those brands a small portion of control. ● Most brands maintain long term relationships with trusted suppliers, so it is unlikely that they would switch to a new one, yet it is still an easy option.

Offering Premium Products online Home Depot doesn’t offer premium brands for their products in order to compete on cost, and offer lower priced items to their target market (middle class families) We suggest that home depot offer higher priced, premium products online for customers who would be interested.

Tailored marketing for millennials With millennials opting out of home ownership, large projects such home renovations and landscaping are not on the minds of younger consumers. If Home Depot were to widen the variety of products they offer to include smaller DIY projects, as well as tailor their marketing and advertising to millennials, they would be more appealing to their younger consumer audience.

Questions?