Running head: HOME DEPOT
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Paper 2
Running head: HOME DEPOT
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Home Depot company ,has the needed strengths and opportunities required to succeed in the
retail home improvement market. According to Jackson, Joshi & Erhardt (2007), there are two
major internal factors in SWOT analysis, which affect the survival of a business entity. They are
strengths and weakness. This shows how stable Home Depot’s business is, as well as the
business strategies it put in place such as creating an entrepreneurial culture, and enhancing
credit stability to boost investment grade ratings. Dyson, R. G. (2009) also says that external
opportunities and threats are factors that the business cannot control as they are on a macro level
affecting the whole industry. Home Depot has come up with a strong marketing strategy to boost
its sales in highly-populated regions.
Strong able management is partly responsible for
improving the company’s performance. It faces challenges such as inflation that raises the cost of
production and Lowe’s sales. The company also has strong financial support as there has been
rising income annually, and reduction in the cost of production. Schroeder, Clark & Cathey
(2011) observed that, reduction in costs and increase in incomes leads to the success of the
business. Therefore, Home Depot is likely to get continued success, according to the analysis of
the strategies it uses, as it is higher in performance more than its peers – Lowe’s and Restoration
Hardware.
Running head: HOME DEPOT
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SWOT analysis
Strengths
Home Depot has maintained a stable financial
position through high net profits of not less than
$1.7 billion annually for the last five years. The
Weaknesses
profits have been increasing by 7.1%.
Home Depot has also maintained its brand name
The analysis shows Home Depot has had a high
employee turnover in the last five years. Thus, it has
increased costs by having to train new employees.
through high quality manufacturing of tracks that
are strong. Thus, it has maintained its customer
loyalty.
The analysis shows the company has increased its
investment grade ratings due to its great efforts to
reduce debts annually. The company has been
meeting its annual target of reducing the debt by
5.2% each year for the last four years.
The company has a strong entrepreneurial culture
Fluctuating costs and revenues have become a
challenge to the company as it is difficult to accurately
predict the future cash flows for effective decision
making. Thus at times it has led to poor planning
.
that has enhanced cooperation among employees
and improved innovation, leading to higher
quality motors.
Opportunities
Home Depot has identified a viable market in
China, where there are an increasing number of
homes being built.
Home Depot always has had a serious and strong
Threats
Home Depot has experienced stiff competition
from other competitors in its industry such as
Lowe’s and Restoration Hardware.
Government intervention through tough regulations
advertising campaign that has managed to
and high taxes have made the cost of operation to
effectively create awareness to the large
rise and reduce the profit margin.
population in its U.S. region. Thus, it has
improved its sales by 4% each year for the past
five years.
Running head: HOME DEPOT
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Financial Analysis
Historical Performance of Home Depot Company
Financial ratios
Liquidity ratios
Sales
Gross margin
Return on sales
Return on assets
Total liabilities/ Equity
Asset turnover
Current ratio
FYE
FYE
FYE
2012
$ 74,754
34.5%
6.1%
9.6%
0.41
1.75
1.34
2013
$ 78,812
34.6%
6.8%
11.4%
0.41
1.82
1.42
2014
$ 83,176
34.8%
7.1%
13.2%
0.40
1.93
1.36
Six Months
ended
8/3/2015
$84,380
34.8%
6.8%
15.9%
0.41
2.07
1.19
Home Deport Industry Analysis
Home Depot Company is a business organization in the Home improvement industry. According
to Bartley (2003), the industry is at its exponential stage (growth stage). This is because there are
several companies that are being established in the industry rapidly, characterized by stiff
Running head: HOME DEPOT
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competition and innovation. The industry is an oligopolistic market. An oligopoly occurs where
there are a few strong sellers in the market who are able to control prices and suppress
competition. Home Depot and Lowe’s are the major companies in the market which have had
the opportunity to control the market by raising the prices of their home products due to their
huge capital base. As a result, the market has resulted to be an oligopoy as the other companies
such as ACE and Travis Perkins are small and have less influence on the prices for their
products, such as furniture.
However, the industry has been facing the following major issues: First, customers in the
industry demand heavy after-sales services that increase the costs of operation of the companies,
thus reducing net income. For example, some customers file claims for the repair of the whole
roof should they discover a single small water hole on the ceiling. Ortiz, Castells & Sonnemann
(2009) observed that water holes can be repaired with seals and grease, but some customers are
stubborn, demanding full replacement, which is very expensive for the companies.
Second, there is the issue of unfair competition. Since the industry is in its growth stage, some
small companies are entering the home improvement market. The already established companies
are putting pressure on these small companies by cutting prices and suppressing competition.
Running head: HOME DEPOT
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Last, there is the issue of government interference. Tough rules and regulations are hindering
smooth operation of companies in the industry.
Major competitors in the industry include Home Depot, Lowe’s,and Restoration Hardware.
However, there are several other companies in the industry such as OSH, Home Club, Builder’s
Emporium, ACE, RMI, Travis Perkins, and B&Q. Bianchi & Mena (2004) says that “HomeDepot has invested much in R&D and creating brand awareness through multichannel
advertising that has lead to its sales increase by 19% for the last two years. Lowe’s has invested
much in innovation and retaining brand name through customer loyalty strategies by providing
better services and high quality furniture. ACE and B&Q have applied business strategies
through cost minimization and supporting entrepreneurial culture and innovation’’. Thus each
company has its own strategy which differs from each other.
Home Depot Company Peer group Comparison
FYE 2014
(In millions)
Company Peer group
Comparison
(Home Depot)
FYE
(Lowe’s)
FYE
(Restoration Hardware)
FYE
Running head: HOME DEPOT
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Attribute/Year
2014
2014
2014
Sales/revenue
$78.8 billion
$53.4 billion
$1.55 billion
Gross margin
34.8%
34.56%
35.9%
Return on sales
7.1%
5.4%
3.2%
Return on Equity
35.6%
17.8%
11.7%
Return on Assets
13.2%
7.0%
1.5%
Total liabilities/ Equity
0.55
0.44
0.014
Current Assets
15.3 B
10.3 B
613.8 mil
Asset turnover
1.9
1.6
1.7
References
Ortiz, O., Castells, F., & Sonnemann, G. (2009). Sustainability in the construction industry: A
review of recent developments based on LCA.Construction and Building
Materials, 23(1), 28-39.
Bianchi, C. C., & Ostale, E. (2006). Lessons learned from unsuccessful internationalization
attempts: Examples of multinational retailers in Chile.Journal of Business
Research, 59(1), 140-147.
Running head: HOME DEPOT
Bianchi, C., & Mena, J. (2004). Defending the local market against foreign competitors: the
example of Chilean retailers. International Journal of Retail & Distribution
Management, 32(10), 495-504.
Jackson, S. E., Joshi, A., & Erhardt, N. L. (2007). Recent research on team and organizational
diversity: SWOT analysis and implications. Journal of management, 29(6), 801-830.
Dyson, R. G. (2009). Strategic development and SWOT analysis at the University of Warwick.
European journal of operational research, 152(3), 631-640.
Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2011). Financial accounting theory and
analysis: text and cases. John Wiley and Sons.
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