2727 Paces Ferry Road
As the population in North America continues to age, so does the housing stock. More people are reinvesting in their most precious material asset--their home--with renewed vigor. They are remodeling, updating and tackling more projects on their own. And they are coming to The Home Depot to do their shopping.
What they find is a "feel good" store: a place where they feel good about walking in our doors, feel good about consulting our knowledgeable associates, feel good about paying a low price and feel good about returning time after time.
But as good as our business feels, what we have accomplished over the years is only a springboard from which to improve as we continue to evolve and respond to the opportunities and challenges ahead.
As we look forward with a quickening pace, we envision years of dynamic profitability, sales, growth and success for our associates and stockholders alike. And you can bet that we won't rest for a minute while we paint the industry orange.
The Home Depot, Inc. the largest home center retailer in the United States, operates 478 warehouse stores and sells more than 40,000 items to both the rapidly growing do-it-yourself home improvement market and construction professionals. The company's stores are located in 19 states, on the West Coast as well as in the southwestern, northeastern, and southeastern regions of the United States. California and Florida are the states containing the most Home Depot outlets, most of which are clustered around urban areas. A typical Home Depot warehouse--more than twice the industry norm at an average of 105,000 square feet--stocks building materials, wall and floor coverings, paint, plumbing supplies, hardware, tools, electrical supplies, and supplies for landscaping and gardening.
Roots in Handy Dan
The company was incorporated in June 1978 as a result of a corporate management shake-up by new ownership of the Handy Dan home center chain. As a result of the managerial shuffle, Bernard Marcus, Arthur Blank, and Ronald Brill found themselves out of work. With backing from a New York venture capital firm, Marcus and his two associates formed The Home Depot and opened the company's first outlets in the Atlanta, Georgia, area. The concept that had helped secure financing for the project was that when the price of merchandise was marked down, sales increased while the cost of making those sales decreased. The major problem that had plagued most cut-rate retail operations, however, was poor service at the operations level, which hired unskilled, low-paid employees to keep costs down.
Marcus and his partners realized that recognizing customers' needs was one of the most important elements in a company's growth. They were aware that at the time do-it-yourselfers made up more than 60 percent of the building supply industry's sales volume, but the majority of them did not have the technical knowledge or expertise to accomplish most home repair or improvement projects.
The Home Depot management team set about to solve this problem in two ways. First, they made sure that all Home Depot stores were large enough to stock at least 25,000 different items. Their competitor locations normally had room for only 10,000. The second solution was to train the sales staff in each store to help remove much of the mystery attached to home improvement projects from the minds of consumers. Marcus and his partners believed that, with the education provided by knowledgeable sales staffers, Home Depot customers would gain the confidence to take on more projects at home, coming back to Home Depot outlets to purchase what was needed and get additional advice from sales staff.
Home Depot built its sales staff from both dedicated do-it-yourselfers and professional tradespeople, hiring most employees in full-time capacities. Only 10 percent of Home Depot's sales personnel were part-time. Whenever possible, each store had a licensed plumber and electrician on staff, and customers were urged to call the Home Depot store in their area if they had any problem or questions while they were doing their home repair or improvement projects. The company also scheduled in-store instructional workshops for its customers and in some cases brought in local contractors as teachers.
This approach paid off. By 1984 the company was operating 19 stores and reported sales of $256 million, a 118 percent increase over 1983. In 1986 Home Depot's sales reached the $1 billion mark, and the company was operating 50 retail outlets.
Troubles During the Mid-1980s
The company's growth was not without its problems, however. In 1984 Home Depot paid $38.4 million for the nine-store Bowater warehouse chain, with outlets in Texas, Louisiana, and Alabama. The acquisition created immediate difficulties. Bowater's reputation with consumers was shoddy, and the merchandise in its stores did not match what Home Depot carried in its other outlets. In addition, Bowater's employees did not meet Home Depot's standards; Home Depot would eventually be forced to dismiss almost all of them.
During these years Home Depot's sales continued to climb, but for the first time in the company's history the cost of sales also increased. In 1985 the company's earnings fell 42 percent, and with the ever-increasing costs of opening new outlets--at that time it was more than $8 million per store--the company's long-term debt rose from $4 million to $200 million in just two years. By the end of 1985, the company's stock price had plummeted. It was clear that changes were needed if Home Depot was to continue to grow and prosper.
The company slowed down its expansion. In 1986 Home Depot only opened ten new stores, all in existing, established markets. A stock offering of 2.99 million shares at $17 per share helped reduce and restructure the company debt. Marcus also installed a computerized inventory control system and upgraded the company's management training programs. In keeping with Marcus's commitment to slower, more conservative growth, the company continued opening new stores to completely capture existing markets instead of striking out into new regions of the country.
1989: A Breakthrough Year
By 1989 Home Depot had surpassed Lowe's Companies in sales, becoming the largest home-repair chain in the United States. By year's end almost all outlets were using the company's new satellite data communications network. The fast and accurate exchange of information now linking stores permitted continued growth by enhancing the company's responsiveness to market changes. The satellite also served as a foundation for the Home Depot television network, a system that produces and transmits live programming by top management to each outlet. The company's net earnings increased 46 percent in 1990, and Home Depot effected a three-for-two stock split that same year. Sales increased 38 percent over 1989. With the trend for continued growth in the do-it-yourself market shown by a 33 percent increase in the number of customer transactions logged by the company in 1990, along with an increase of 4 percent for the average customer sale, Home Depot seemed to be an emerging giant in the U.S. retail marketplace.
The company began the 1990s with the goal of doing more than $10 billion in sales from 350 locations by 1995. Part of this plan included a 75-store expansion into the northeastern United States, one of Home Depot's strongest markets despite the region's economic setbacks. Company officials believed the area's dense population and large number of older homes would generate impressive results. Expansion plans also included the state of Washington.
Despite the continued health of the home remodeling market, the company's stock flattened out in 1993, as the firm began to saturate its market. Along with superstores like Bed Bath & Beyond, Home Depot suffered from consumer reaction to the proliferation of large warehouse megastores. In reaction, the company began to search for ways to redefine its marketplace, as well as developing enhancements to its three-tiered "price, assortment, and service" strategies.
Continued Growth During the 1990s
Throughout the 1990s Home Depot tested out several programs designed to determine where business could grow next. In 1991 it sampled customer interest in an installation program for items like carpets, doors, and windows. The program met with success and was adopted throughout Home Depot stores. A bridal registry was tested, as well as a drive-in lumberyard and a delivery service. Home Depot also established an environmental marketing department to help educate consumers about what product choices are more environmentally friendly. Over 70 hardware products--from light bulbs to paint--were identified for customers via in-store flyers and posters. Customer satisfaction again came under consideration in a program called S.P.I--store productivity improvement--in which cleaning, restocking, and other routine tasks are scheduled after store hours. In 1995 Home Depot opened its first 24-hour store and published a book on home repair, the 480-page Home Improvement 1-2-3, compiled with Better Homes and Gardens magazine publisher Meredith Corporation.
In addition to entering new U.S. markets, Home Depot began to examine other options. In 1994 the company spent $150 million on a 75 percent share of Aikenhead's Home Improvement Warehouse, a Canadian hardware chain. While Home Depot examined the possibility of expansion both north and south of the border, by the following year plans to open outlets in Mexico had been put on hold, and the number of planned Canadian openings had been reduced to 25 through 1996. Instead, the company added to the number of its EXPO Design Centers, bringing the total to five. Begun in 1991 and located throughout the U.S., these stores have captured the upscale interior design market and further expanded the company's sales base. In addition, efforts to court the commercial market also began to reap profits; overall, Home Depot net earnings achieved a 5-year compound growth rate of 35 percent over the first half of the 1990s.
In addition to its dual concerns of maintaining both the bottom line and customer satisfaction, Home Depot has continued to take a leadership role in many of the communities that its stores have entered. Under the leadership of Blank, who contends that corporate America has a responsibility to give back to the society within which it flourishes, Home Depot's Team Depot has become involved in humanitarian causes ranging from local welfare organizations to Habitat for Humanity and the Boys and Girls Clubs of Canada and the United States. In addition to encouraging the continuous volunteer efforts of its employees, the company also employed 1996 Olympic hopeful athletes, paying them competitive wages as part-time employees during their training for the Atlanta-based games, of which Home Depot was a corporate sponsor.
Although some forecasters continued to shed doubt upon the company's ability to maintain its phenomenal level of growth through the year 2000, company management has remained confident. By 3rd-quarter 1996 Home Depot had reported earnings of $221--up 26 percent from the previous year--and was ranked among the ten largest retailers in the United States. Despite the losses posted to competitors in the do-it-yourself retail market, Home Depot's 9 percent increase in same-store sales in 1996 showed that, within the $90 billion consumer home improvement market, orange had become the color of choice.