The Home Depot, Inc.

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The Home Depot, Inc.

2727 Paces Ferry Road
Atlanta, Georgia 30339
U.S.A.
(404) 433-8211
Fax: (404) 431-2739

Public Company
Incorporated: 1978
Employees: 21,500
Sales: $3.82 billion
Stock Exchange: New York

The Home Depot, Inc. (HD), the largest home center retailer in the United States, operates 165 warehouse stores and sells more than 30,000 items to the rapidly growing do-it-yourself home improvement market. The company’s stores are located on the West Coast and in the southwestern, northeastern, and southeastern regions of the United States. A typical HD warehouse stocks building materials, wall and floor coverings, paint, plumbing supplies, hardware, tools, electrical supplies, and supplies for landscaping and gardening.

The company was incorporated in June of 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% 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 HD management team set about to solve this problem in two ways. First, they made sure that all HD 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. The educated salespeople helped to create an increasing customer base in this fashion. Marcus and his partners believed an educated customer would take on more projects at home and would come back to HD outlets to purchase what was needed and get advice from a knowledgeable sales staffer.

HD composed its sales staff of dedicated do-it-yourselfers and professional tradespeople, in full-time capacities. Only 10% of HD’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 HD 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 to teach.

This approach paid off. By 1984 the company was operating 19 stores and reported sales of $256 million, a 118% increase over 1983. In 1986 HD’s sales reached the $1 billion mark, and the company was operating 50 retail outlets.

The company’s growth was not without its problems. In 1984 HD 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 HD carried in its other outlets. In addition, Bowater’s employees did not meet HD’s standards and, eventually, HD dismissed almost all of them.

During these years HD’s sales continued to climb, but for the first time in the company’s history, the cost of sales increased. In 1985 the company’s earnings fell 42%, 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, and changes were needed if the company was to continue to grow and prosper.

The company slowed down its expansion. In 1986 it only opened ten new stores, all in existing, established markets. A stock offering of 2.99 million shares at $17 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.

In 1989 HD surpassed Lowe’s Companies in sales to become the largest home-repair chain in the United States. The company began the 1990s with a goal of becoming a national retail chain doing more than $10 billion in sales from 350 locations by 1995. Part of this plan included an expansion into the northeastern United States by the addition of 75 stores. 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.

By the end of 1989, almost all outlets were using the company’s new satellite data communications network. The fast and accurate exchange of information between stores was designed to permit continued growth with responsiveness to market changes. The satellite is also the foundation of the company’s new 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% in 1990, and HD effected a three-for-two stock split that same year. Sales increased 38% over 1989. With the trend for continued growth in the do-it-yourself market shown by a 33% increase in the number of customer transactions logged by the company in 1990, along with an increase of 4% for the average customer sale, HD seems to be an emerging giant in the U.S. retail marketplace.