Home Depot

David Ronca

Retail Project

Professor Davis

24 March 2008

The Home Depot was founded on June 22, 1979 by Bernie Marcus and Arthur Blank in Atlanta, Georgia. During the 1970’s Marcus and Blank had held executive positions in a chain of 60 local home improvement stores known as Handy Dan Home Improvement Center. Demonstrating strong commitment they excelled through the ranks, putting themselves in commanding positions they started “experimenting with discounted merchandise within the local chain” (Bernard) in a more do it yourself atmosphere. The attempt of a developed a plan to sell the low priced goods in a do-it-yourself retail store was a local success. In 1978 The Handy Dan business was completely bought out and prompted the firing of Marcus and Blank. That later became the best thing to ever happen to them, they decided to go into business together. Investment banker and friend Ken Langone provided the initial investment of $100,000 to secure the necessary capital. “Unable to finance construction of a prototype store, the men bought two defunct Treasure Island Discount stores in Atlanta and set up shop as The Home Depot“ (Bernard). Beginning with 18,000 different products, low priced, a simple open warehouse setting, and a hired knowledgeable staff. On the first and second day of business they had kids out front hand out Home Depot money as a thank you to customers for visiting the store. After a couple days they got “hopeful when a satisfied customer returned with a bag of home grown okra as her way of saying thank you for the good shopping experience she had” (Bernard). Soon, word spread and the customers flooded in so much that within twelve months, two more stores had opened.

After two successful years “Home Depot held its IPO in 1981 and listed on the New York Stock Exchange three years later under the ticker - HD” (McMenimon). The company was growing, opening stores in Georgia, Florida, Louisiana, Texas and Alabama within the first five years. In 1986 they reached sales of $1 billion, “making them the fastest growing home improvement retailer with an average annual growth in sales of 119% during this period” (McMenimon). The 1980’s and 1990’s produced huge growth for the company, “with 1989 marking the celebration of its 100th store opening” (Our). During the next 10 years, the company expanded quickly, over turning the nation’s leading home improvement chain, Lowes, as the country’s biggest warehouse home center retailer. By 1987, The Home Depot had 75 stores and had earned $54 million on sales. By 1991, the company had 158 stores in 14 states, and more than 30,000 pleased stock holding employees. “The company arrived in Canada with the acquisition of Aikenhead’s home improvement centers in 1994, and it began flying its flag proudly in Mexico in 2001 through the acquisition of Total Home” (Our). In 1999, The Home Depot “was added to the selective Dow Jones Industrial Average, when such respected firms as Sears, Chevron, and Goodyear were removed” (Bernard). Also, the company’s museum, The Legend, which accounts for the history of Home Depot and depicts the values that set them apart opened up in an Atlanta Store Support Center. In 2000, after the retirement of Marcus and Blank, Robert Nardelli was appointed chairmen, president, and CEO. The industry had developed to 1,100 stores in 48 states and Canada, Puerto Rico, Argentina, and Chile. In 2000, the company bought plumbing distributor Apex Supply, which had operated 21 facilities in South Carolina, Georgia, and Tennessee. For six consecutive years, The Home Depot was ranked by Fortune magazine as America’s Most Admired Specialty Retailer. Coinciding with being a well respected business, another characteristic is their active involvement in the community. Starting in 2002 they established The Home Depot Foundation which “supports a variety of community projects, including Habitat for Humanity, City of Hope Cancer Center, a California based cancer treatment center, and KaBoom, a playground construction organization“ (Wikipedia). Four years latter the company branched out to China by acquiring The Home Way, a 12 store chain. Its 2006 sales totaled $90.8 billion. Home Depot was growing so quickly, it had been able to gain significant discounted prices from suppliers. “Home Depot has also been able to establish and successfully execute a market saturation strategy coupled with low prices and high service” (McMenimon). Being able to accomplish this has been the symbol of Home Depot’s strategy and will allow them to continue into the future.

But in 2007 housing troubles hit Home Depot. Earnings decline because of the weak conditions in the housing market and the sale of its wholesale distribution business. By July 10th “Home Depot shares fell $.24 to $39.99 in pre-market activity” (Associate). Trying to combat this hardship the company took pressure off management and announced a stock repurchase program in which its board had authorized the company to buy back up to $22.5 billion of Home Depot stock. Some analyst reacted negatively saying the decision to lower guidance and buy back stock at the same time was the wrong method. “They risk their strong financial position just when the housing market is facing a long year bear market” (Associate) wrote a blogger. The challenging year of 2007 is well expected to continue into 2008.

With the industry’s struggle came the resignation of CEO Robert Nardelli. Under fire for his high pay package as well as his management style, on January 2, 2007 the Home Depot and Robert Nardelli mutually agreed on Nardelli’s departure as CEO after a six year stay. He was given a $210 million severance which included stock options and other compensation. His successor was Frank Blake, who had been executive vice president of business development and corporate operations. He was hired by Nardelli at Home Depot in 2002 from the U.S. Department of Energy, where he served as deputy secretary and managed the DOEвЂ?s annual $19 billion budget. The Home Depot’s board consisted of 12 members, with 11 of them being outside directors. The Board of Directors of Home Depot is “committed to maximizing long term shareholder value while supporting management in the business and operations of the company, observing the highest ethical standards and adhering to the laws of the jurisdictions