May 2, 2008
Home Depot Shuttering Stores
As an Atlanta Journal-Constitution article points out, 2008 has been a bad year for Home Depot and there’s still a long way to go. Yesterday, the chain followed up previous steps that included corporate layoffs and scaled back capital investment plans with an announcement that it was closing 15 underperforming stores and no longer pursuing 50 locations in its pipeline for future expansion.
“Closing a store is always a difficult decision because it affects both our people and our communities,” Home Depot CEO Frank Blake said in a press release. “But, as with our decision to slow future store growth, this is the right decision and will bring long-term benefits to our associates and to our shareholders. … By building fewer stores, in the best locations, and making sure our existing stores are profitable, our company will be in a much stronger competitive position.”
Home Depot does intend to continue with its investment plans to improve merchandise selection and the shopping experience in existing stores. It also intends to go ahead with opening 55 new locations with 36 of those in the U.S.
Zahid Siddique, a building products analyst with Gabelli & Co., questioned Home Depot’s strategy. “Demand will remain somewhat depressed for the next several years, especially in the U.S. I don’t think there’s really any incremental benefit from opening these new stores,” he told Forbes.com.
Home Depot is not alone in dealing with the housing crunch. Its chief rival, Lowe’s, announced in March that it was delaying the opening of 20 new stores in response to market conditions.
Discussion Questions: Does Home Depot have the right plan in place to get through current challenges and come out stronger when the economy rebounds? What gives you the most cause for optimism and/or pessimism based on what you’re seeing take place?
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Customer service has been a growing problem at HD for quite a while now. Selection and service were their mantra when they started, but service as steadily fallen by the wayside, while selection certainly isn’t what it once was. This seems to be the inevitable fallout as corporate retail pursues economies of scale but in this segment, service is so much a critical part of the sale. It’s not enough in the home improvement segment to have the cheapest widget. Customer service is the critical difference maker to the incremental sale here. This makes the challenges for both HD and Lowe’s that much more daunting, and creates opportunity for highly focused independent niche retailers to thrive
Home Depot needs to think lean. Maybe their senior executive salaries are out of line? Cutting the fat in corporate and other programs comes first. Reducing stores is reducing sales while fat just sits around consuming profits. Home Depot needs to focus on execution. Execution is the key to Wal-Mart’s success and we’ve also recently seen huge improvement with Lowe’s, a Home Depot competitor. Could it have something to do with Lowe’s hiring of Wal-Mart ex-managers and executives?
HD does need to continue with their investment plans to improve store merchandise selection and shopping experience. Customer service in the stores, community development with local contractors, etc. Was glad to see that a large number of stores are outside of US huge opportunity for them if executed well.
This is a tough question, because this economic slowdown is so different than others in the past. In previous recessions, home values have continued to rise. That’s no longer the case, and as a result, aspirational spending to drive higher home value is over, perhaps for a long while.
In addition, retailers must deal with an increasingly difficult situation, which is the continued unpredictable nature of how their stock is valued by analysts and investors. There are few historical precedents left on which to base decisions on long term shareholder value and its relationship to the huge capital expenditure needed to open stores when sales are so soft.
I am no analyst, but how can anyone blame either of the big retailers in this channel for conservative thinking? There is just way too much risk associated with things they can’t control.
Those of us in the retail industry should spend a few bucks in this channel this month just as a show of solidarity to help ease this crazy predicament that two great retailers are facing! At least buy some flowers and make yourself happy on the patio!
I guess they could start by asking for some of the executive payouts to be returned. Seriously though, HD needs to fix its business from the inside. Slowing growth is a good idea IF the resources will be put to better merchandising and customer service. Right now as I see it, HD is running bare bones crews at some locations and with the busy outdoor/BBQ season upon us, this does not look good for customers or future growth.
Speaking of Canada specifically, Lowe’s has landed and HD will need to kick it up a few notches to compete. I have tried this on many occasions at my HD. I will stand near the front entrance in one spot until I am approached by a sales associate. The result? Better not to publicize the results. HD has the selection and price but service and support is missing from this equation. Fixing that would increase sales immediately and help growth in the long run.
It’s inevitable that any retailer with as many stores as Home Depot will select some bad locations or have conditions change after some stores have opened. Making the difficult decision to close these stores is the only sensible solution. Also taking a more cautious approach to new store openings in the current housing market just makes good common sense to me. I would think that both of these decisions are “no brainers” and ones that they are expected to have made.
The cutbacks at HD (and subsequently Lowe’s) is only the tip of the iceberg I’m afraid. Too many retailers have gotten ahead of themselves in the past few years with rapid expansion, lack of store selection and layout management and stuffing senior executives pockets with money. The lure of following Wal-Mart’s lead in just shoving as many good in the stores and people will buy more is slowly eroding due to the economy and low levels of customer satisfaction.
That trend is bound to continue so many more retailers will feel the same crunch and have to follow suit. And just wait until Tesco starts to take a stronghold, they will all be in for a big surprise on how consumer’s opinions of overall shopping can change rapidly.
Home Depot is the latest retailer to announce that it would close underperforming stores and slow the rate of opening new locations. It just makes sense. Slower economic times forces retailers to pause, take stock of their current conditions and make changes. A strong CEO will not be afraid to admit that some mistakes were made during a growth cycle and make adjustments accordingly, while looking for uncommon opportunities to expand the business through new locations or product offerings. By doing this, the retailer will be in a stronger position to grow when the economy improves.
With the housing market continuing to be perhaps the toughest segment of the economy, it’s no surprise that Home Depot is scaling back its expansion plans (like many other retailers) and shuttering unproductive stores.
Three of the stores to be closed are in Wisconsin, including a location in Milwaukee that has been flanked by a large prototype Menards store as well as a new Lowe’s location. The Home Depot in question took over a failed Kmart location–the lesson learned might be that a bad location for one retailer isn’t likely to improve for another, especially in a tough climate with sharpened competition.
Based on this article, I would have to ask if the executives at Home Depot are looking at the big picture. I understand that in a shrinking market decisions have to be made regarding the closing of poor performing stores. However, this also begs the question of whether the market itself is shrinking or just the number of people shopping at Home Depot.
While closing unprofitable locations looks good on paper in the short term, over the long run it can only weaken a company’s market position. Whereas making an investment in improving the customer experience may not result in an immediate financial gains, it’s definitely the way to go for sustaining long-term healthy growth. And I believe that the original founders of this company knew that.
Home Depot definitely has a challenge to execute well. In the next few years, things will still break, consumers will still be interested in home improvements, and those who like to do things themselves will still have projects. But what do they want to buy at Home Depot and what kind of assistance do they want when in the store?
In an earlier comment, Richard blames the failure of Home Depot in Milwaukee on taking over a location that was already bad for Kmart. However, he mentions that Menards and Lowe’s are in the area. Menards and Lowe’s have a different selection of goods and a different standard of service offered to consumers. That is a bigger reason why people aren’t going to Home Depot.
Unless Home Depot also focuses on selection of product and improving service in the existing as well as new stores, they are not going to be successful.
In the Midwest there has been a game of chicken going on between Home Depot, Lowe’s, and Mendards. When all three open in a small, no growth markets, something has to give. I was surprised that it was Home Depot that blinked first. Look for a lot more closings and consolidations–and not just Home Depot.
Good times or bad times, every substantial chain has locations that ought to be closed ASAP. Good times or bad times, every successful chain could always use another location, if the projected return on investment for that specific location outweighs the cannibalization of nearby locations. Given the current number of locations for Lowe’s and Home Depot, neither of their announcements should have any special significance: just business as usual.
It’s always timing; my belief has always been that you don’t need 1950 (HD) units to grow your brand or your business.
Get more with less, develop smaller stores with a world class inventory management system. Focus on “Think global, grow local.” Get more sales from your core customer base. They have not mastered this. Redefine your core business.
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Customer service has been a growing problem at HD for quite a while now. Selection and service were their mantra when they started, but service as steadily fallen by the wayside, while selection certainly isn’t what it once was. This seems to be the inevitable fallout as corporate retail pursues economies of scale but in this segment, service is so much a critical part of the sale. It’s not enough in the home improvement segment to have the cheapest widget. Customer service is the critical difference maker to the incremental sale here. This makes the challenges for both HD and Lowe’s that much more daunting, and creates opportunity for highly focused independent niche retailers to thrive
Home Depot needs to think lean. Maybe their senior executive salaries are out of line? Cutting the fat in corporate and other programs comes first. Reducing stores is reducing sales while fat just sits around consuming profits. Home Depot needs to focus on execution. Execution is the key to Wal-Mart’s success and we’ve also recently seen huge improvement with Lowe’s, a Home Depot competitor. Could it have something to do with Lowe’s hiring of Wal-Mart ex-managers and executives?
HD does need to continue with their investment plans to improve store merchandise selection and shopping experience. Customer service in the stores, community development with local contractors, etc. Was glad to see that a large number of stores are outside of US huge opportunity for them if executed well.
This is a tough question, because this economic slowdown is so different than others in the past. In previous recessions, home values have continued to rise. That’s no longer the case, and as a result, aspirational spending to drive higher home value is over, perhaps for a long while.
In addition, retailers must deal with an increasingly difficult situation, which is the continued unpredictable nature of how their stock is valued by analysts and investors. There are few historical precedents left on which to base decisions on long term shareholder value and its relationship to the huge capital expenditure needed to open stores when sales are so soft.
I am no analyst, but how can anyone blame either of the big retailers in this channel for conservative thinking? There is just way too much risk associated with things they can’t control.
Those of us in the retail industry should spend a few bucks in this channel this month just as a show of solidarity to help ease this crazy predicament that two great retailers are facing! At least buy some flowers and make yourself happy on the patio!
I guess they could start by asking for some of the executive payouts to be returned. Seriously though, HD needs to fix its business from the inside. Slowing growth is a good idea IF the resources will be put to better merchandising and customer service. Right now as I see it, HD is running bare bones crews at some locations and with the busy outdoor/BBQ season upon us, this does not look good for customers or future growth.
Speaking of Canada specifically, Lowe’s has landed and HD will need to kick it up a few notches to compete. I have tried this on many occasions at my HD. I will stand near the front entrance in one spot until I am approached by a sales associate. The result? Better not to publicize the results. HD has the selection and price but service and support is missing from this equation. Fixing that would increase sales immediately and help growth in the long run.
It’s inevitable that any retailer with as many stores as Home Depot will select some bad locations or have conditions change after some stores have opened. Making the difficult decision to close these stores is the only sensible solution. Also taking a more cautious approach to new store openings in the current housing market just makes good common sense to me. I would think that both of these decisions are “no brainers” and ones that they are expected to have made.
The cutbacks at HD (and subsequently Lowe’s) is only the tip of the iceberg I’m afraid. Too many retailers have gotten ahead of themselves in the past few years with rapid expansion, lack of store selection and layout management and stuffing senior executives pockets with money. The lure of following Wal-Mart’s lead in just shoving as many good in the stores and people will buy more is slowly eroding due to the economy and low levels of customer satisfaction.
That trend is bound to continue so many more retailers will feel the same crunch and have to follow suit. And just wait until Tesco starts to take a stronghold, they will all be in for a big surprise on how consumer’s opinions of overall shopping can change rapidly.
Home Depot is the latest retailer to announce that it would close underperforming stores and slow the rate of opening new locations. It just makes sense. Slower economic times forces retailers to pause, take stock of their current conditions and make changes. A strong CEO will not be afraid to admit that some mistakes were made during a growth cycle and make adjustments accordingly, while looking for uncommon opportunities to expand the business through new locations or product offerings. By doing this, the retailer will be in a stronger position to grow when the economy improves.
With the housing market continuing to be perhaps the toughest segment of the economy, it’s no surprise that Home Depot is scaling back its expansion plans (like many other retailers) and shuttering unproductive stores.
Three of the stores to be closed are in Wisconsin, including a location in Milwaukee that has been flanked by a large prototype Menards store as well as a new Lowe’s location. The Home Depot in question took over a failed Kmart location–the lesson learned might be that a bad location for one retailer isn’t likely to improve for another, especially in a tough climate with sharpened competition.
Based on this article, I would have to ask if the executives at Home Depot are looking at the big picture. I understand that in a shrinking market decisions have to be made regarding the closing of poor performing stores. However, this also begs the question of whether the market itself is shrinking or just the number of people shopping at Home Depot.
While closing unprofitable locations looks good on paper in the short term, over the long run it can only weaken a company’s market position. Whereas making an investment in improving the customer experience may not result in an immediate financial gains, it’s definitely the way to go for sustaining long-term healthy growth. And I believe that the original founders of this company knew that.
Home Depot definitely has a challenge to execute well. In the next few years, things will still break, consumers will still be interested in home improvements, and those who like to do things themselves will still have projects. But what do they want to buy at Home Depot and what kind of assistance do they want when in the store?
In an earlier comment, Richard blames the failure of Home Depot in Milwaukee on taking over a location that was already bad for Kmart. However, he mentions that Menards and Lowe’s are in the area. Menards and Lowe’s have a different selection of goods and a different standard of service offered to consumers. That is a bigger reason why people aren’t going to Home Depot.
Unless Home Depot also focuses on selection of product and improving service in the existing as well as new stores, they are not going to be successful.
In the Midwest there has been a game of chicken going on between Home Depot, Lowe’s, and Mendards. When all three open in a small, no growth markets, something has to give. I was surprised that it was Home Depot that blinked first. Look for a lot more closings and consolidations–and not just Home Depot.
Good times or bad times, every substantial chain has locations that ought to be closed ASAP. Good times or bad times, every successful chain could always use another location, if the projected return on investment for that specific location outweighs the cannibalization of nearby locations. Given the current number of locations for Lowe’s and Home Depot, neither of their announcements should have any special significance: just business as usual.
It’s always timing; my belief has always been that you don’t need 1950 (HD) units to grow your brand or your business.
Get more with less, develop smaller stores with a world class inventory management system. Focus on “Think global, grow local.” Get more sales from your core customer base. They have not mastered this. Redefine your core business.