Home Depot Strategy

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The Home Depot, Inc. (2006) Home Depot, Inc. was founded in Atlanta, Georgia, in 1978. It was the world’s largest home improvement retailer and the second largest retailer in the United States based on net sales for the 2005 fiscal year ended January 29, 2006. In December 2005, Home Depot opened its 2000th store. Home Dept had been selected by Fortune magazine as the “Most Admired Specialty Retailer” for 2005. I. Problems Despite been able to deliver sustainable, predictable and profitable growth, Home Depot faced several problems as describe below here: Internal Problems: * Excessive compensation of CEO Nardelli has received a disturbingly large amount of compensation despite the stock’s poor performance. He changed the measure of his performance to be based on the firm’s earnings rather than the stock price. * Demoralized employees Nardelli applied military culture in Home Depot to make it more centralized and efficient. This culture change caused demoralized staff and created ‘culture of fear’. Furthermore, many top executives left the company and many employees were replaced. External Problems: * The fallen stock price Home Depot’s common stock had fallen 30% since Nardelli had taken charge of the company. * Increasing competition Home Depot main competitor, Lowe’s, had been moving into areas previously dominated by Home Depot. * Decreasing customer satisfaction The high quality customer service was Home Depot’s competitive advantage and differentiated it from its competitors. Even so, Home Depot’s score in The University of Michigan’s American Customer Satisfaction Index had dropped from 73 in 2004 to 67 in 2005. This drop was thought to be caused by the ‘culture of fear’ applied by Nardelli. * Stagnant growth The decentralized and informal culture of the founders had become partialy responsible for the firm’s stagnation in sales growth.

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