Friday, January 30, 2009

Home Depot Cuts: Getting Back to Core Business Good Idea

Source Article: Home Depot will cut 7,000 jobs, exit Expo division (Bloomberg.com)

(Read Source Article)

Implications:

1) Home Depot has been "De-conglomerating" itself since Nardelli departure

2) Back to "Category leader" business model instead of trying to be next GE

3) Emphasis on core DIY business, better service will yield dividends down the road


Commentary:

Home Depot built itself to the leader in the Home-Improvement and DIY field by being a very good retailer who followed a focused and simple business plan: If people felt as though they could do things themselves, they would attempt to do so if they knew they could get help and advice. The Corner hardware store, "Supersized" as it were.

The purchase of builders supply firms, infrastructure suppliers, and branching out into high end home decor just subtracted from the focus that had made them successful. Diversification, on the consumer perception side, has its limits. The shedding of the acquired businesses and non-core retail concepts will allow THD concentrate on the standard stores and customer experience there.

McDonalds can sell you a salad or a chicken sandwich with relative ease, but they don't try to sell you cedar-plank salmon or chateaubriand. Even if the restaurants could prepare them successfully, it's too much of a stretch for consumers to be comfortable with.

Home Depot is back to being what is has always successfully been, the leader in home-improvement retailing. The renewed emphasis on in-store experience, which had slipped in recent years, is good for both for now and down the road.

Lowe's impressive growth has shown people wanted a good alternative to THD, and they have taken leadership in items such as appliances.

Home Depot shedding the rest of the "distractions" and getting down to retailing again bodes well for the firm in the long run.

Trying to be a new version of GE wasn't a good strategy; being what they were when they grew the financial strength and market share to attempt to emulate GE IS a good idea.

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