Home Depot was founded in 1978 by Bernard Marcus, Arthur Blank, and Pat Farrah. It was founded in Cobb County, Georgia. The company has released Q4 earnings and shows a 6.9% growth in sales to $94.6 billion. Their online sales represent 5.9% of total sales. The company has steadily increased sales by healthy amounts each year since 2010.
Blank and Marcus wanted to create stores that were central to their values. These values were about respect and giving back to the community. They wanted to have a store that would be an end-all for do-it-yourself homeowners.
How the Company Started
The company’s founders were dismissed from their previous company (Handy Dan) as part of a corporate takeover.
They were blindsided as they made money for that company and felt they would be safe. The situation gave them the incentive to form a new company based on the experiences they gained from working in the previous company.
Ken Langone is a financier and was responsible for providing the necessary financing for opening Home Depot. He became a partner and currently owns shares in the company. The company is publicly traded and has been since 1981.
When Bob Nardelli ran the company in the early 2000’s, he used a centralized management approach. He wanted to control every aspect of the operations.
While this may work to some degree in smaller organizations, it is not a great strategy for a large conglomerate like Home Depot. Nardelli and the board both decided it was time for Nardelli to step down in 2006. Frank Blake succeeded him.
Nardelli also tried to cut costs by concentrating on hiring part-time workers. But, the whole concept of having expert employees suffered as a result. Many of the people hired had about as much knowledge (or lack thereof) as the customers.
The company experienced a data breach back in 2014. This is going to take a bit of time to regain customers’ trust. However, people have short memories, and based on the fact the company is well run, it’s likely to pass sooner than later.
Why it Works
Marcus and Blank were both executives for a company called Handy Dan. A corporate raider took over the company and let Marcus and Blank go. They decided to form a company based on a discounting concept they had experimented with at Handy Dan’s.
Since it was working, they thought this could be the basis of their business. After a rough start, they were able to make the concept work through word-of-mouth.
[Source: Entrepreneur: https://www.entrepreneur.com/article/197614]
The company believed right from the start, to hire the right people. Employees needed to be adept at home building to be part of the team. The company wanted customers with average knowledge to feel comfortable in the stores.
The company has over the years, expanded to include working with contractors. When you cater to a large number of contractors, they will use your store for supplies, which helps to increase sales.
For the past several years, many retailers continued growth of new stores. With online access these days, this is often not a wise move. Home Depot recognized this and has not increased its store count. It has instead, integrated the current assets with online usage.
In the 2016 election, both candidates supported massive infrastructure spending. President Trump will likely follow through on that promise, especially being that he comes from a building background. Therefore, Home Depot will reap the benefits of this initiative on a grand scale. They have concentrated spending on promotions to contractors who will be prime candidates for the infrastructure spending.
Frank Blake weathered the economic recession and came out ahead due to cost cutting and other initiatives. He is widely believed to be a huge success factor for the company. Craig Menear has been with the company during that time and analysts feel that he will continue with Blake’s initiatives.
The company has expanded its home services that it provides to consumers. For people who do not want to be bothered with do-it-yourself projects, they can contact the company to contract that work. Those projects are likely to need more supplies which the company can sell.
The company offers workshops and programs to help homeowners with average building skills. These workshops are available for free and customers can even bring in supplies (or purchase them) to learn how to apply the knowledge to their projects.
The company has an extensive line of free videos for people who want to tackle jobs on their own. These videos are available on the company’s website as well as places like YouTube.
The company has partnered with LearningCounts.com to offer college credits for employees. These are on-the-job skills that will be given college credits.
Home Depot offers an innovative app for mobile users. This app helps the customer when shopping in the store. When scanning a barcode of a product, the app will give further information about the product. The app leverages geolocation for customers to quickly find what they are looking for.
According to Glassdoor.com, Home Depot does well in being a good place to work. The current CEO receives 79% approval, which is high. Many stated that Home Depot is a great place to work. Among the complaints, are the need for more full-time workers. Others complained about low pay. At the time of this writing, the reviews were recent.
The company does allow its customers to rate products on its website. It would be difficult to come up with a general analysis about all of the products due to the vast number offered.
Home Depot also is not the manufacturer of many of the products so this type of comparison would be difficult. To determine the likeability of a product, customers can visit the appropriate section of the website.
Lessons Learned By The Business
- When Bernie Marcus was CEO, he insisted that every board member visits stores and report back to him. He felt they needed to see the operations first hand. These board members would have to go into the stores as customers
- The current CEO, Craig Menear states that your company is not about you. It’s about the team. It’s important to employ the right people.
- Home Depot seems to be one of the few large-scale retailers embracing online sales. They held back in opening new stores. Amazon has caused pain for many retailers and Home Depot went with the flow.
- The company believes in strategic acquisitions. It tries to find companies that are related, but where the company does not have the distribution or expertise. It then incorporates these businesses into the mix. Interline is one example of a successful acquisition by the company. Interline provides products and Home Depot has the services to install them, which makes the arrangement a win-win for the company. Customers are happy with this arrangement as it is one-stop shopping, i.e., sales and installation.
How Other Businesses Can Learn From This
Businesses should give back to their communities. Home Depot believes heavily in community support. It has a foundation and encourages employees to volunteer.
Businesses should not do this for the sole purpose of getting business. They should instead think of it as giving back to the community that is supporting your business.