The Home Depot: Ecosystem Analysis
By: Josh Robbins
Tags: Retail, Analysis, Construction, Home Improvement, Home Depot

The Home Depot, Inc. (HD) touts as being the world’s largest home improvement retailer (The Home Depot, Inc. [HD], 2019). Based out of Atlanta, Georgia, the 42-year-old company has 2,200 stores throughout North America. HD’s culture is focused on service and is reflected in their core values of taking care of people, giving back to communities, doing the right thing, excellent customer service, creating shareholder value, building strong relationships, the entrepreneurial spirit, and respect for people.

Founders Arhtur Blank & Bernie Marcus

According to their 2019 10-K annual report, HD is in a growth phase of the business life cycle and their two primary strategic objectives are to grow their market share and deliver shareholder value. HD’s primary diversification strategy is private label acquisition, as seen with labels like Glacier Bay, Harbor Bay, Husky, and Rigid.

Success is not only being experienced on the digital front with e-commerce, but also at the traditional brick and mortar level, capitalizing on the inherent nature of hardlines like lumber, electrical, plumbing and gardening. The following ecosystem and enterprise analyses of HD’s current state will reveal potential business needs and possible solutions and focus on the processes affecting external stakeholders and their shopping experience.

I. Relative Internal Systems

Organizational Structure & Employees

According to Forbes, HD is one of the top employers (124) in the world (Forbes, 2020). The company has a typical corporate structure with a CEO/president/chairman, several executive vice presidents, U.S./Mexico/Canada presidents, senior vice presidents, regional presidents, and divisional presidents. From the bottom up, there are over 400,000 “orange-blooded” sales associates, department supervisors, assistant store managers, human resource advisers, associate coordinators, store managers, district managers, and regional managers.

Infrastructure & Software Applications

The company’s infrastructure model is decentralized and relies on regional shipping hubs (ports) and 200 distribution centers responsible for providing most of the inventory, online ship-to-store orders, and merchandise execution team seasonal resets (Cosgrove, 2018). Leveraging rapid deployment centers and stocking distribution centers, bulk distribution centers, and direct fulfillment centers are some of the steps they are taking to strengthen infrastructure. Stores also have freight, receiving, and order fulfillment teams to increase the efficiency and dependability of delivering products.

HD’s technology infrastructure is also being innovated with rollouts of new First phone (web-enabled handheld devices) applications for overhead inventory management. Furthermore, this software is used to consolidate existing legacy systems, which helps reduce complexity and makes the interface more intuitive for associates (HD, 2019). Other useful legacy systems include COTS inventory management that is synchronized across digital platforms and devices, and applications designed to research common products and DIY projects to help assist DIY clients. HD’s technology infrastructure is considerably more centralized than its merchandise infrastructure with tech hubs at corporate headquarters in Atlanta, and a brand-new facility in Austin, TX.

Products & Services

HD is a comprehensive, one-stop shop, offering up to 40,000 products in-store and 1 million products online. Proprietary and exclusive products consist of homebuilder materials for repairs, new-builds, improvements, and remodeling. Materials and supplies, some environmentally sustainable, consist of lumber, plumbing goods, electrical goods, tools, housewares, hardware, lawn & garden, flooring, millwork, cleaning, and paint (HD, 2019). HD also conducts monthly do it yourself (DIY) workshops, provides online DIY resources & reference materials, on-site equipment and tool rental, and home improvement installation services.

Relative Policies & Processes

The primary policy at HD is putting the customer first and providing exceptional customer service. Onboarding consists of a day-long orientation period. Associates are hired initially on a part-time basis and are expected to self-study using training videos during one’s first few days. Home Depot believes strongly in performing OTJ training of customer service and inventory management, with an expectation of mistakes and hope for perpetual improvement. If the store doesn’t have an item in stock, the associate should either find the item at a nearby store for the consumer or help the customer order the product online.

Along with typical state and federal business laws, HD policies place an emphasis on protecting associates’ welfare, HD’s policy is for store associates not to apprehend or confront consumers suspected of stealing. HD’s policy for store associates deterring external shrink is to execute exceptional customer service. Additionally, store associates are empowered, up to $50, to provide on-the-spot discounts to incentivize clientele to purchase products with damaged packaging, or when a customer has become irritated during their experience. Lastly, department supervisors are responsible for updating on-hand inventory or products. Little attention is paid in providing adequate sales techniques for associates to acquire home installation leads.

HD also offers three proprietary credit cards tailored specifically towards incentivizing stakeholders by offering interest-free purchases, competitive project loan rates, longer return periods, free rental truck usage, saving on gas purchases, and reward programs for frequent shoppers. These programs are utilized often for customers who have a cost prohibitive repair or project that they can finance.

Financial Health

The main financial strategy exhibited by HD is to create value for all stakeholders by using a disciplined approach to capital allocation via reinvestment (HD, 2019). HD (2019) goes on to describe how remaining liquidity is distributed in the form of dividends, share repurchasing, returns on invested capital. HD acknowledges in their 2019 10-K how their main source of revenue is from PRO’s. HD continues to experience annual gains in revenue, net earnings, comparable sales increases, comparable customer transactions, and transactions (HD, 2019). Revenue is negatively impacted daily by shrink, employee distraction, and employee turnover.