Write an essay of a minimum of 1200 words, addressing the questions and prompts below. Your essay should demonstrate a clear understanding of the key terms and concepts from the READ and ATTEND assignments for this unit.
Question
Write an essay of a minimum of 1200 words, addressing the questions and prompts below. Your essay should demonstrate a clear understanding of the key terms and concepts from the READ and ATTEND assignments for this unit. You must organize your work using headings formatted in APA style. The research requirement is at least two scholarly journal articles, and the course textbook. Indicate your research through in-text citations and a list of references.
- Conduct an online search, and write a brief summary of two to three issues of strategic significance that The Home Depot has encountered within the past 12 months. Sources used to respond to this prompt should be credible, but not necessarily scholarly.
- In which stage of the industry life cycle is the home improvement retail industry? What are the critical success factors (CSFs) in this stage of the life cycle?
- Use Porter’s five forces model to analyze the home improvement retail industry. Based on your analysis of the industry, which force provides the greatest opportunity for The Home Depot, and why? Which force provides the greatest threat for The Home Depot, and why?
- What should The Home Depot do to withstand competitive pressure from rivals in its industry?
Sample Student Answer
Headquartered in Georgia, The Home Depot is one of the largest retailers of home improvement products. The company was started in the late 1970s’ and has since then grown, and currently has over 2000 stores across the country, employing over 500, 000 employees. For the fiscal year ended Jan. 31, 2021, the company managed to generate a revenue of over $113 billion with a profit of over $12 billion (Fortune, 2022).
Issues of Strategic Significance
Recently, Home Depot named Ted Decker as the CEO of the company effective March 2022. Ted Decker has been with the company since 2000, being part of the company’s leadership for a significant amount of time during this period (Repko, 2022). His experience, knowledge of the organization, and qualification in leadership places him in an advantaged position to steer the company to the next level. Leadership is a strategic component that plays a crucial role in the realization of a company’s mission, goals, and objectives. With strategic leadership, the company can execute effective strategies to achieve its vision and at the same time maintain a lead within its target market (Parnell, 2021). This is one of the aspects that has made Home Depot to be successful for such a long period.
The organization has also managed to introduce new innovations that aim to improve the experience of its loyal customers. For example, recently the company introduced new and enhanced credit options for its loyal customers. The new credit option offers members-only benefits some of which include volume-pricing, exclusive products offers, rewards, to list a few. Similarly, the new product provides customers with simplified purchase tracking options, an online management account, and itemized, easy-to-read billing options (The Home Depot, 2022). Innovation is a great strategic feature that allows an organization to gain a competitive advantage by increasing customer loyalty and generating increased sales.
The COVID-19 pandemic was also a significant event that had a strategic impact on the company. Needless to say, Home Depot managed to navigate through the period pretty well with very little changes in sales or profits. Most of the company’s customers managed to engage in DIY projects during the period when movement was still restricted (Fortune, 2022). Similarly. The company made some strategic acquisitions at a time when other companies in the industry were closing shop; for example, it recently acquired HD supplies, one of the leading industrial distributors in North America. Such acquisitions can further propel the organization to a position of strategic advantage.
Stage of the Industry Life Cycle
Based on the characteristics of the home improvement retail industry, then the most likely stage in the life cycle is the shakeout stage. The shakeout stage is the third stage in the life cycle of an industry. It is a stage characterized by a slow increase in demand, intense competition, and the exiting of smaller companies that can’t keep up with the competition (Maylín-Aguilar et al., 2021). At the shakeout stage, most companies consolidate to achieve organizational efficiencies and economies of scale. The goal at this stage is cost reduction and improvement in operational efficiencies.
The first critical success factor at the shakeout stage is cost reduction (Parnell, 2021). Companies that aim to survive the intense competition during this stage need to focus on cost reductions by applying various measures. One of the measures includes the use of information technology to enhance organizational efficiency. Removing redundant activities can also curb inefficiencies that increase operational costs. Cost reduction can also be achieved by engaging in activities such as strategic integrations to achieve economies of scale. Another critical success factor is the competitive strategy employed. During the growth phase, organizations usually employ a price-based strategy, where they adjust the prices of their products to gain a competitive advantage. However, in the shakeout phase, it is advisable to engage in a product-based strategy, where the features and the quality of a product are enhanced (Gang et al., 2018). The third success factor is flexibility. The organization needs to be flexible to adjust to prevailing market conditions given the dynamic nature of the stage that is coupled with consolidations through mergers and acquisitions.
Porter Five Forces Model
Porter’s Five forces model is one of the tools used to assess a company’s or an industry’s position in light of the current strength and weaknesses. The following is an analysis of the home retail industry using Porter’s Five Forces model.
Competition in the Industry
The industry is currently experiencing high competition being in the shakeout phase. There are several companies that are offering the same product within the same market niches necessitating innovative approaches to attract and retain customers. For example, in the previous section, we can observe the innovative approaches being used by Home Depot to achieve a competitive advantage. The high levels of competition can pose a threat to companies that cannot keep up which may result in either their closure or acquisition by other stronger companies in the industry.
Potential of New Entrants into the Industry
At this stage, it will be quite difficult for new entrants to enter the market due to various factors, one of them being the high cost of entry. The industry is currently at an advanced stage in the life cycle, with most companies merging to achieve economies of scale. Therefore, unless the new entrant has considerable capital with an elaborate marketing plan, it may be difficult to enter the market
Power of Suppliers
The suppliers in the home retail industry have limited bargaining power, which affects their ability to influence the industry significantly.
Power of Customers
Given the number of companies within the home retail industry that causes intense market competition, customers have a high bargaining power that influences the sales and profitability of the companies.
Threat of Substitute Products
The threat of substitute products is quite low in the home retail market. However, the models in which the products are presented to customers, including e-commerce platforms make this threat to be average at most.
Home Depot’s Current Position
Based on the analysis of Porter’s five forces model the forces that provide the greatest opportunity for The Home Depot include limited opportunities for new market entrants, low supplier power, especially now that the company has acquired HD Supplies, a leader in supplies within the company’s market area, and lastly low threat of substitute products. The company has also positioned itself well in terms of getting a competitive advantage through innovation, for example, the introduction of the new credit facility to its loyal customers. The greatest threat at this stage is the power of customers given the level of competition in the market which to some extent affects the prices of products offered by Home Depot.
Strategy Going Forward
There are several strategies that The Home Depot can employ to withstand pressure from rivals in its industry. The first strategy is to continue embracing innovative models that separate the company giving it a unique identity that attracts customers (Parnell, 2021). The introduction of the new credit facility is a great start. Another strategy is to focus on product enhancement, rather than a price reduction. Often, customers want to associate themselves with quality products than cheaper ones, and at this point in the industry’s life cycle, a price-reducing strategy may not be as effective.
Reference
Fortune. (2022). Home Depot. https://fortune.com/company/home-depot/fortune500/
Gang, K., Jeong, M., & Park, M. (2018). Industry shakeouts and product strategies: lessons from the US laser printer industry. Technology Analysis & Strategic Management, 30(10), 1182-1194.
Maylín-Aguilar, C., & Montoro-Sánchez, Á. (2021). The Industry Life Cycle in an Economic Downturn: Lessons from Firm’s Behavior in Spain, 2007–2012. Journal of Business Cycle Research, 17(2), 185-214.
Parnell, J.A. (2021). Strategic management: Theory and practice (6th ed). Academic Media Solutions
Repko, M. (2022). Home Depot names company veteran Ted Decker as CEO. https://www.cnbc.com/2022/01/27/home-depot-names-ted-decker-ceo-craig-menear-will-remain-board-chair.html
The Home Depot. (2022). The Home Depot introduces new and enhanced credit options for pro customers. https://ir.homedepot.com/news-releases/2022/01-11-2022-130344772
SAMPLE STUDENT ANSWER 2
The Home Depot
What are three issues of strategic significance that The Home Depot has encountered within the past 12 months?
The Home Depot opened its doors in 1978 and has grown into the biggest specialty home improvement retailer. It has revolutionized the home improvement’s industry in the United States and registered a stellar performance in the process. The stocks rose by 56% in 2021 and are expected to hit $500 per share in 2022 building on to an over 270 % stock rise within the last 6 years (Nora, 2020; Business Checkout, 2021). It has outperformed its competitors through the implementation of effective strategies.
The first issue of strategic significance has been the implementation of the interconnected retail strategy. This has used the Omni channel retail strategy that has led to an increase in sales (Nora, 2020). Part of this has been the implementation of digital commerce which has now enabled over half of its online orders to be picked at a Home Depot Store (Business Checkout, 2021). The e-commerce strategy ensured that the store sustained high sales volumes even as other retailers struggled.
The second strategy of strategic importance has been refreshing its stores. The redesign has is ongoing and targets over 60% of the 2,291 stores (Business Checkout, 2021). Significant changes are being carried in the front ends of the stores. The impact is quick and efficient checkouts, faster and efficient returns. For online orders, the improvements are targeting faster online order pick-up service and revolutionary pic-up lockers.
Home Depot has is also transforming its supply chain and delivery departments. It has added 150 new state-of-the-art facilities to its network (Business Checkout, 2021). The new facilities are going to improve product movement in the entire chain. There will also be fewer product touches from suppliers to customers enabled with the integration of robotics and Artificial Intelligence systems. The supply chain improvements are targeting ensuring better shopping for the contractors who despite accounting for only 5% of customers, account for 45 percent of sales (Business Checkout, 2021).
In which stage of the industry life cycle is the home improvement retail industry? What are the critical success factors (CSFs) in this stage of the life cycle?
The industry is in the growth stage. The home décor industry is experiencing rapid growth. There is substantial potential for growth and market with medium levels of competition. The home improvement industry was valued at $316.8 billion in 2020 and is estimated to reach $585.3 billion by 2030 (Angelos, 2021). The growth in the segment has picked in the last several years riding on rising homeowners’ rates. The COVID-19 pandemic for example made toilets one of the highest bought items of 2020 (Angelos, 2021).
There are several CSF at this stage. These are management, money sales and marketing, people, product and service, process systems (Park, 2020). The first factor is the management which must have the capacity to lead the organization with a vision. The management must be able to ensure the resources are well-used for maximum production. For the money, the company will need to ensure it has excellent cash flows coupled with good planning and investments strategies. Factor three is sales and marketing where the company has to ensure it has the right presence and awareness in the market. The fourth factor is people which includes the employees, customers, and other stakeholders. The fifth factor is product and service and involves meeting the customer needs. The sixth factor is process and systems which are the procedures for the effective running of all aspects of the business.
Use Porter’s five forces model to analyze the home improvement retail industry. Based on your analysis of the industry, which force provides the greatest opportunity for The Home Depot, and why? Which force provides the greatest threat for The Home Depot, and why?
The Home Depot has managed record astronomical growth over the years to become the largest home improvement retail store. This has been achieved through carefully planned strategies that have given The Home Depot a competitive advantage in the market. An analysis of Porter’s five forces in analyzing the home industry is done below;
Competition in the Industry-High
The home improvement segment has got many firms whose reach has been increased by the online marketplace. Other online companies like Amazon and Alibaba have also come up and are now a source of serious competition to the company (Parnell, 2021; Akturk & Ketzenberg 2021). The Home Depot is now forced to lower prices as a competitive pricing strategy which affects its revenues. The increased competition also means that substantial investments have to be set aside for advertisements which eat into the revenue (Goyal, 2020). There exist low switching costs due to low customer loyalty.
Potential of New Entrants-Low
This is a capital-intensive business segment that requires substantial time to grow a reliable and nationwide supply chain channel. Identifying the suppliers and bringing them onboard also takes time (Goyal, 2020; Akturk & Ketzenberg 2021). Developing customer relationship with both small clients and contractors is a difficult process. The threat of new entrants is therefore low.
Bargaining Power of Suppliers-Low
There are numerous individual and organizational suppliers for Home Depot. The suppliers have little organization and are hence not able to have a substantial impact on the retailers (Goyal, 2020). The retailers can use their power to ensure they get fair contracts and terms from the suppliers giving the suppliers little impact in bargaining.
Bargaining Power of Customers-High
Numerous players in the segment gives the customers high bargaining power. The segment has low switching costs (Parnell, 2021). Customers may decide to easily switch to new sellers who may offer better terms and processes (Goyal, 2020).
The threat of Substitutes-Medium
The biggest threat of substitutes is the availability of the goods on the existing and emerging e-commerce platforms (Goyal, 2020) as for the specific goods, the threat of substitutes is low. The overall threat of substitute’s s therefore medium.
The Greatest Threat
The significant number of both online and offline competitors is the greatest threat. The other firms not only eat into their market bases but also necessitate competitive pricing that is detrimental to the revenue.
Greatest Opportunity
The Home Depot can take advantage of the low bargaining power of customers to get the best deals in terms of pricing and payment terms (Akturk & Ketzenberg 2021). It can also use contracts to keep competitors off the prime suppliers.
What should The Home Depot do to withstand competitive pressure from rivals in its industry?
There are several strategies that Home Depot can exploit to deal with completion in the segment. The first one is taking advantage of the E-Commerce revolution by improving its platform to give the ultimate customer experience (Yoo, 2020). It needs to be made interactive and as convenient as possible to the customers.
Robotics and advanced computing have been employed successfully by Amazon. As technological advancements take place rapidly, Home Depot needs to harness the great power in technology to have a competitive advantage over the competitors (Pagliarini & Lund, 2017). Technology can be used to connect inline orders with another component of the supply chain to ensure that orders have been serviced efficiently in time.
The Home Depot can strategize to maximize sales during the peak periods (Nora, 2020). This can be December which is a peak season where the company can run promotions or strategies like limited editions. The company in this case needs to invest adequately in modern methods of market intelligence that will keep it one stage ahead of the competition.
The company can also use its financial muscle and brand name to increase its geographical presence (Nora, 2020). Part of this can include increasing the number of stores especially in areas where it is facing competition. It can increase its advertising budget to be able to reach more customers both existing and new.
Discounts and price incentives can be used to lock in its customer base (Nora, 2020). For example, with contractors accounting for over 50 percent of sales despite being a mere 5 percent of the customers, The Home Depot can give them better terms, discounts, and delivery of goods as a way of retaining them and attracting new ones (Business Checkout, 2021).
References
Akturk, M. S., & Ketzenberg, M. (2021). Exploring the competitive dimension of omnichannel retailing. Management Science.
Business Checkout (2021). Home Depot Is Spending Big to Keep Lucrative Contractors Happy.https://www.bloomberg.com/news/articles/2021-12-02/home-depot-seeks-to-win-over-lucrative-pro-clients-with-new-hubs
Goyal, A. (2020). A Critical Analysis of Porter’s 5 Forces Model of Competitive Advantage. Goyal, A. (2021). A Critical Analysis of Porter’s, 5.
Nora, M. P. C. (2020). Equity valuation: the Home Depot, Inc (Doctoral dissertation).
Pagliarini, L., & Lund, H. H. (2017). The future of Robotics Technology. J. Robotics Netw. Artif. Life, 3(4), 270-273.
Park, S. (2020). Marketing management (Vol. 3). Seohee Academy.
Parnell, J.A. (2021). Strategic management: Theory and practice (6th ed). Academic Media Solutions
Yoo, J. (2020, June). The Effects of Perceived Quality of Augmented Reality in Mobile Commerce—an Application of the Information Systems Success Model. In Informatics (Vol. 7, No. 2, p. 14). Multidisciplinary Digital Publishing Institute.
Jermaine Byrant
Nicole Johnson
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