Blog - Page 2 of 15 - Porter's Five Forces

Porter’s Five Forces Analysis of The Home Depot Key Facts Name The Home Depot, Inc Industry Retail and Wholesale Founded June 19, 1978 Headquarters Toronto, Ontario, Canada CEOs Edward P. Decker Revenues US $ 151.157 billion in 2021 (audited) and US $ 121.572 billion till third quarter October 2022(unaudited) Profit US $ 16.433 billion in 2021(audited) and US $ 13.743 billion till third quarter October 2022(unaudited) Year end 31st January Competitors Lowe's, Amazon, True Value, Ace Hardware, Walmart, Menards, Target, Home Hardware. Company Overview The Home Depot has its headquarter in Toronto, Ontario, the company is a retailer of home improvement products.The company made an annual revenue of US $ 151.157 billion and net profit of US $ 16.433 billion. The Home Depot brand was valued at approximately 52.9 billion U.S. dollars. in 2020, up from a year prior in where the value stood at 50.5 billion dollars. The company had 2,006 stores in total at the end of 2021 in United States. Home depot also operates in Canada and Mexico. The company had total assets of US $ 71.876 billion as at 31st January 2021. Porter’s Five Forces Analysis Porter’s Five Forces Analysis is a widely used model to evaluate companies’ strategies in reference to its industry for neutralizing the competition and increase the margins, it is developed by Professor Michael E. Porter in 1979, at Harvard Business School. The Home Depot Rivalry among Existing Competitor The Home Depot Business Segments: Home Depot separates its target market into three categories: do-it-yourselves, professionals, and those wishing to engage professionals to complete the work.Home Depot has retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico.The Company employs approximately 500,000 associates.In 2021, the Home Depot had approximately 1.8 billion customer transactions worldwide, a slight increase in comparison to the previous year. That same year, the company operated over 2,300 stores worldwide. The Home Depot Global Operations Year 2021:The company reported net sales of $151.2 billion in the year 2021. Net earnings were $16.4 billion, or $15.53 per diluted share.The company opened five new stores in the U.S. and two new stores in Mexico during the year 2021, resulting in a total store count of 2,317 at January 30, 2022, which includes 14 stores in the U.S. At the end of fiscal year 2021, a total of 311 stores, or 13.4%, were located in Canada and Mexico. Total sales per retail square foot were $604.74 in the year 2021. In 2021, Home Depot’s indoor garden product category generated global sales of over 15.5 billion U.S. dollars. Meanwhile, the company’s global flooring net sales amounted to roughly 9.2 billion U.S. dollars. All in all, 34% of furniture online shop users in the United States use The Home Depot. That means, of the 95% who know the brand, 36% use them. Target Corporation is also a major competitor with revenue of $ US 77,725 million and $ US 1,904 million for quarter ended October 2022. The company’s comparable sales increased 2.7 percent, on top of 12.7 percent growth last year.Comparable sales growth was driven by 1.4 percent traffic growth and a 1.3 percent increase in average ticket. Category performance was led by growth in frequency businesses including Beauty, Food and Beverage and Household Essentials, which offset continued softness in discretionary categories. The Company saw unit share gains across all five core merchandising categories. Third quarter operating margin rate of 3.9 percent improved meaningfully compared with the second quarter results. At the end of the financial year 2021, Target operated more than 1,900 stores across the United States. . Recently, Target launched a beauty range in partnership with Ulta Beauty at dedicated shops in select Target stores and on target.com. The Company announced an enterprise initiative to simplify and gain efficiencies across its business, representing an estimated cumulative savings opportunity of $2 to $3 billion over the next three years. Walmart Total revenue was $152.8 billion, up 8.7%, or 9.8% in constant currency. Walmart U.S. comp. sales grew 8.2% and 17.4% on a two-year stack. eCommerce growth was 16% and 24% on a two-year stack. Continued to gain market share in grocery. Sam’s Club comp. sales increased 10.0%, and 23.9% on a two-year stack. Membership income increased 8.0% with member count reaching an all-time high. Walmart International net sales were $25.3 billion, an increase of $1.7 billion, or 7.1%, negatively affected by $1.5 billion from currency fluctuations. Segment operating income led by double-digit growth for Walmex.. Walmart International has more than 5,100 retail units and approximately 550,000 associates around the world. Investment in Research & Development-Marketing Cost and Brand Image :The existing battles among the brands with a challenge of changing trend towards Cashless, contactless, and autonomous shopping and delivery, requires high investments in research and development to better design the services and products for an accelerated customer satisfaction. The Home Depot also needs to focus the marketing cost to increase the brand image and better customer loyalty.In July 2022, about 31% of U.S. furniture online shop users had heard about The Home Depot in the media, on social media, or in advertising over the past three months The Home Depot Threat of New Entrants Global Retail IndustryIn 2021, retail e-commerce sales amounted to approximately 5.2 trillion U.S. dollars worldwide. This figure is forecast to grow by 56 percent over the next years, reaching about 8.1 trillion dollars by 2026. High Capital Investment: The existing retailers and wholesalers invest a lot in sales and marketing, distribution, and product development. If another party wants to join the industry, they should put down a huge amount of initial capital to compete against existing players. Economies of Scale: The existing giants like Walmart, Target etc. have economies of scale i.e. there average cost is lower due to production of items in large quantities leading to lower cost. New entrants will therefore be unable to compete due to high cost. The Home Depot Bargaining Power of Suppliers Large Number of Suppliers: There is a large number of suppliers in the industry and also due to large amount of supplies, suppliers have low influence in the industry. Semi-Exclusive Business Relationships: Firms like,Home Depot and Lowe’s maintain exclusive and semi-exclusive business relationships with suppliers. As a result, some suppliers do business with Home Depot but not with Lowe’s, and vice versa. This situation weakens the impact of suppliers on Home Depot and the home improvement retail industry. Suppliers Collaboration: Home Depot and its army of suppliers, which currently numbers between 10,000 and 12,000. The company has close ties and collaboration with the suppliers. The Home Depot Bargaining Power of Buyers Large Number of Buyers:Due to large number of buyers in the industry, buyers have less influence. In 2021, the Home Depot had approximately 1.8 billion customer transactions worldwide. Customer Satisfaction - After Sales ServicesAfter sales service includes on time delivery, easy return and exchange of products etc. The better these services, the greater customer satisfaction. In total, 41% of U.S. furniture online shop users say they like The Home Depot. The Home Depot Threat of Substitute Products or Services General Merchandise Stores There are many substitutes to Home Depot’s home improvement retail goods and services. For example, general merchandise stores like Walmart also offer similar goods. Home Improvement Contractors Home improvement contractors one of the substitute to Home Depot’s products and expert advice. Thelow switching cost and the good performance of these substitutes could lead to the strong threat of substitution against Home Depot’s products. References Retail e-commerce sales worldwide from 2014 to 2026(Sep 21, 2022) | Available at Statista Projected retail sales growth worldwide from 2020 to 2025(Dec 20, 2022) | Available at Statista Sales per employee of the Home Depot and Lowe's in 2020(Jul 27, 2022)| Available at Statista Basic information of The Home Depot | Available at Forbes Number of customer transactions of the Home Depot worldwide from 2015 to 2021(Jul 27, 2022) | Available at Statista The Home Depot - Statistics & Facts(Sep 12, 2022) | Available at Statista The Home Depot brand awareness, usage, popularity, loyalty, and buzz among furniture online shop users in the United States in 2022(Dec 13, 2022)| Available at Statista Number of Home Depot stores worldwide from 2011 to 2021, by country(Jul 27, 2022) | Available at Statista Global net sales of the Home Depot from 2007 to 2021(Jul 27, 2022) | Available at Statista Home Depot's brand value worldwide from 2016 to 2021(Dec 21, 2022)| Available at Statista The Home Depot Announces Third Quarter ResultsReaffirms Fiscal 2022 Guidance| Available at The Home Depot The Home Depot Annual Financial Report 2021| Available at The Home Depot Number of customer transactions of the Home Depot worldwide from 2015 to 2021(Jul 27, 2022) | Available at Statista Basic information about Walmart, Walmart History about Walmart, Walmart history Global net sales of the Home Depot from 2013 to 2021, by product category(Jul 27, 2022) | Available at Statista