Value Line Publishing, Inc

VALUE LINE PUBLISHING, OCTOBER 2002

Case Analysis Report

Introduction

The Retail Building – Supply Industry remains to be going strong despite the slow economic growth in 2002; this is due to low interest rates and strong housing market. This industry with the size of $175 billion is expected to reach $194 billion after five years. In this consolidating industry, two key players are dominating: Home Depot, which is holding 29% of the market, and Lowe’s that has 10.8% market share.

Both wanting to improve their financial reports, the two retailers go head-to-head in finding means to boost their top and bottom lines. Home Depot and Lowe’s have both expanded to the professional market by catering to the needs of the targeted professional customers. Not only that, they are now both targeting the metropolitan areas which seemingly guarantees price wars between the two companies. They have also gone beyond the traditional home center by offering online stores and one-stop design and decorating shops. Acquisitions have been made by both companies to further expand their businesses and to diversify their merchandise mix; like Home Depot purchased three flooring companies to hopefully become the largest flooring supplier to residential construction market. Home Depot’s advantage over Lowe’s is the international presence established through acquiring Canadian (Aikenhead) and Mexican (TotalHOME and Del Norte) retailers; meanwhile, Lowe’s has not explored this market yet.

To turn Home Depot around, the new CEO plans to make store operations efficient and to cut costs. Ongoing systems are also being implemented to manage the inventory and avoid it being stored. Also, the CEO will focus more on improving customer service, which gained negative criticisms, hoping that doing this would increase their sales.

These developments made by Home Depot seem to be perceived by Galeotafiore quite too positively. And this is in contradiction with other analysts’ perspective...