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Home Depot was the first one to launch the “warehouse retailing” concept to the home center industry. The company operated “DIY” warehouse stores which sold building material and home improvement products.

Industry Analysis

The home improvement industry experienced a large rate of growth during the 1980s. The industry total sales were about $80 million in 1985. The annual growth rate of DIY segment, which Home Depot was in, was about 14% and this impressive improvement was expected to continue. As the leader in this industry, Home Depot had achieved rapid growth since its inception. The company occupied 15 different markets in the end of 1985; The company’s total asset went up from $249.4 million in 1984 to $380.2million in 1985; Its revenue rose 62% from $432 million in fiscal 1984 to $ 700million in 1985. During 1985, Home Depot implemented its most ambitious expansion plan of adding 20 new stores in 8 new markets. Nine of these stores were acquired from Bowater, one of its competitors which met financial difficulties Because of this expansion plan, Home Depot earnings declined in 1985 and its stock price had a 41% decrease during the year of 1985.

Strategy Analysis

The essence of Home Depot’s business strategy is creating earnings by providing products with guaranteed quality, by offering excellent sales assistance and by lowing relative cost such as, inventory cost and other operating expense.

This business strategy had several important elements:

1. Low and competitive price

The warehouse format of stores kept the overhead low and allowed the company to pass the savings to the customers. Additionally, costs were further reduced by keeping higher volume and lower margins with improved inventory turnover.

2. Diverse products with guaranteed quality

The company made effort to ensure the right products were stocked at all time. The Home Depot offered nationally advertised brands, as well as the lesser known brands and assured the...