home work retailing

Question 1

Retailer: Home Depot

Established in 1978 by Bernie Marcus and Arthur Blank, Home Depot is a company that was created to offer customers services, products, and knowledge that they need to develop the homes that they desire. The retailer offers a large variety of merchandise at reasonable prices with a staff that is highly trained. A year later, they opened two stores in Atlanta bringing about crushing competition to the other hardware stores by stocking more items than any other hardware store. However, it was the expertly trained staff on the floor that offered to teach any customers how to lay a tile, handle a power tool or change a fill valve that ensured that the company became such a success. From the first two stores in Atlanta, the company has grown to over 2,200 stores located in three countries. Moreover, every store has the objective to offer the highest level of service, the broadest selection of product and at the most competitive prices. From the start, Home Depot took a long-term approach by making sure that its employees were trained to develop friendly customer relationships instead of pushing for increased sales. The result of this is that the firm grew to become a leader in the retail industry due to a wider customer base. The Home Depot still maintains its mantra, "Built from scratch." (Home Depot, 2016).

Question 2

Consumer Behavior

For a retailer, an effective retail strategy should satisfy the needs of a customer better than its competitors' retail strategy. Therefore, a retailer should prioritize the understanding of the needs of the customers and their buying behaviors if the retailer is to make an effective decision. The buying process begins when a customer identifies a need that is unsatisfied and ends when this requirement has been satisfied during the post-purchase evaluation stage. A retailer has the tendency to attempt to coerce consumers as they go through the buying process to influence the customer to buy from them.

Home Depot influences its customers in all the stages of the buying process. In the first stage, need recognition, the retailer provides potential customers with information on the Internet and through displaying goods on its shelves. The buying process starts when an individual identifies a need that is unsatisfied. An unsatisfied need arises when a customer's desired level of satisfaction does not equal his or her current level of satisfaction. Once the need is identified and the information is obtained, a customer then evaluates his or her alternatives after analyzing the available information on alternative products and selects the option that best serves his or her interest. The next part of the buying process involves the purchase of merchandise; the retailer in this part should strive to reduce the number of abandoned carts in the store or on the online platform. The post-purchase evaluation allows a customer to evaluate the experience after he or she has consumed or used the product. Home Depot has structures that support the receiving of feedback from its customers, allowing the retailer to gauge the level of customer satisfaction (Zentes, Morschett & Schramm-Klein, 2011).

Buying Decision

Customers can engage in various forms of buying decisions when dealing with the retailer, Home Depot. The extended problem solving is a form of buying decision that customers can undertake; In essence, it is a decision process that entails the aspect of customers devoting much time and effort in the analysis of available alternatives. It is usually undertaken by customers who want to make purchases but are unsure of where a risk is involved. The above is often when the customers intend to satisfy important needs or when there is limited information on the good or service.

Limited problem-solving is also a form of buying decision process that customers of Impulse buying is a common type of limited problem solving and is mostly encouraged by retailers such as Home Depot by the use of prominent displays to attract the customers' attention and stimulate a purchase decision (Levy, Weitz & Grewal, 2015).

Market Segments

Home Depot operates in four major segments, and they include:

Plumbing, Electrical & Kitchen. The retailer offers a variety of services and goods in this segment. Appliances like refrigerators, ovens and dishwashers, as well as their appropriate installation are included in this segment. The segment generates a substantial amount of value for the retailer with over 30% of total revenue.

Hardware & Seasonal. The retailer holds a substantial share of the market in this segment, largely because of the high sales to large contractors and professional customers. The segment contributes about 30% of Home Depot's revenue.

Building Materials, Lumber & Millwork. Despite the recession that caused a closure of Home Depot's supply stores that were targeted at professional customers as a result of decreased demand that was associated with the housing meltdown. The economy has experienced a gradual recovery in this segment with huge potential for growth in this segment as the housing market returns to its former position. The segment contributes to about 20 % of the retailer's revenue.

Paint & Flooring. The retailer was able to develop this segment's market share due to the exit of smaller businesses from the market during the recession. The segment represents about 20% contribution to Home Depot's revenue.

Question 3: Retail Strategy

Market Share and Concentration

Home Depot operates in the home improvement industry that is highly concentrated, more so in the consumer market. The degree of concentration is also growing with big-box retailers dominating. Of these, Home Depot and Lowe's are the largest, with market shares of about 30% and 20% respectively. Smaller players such as Menards and Rona also have stakes in the market but lack the retail footprint and national presence of the larger counterparts. With the high level of market concentration comes lots of bargaining power with the company's suppliers of goods.

Competitive Strengths

Home Depot faces steep competition from Lowe's with the room for product differentiation being very limited and more so with products such as building materials and plumbing and electrical components. Sales growth is dependent on critical factors such as exclusivity with national brands, pricing, and customer service. With Home Depot putting more emphasis on customer service to achieve growth, Lowe's competes by pricing (Agrawal, 2008).

Target Market

The target market of the entity entails the "Do-it-yourself" customers. The major characteristic of these customers is that they buy products and install them by themselves by using manuals. The "Do-it-for-me "customers also include customers that use third parties for installation. In-house installation and consultation services are also provided by the retailers. Home Depot has secured its market leadership through its offering of omni-channel options, both the online and store channels, product customization and broader product selection (Agrawal, 2008).

Strategy

The retailer prioritizes the need to provide a customer with the appropriate product quantity and assortment at competitive prices. Home Depot invests hugely on the provision of superior customer experiences. Its product range has been broadened through its online platform (Agrawal, 2008).

SWOT Analysis

Strengths

Home Depot’s strengths are directly related to the current success of the company. Its main strengths include:

· A strong brand image

· Market leadership

· Top quality service-based

· Close relationship with its suppliers

Weaknesses

The retailer's weaknesses are linked to its focus, nature, and supply chain. There exist internal strategic factors that can hinder or reduce the growth of the business. Its main weaknesses include:

· Over dependence on the domestic marketers

· A limited supply chain

· An imitable business format

Opportunities

The retailer's opportunities are mainly based on the expansion of the business. Opportunities are made available by industry or market characteristics that support the expansion of business activities. Home Depot's main opportunities include:

· The international marketers

· Expansion of the supply chain

· Further diversification of business activities

Threats

The economy and the firms in the market are the sources of the threats to Home Depot's business. The retailer's capabilities as a business can be curtailed by the industry's external strategic factors. Home Depot's main threats include:

· Close substitutes

· Competition

· Recession

Question 4

Financial Strategy

The Home Depot's revenue stream can be divided and explained in four parts. The retailer's projection of revenue includes the breaking down of each reportable segment and then projecting it independently on an annual basis. The retailer, the world's leader in home improvement, has seen its margins exceed its pre-recession period.

· Table 1 - Financial Data as at February 2016 (Source: www.hoovers.com)

All amounts presented in billions of US dollars

· Table 2 - Strategic Profit Model Ratios

Home Depot achieves a better overall financial performance than Lowe's. Home Depot has a higher Asset Turnover (2.08) that Lowe's (1.88), meaning that it achieved a higher level of productivity in the investment of its assets. The ration indicates that Home Depot generates more sales dollars by each dollar of sales that Lowe's. Home Depot's Net Profit Margin is also higher that Lowe's; it achieves more profits generated from each dollar of sales for each retailer. Since the ratio measures the retailer's efficiency and productivity, both retailers can improve their asset turnover ratio by a continuous use of their assets, limiting their inventory purchases and having increased sales without the purchase of new assets.

The retailer's liquidity place has it as having a current ratio of 1.36. It’s Gross and Net Margins of 34.19 and 7.91 respectively, mark it as a profitable company. The Gross Margin of the retailer means that it can comfortably cover its expenditures well and is performing at per with its competitor.

With an announced figure of 19 % as its long-term operating margin, the retailer is getting nearer to its goals. In 2015, Home Depot had an estimated operating margin of 18.98% with projections reaching a figure of 19 % for this year. The margin expansion was driven by increased same-store sales and an increased proprietary product selection, which normally results in higher margins that the comparable brands The margin expansion was driven by increased same-store sales and an increased proprietary product selection, which normally results in higher margins that the comparable brands (Margolis, Elfenbein & Walsh, 2007).

Home Depot's operating expenses have increased at a slower pace than its sales have. The previous year saw expense grow at about a quarter of the pace of the retailer's sales. Its performance can be improved by implementing effective inventory management, improvements in supply chain management and lower energy prices. At 1.36 times, Home Depot posted less inventory turnover than Lowe's (4.07).

The retailers should improve their ROA and since it is determined by the management of the profit margin and asset turnover management, a high ROA can be achieved by improving the firms' net profit margin and asset turnover levels. A strategy the two retailers can implement to improve their ROA include increasing their selling prices to increase revenue, but only if their sales remain constant. The retailers could also consider sourcing for cheaper inputs as this will lower the Cost of Goods Sold, freeing up a larger portion of their revenue to be utilized by operation expenses.

The past few years have seen Home Depot optimizing its capital spending decisions. The retailer's capital expenditure as a percentage of sales is practically flat. Home Depot has curtailed its store expansion in the domestic market and is growing at a measured pace in the international market. In contrast, Lowe's retail square footage has increased, leading to a higher capital expenditure. Since Lowe's posted a lower ROA than Home Depot, a strategy it can pursue to improve the ratio involves the reduction of its operating expenses. Operating expenses can be achieved by Lowe's halting its expansion of its retail square footage and downsizing its existing facilities.

Question 5

Retail Site Location

Home Depot has prioritized innovation with the use of different store formats and finding locations where these concepts can bring about high returns per square foot regarding sales in its bid to continue its expansion. This is in addition to the sales it has in its existing stores. Home Depot has an advantage of Site location over its rival. First, it covers a wider geographical are compared to Lowe's. Home Depot has over 2,200 stores, while its competitor has just over 1,800 stores. In addition to its broader reach, Home Depot also benefits from owning more stores in states like California and Florida, that have mild winters and also reap in greater benefits of the housing market recovery. For example, the state of Florida had almost a 20% increase in home sales, alongside almost a 10% rise in the median sale price in the year’s first quarter. The housing market of California also experienced a boom, with record home sales reached in May. Home Depot has over 384 stores in the two states while its competitor has about 50 in both states. Site location here offers home depot an advantage over Lowe in exploiting the upbeat home markets (Bruner, n.d.).

Question 6

Customer Relationship Management

Shoppers have a large amount of inertia; this means that people do not switch store often or easily. Once customers have settled into satisfying a majority of their needs at a store such as Home Depot, it is difficult to convince them to switch. Customers that shop in Home Depot stores leave information about their shopping habits and preferences; the information is utilized to provide the retailer with an information database that can guide policy decisions on the issue of customer satisfaction. The information together with shoppers that tend to use one main store means that the store can retain its customers and develop loyalty.

One approach that Home Depot used for Customer Relationship Management is the introduction of the Bay Sequencing, a system that assists the floor workers to locate products within the store for the customers. The system aids customer satisfaction. A redesigned checkout system that allows multiple employees to run a single register improved the checkout process and lower customer wait times.

A customer care resolution team was also implemented, responsible for a proactive searching of online platforms for any customer concerns and problems. With authority to contact and engage the customers so as to solve their problems, the retailer has an efficient customer relationship management approach (Krafft & Mantrala, 2010).

The retailer also introduced loyalty programs, an example is Pro Xtra that exclusively targets its professional customers. The benefits of such a program include exclusive product offers, product discounts and a tool that allows the tracking of purchases and receipts online.

Question 7

Merchandise Planning

Unlike department stores that usually manage their merchandise at the category level, the supermarkets and retailers such as Home Depots organize their merchandise based on vendors or brands. It is clear that managing merchandise within the categories by the brands can result in inefficiencies as it does not consider the interdependencies that exist between SKU's in a category. Home Depot manages its merchandise by category, and as a result, its stores' assortment includes the most optimal combination of vendors and sizes; a combination that will result in the most profit from the space that is allocated. For instance, Home Depot's Traffic/commodity category is made up of products that are usually referred to as project starters; items such as lumber, drywall, and fertilizer. These goods are easy to find, frequently promoted, priced competitively and available in sufficient quantities for demand by professional customers. Home Depot being a leader in the provision of unfinished furniture, a product that falls in this category, offers a much larger collection than Lowe's in this category. A focused product assortment, heavy marketing, and in-store visibility can drive further growth in the category (Michman & Greco, 1995).

References

Agrawal, N. (2008). Retail Supply Chain Management: Quantitative Models and Empirical Studies. New York, NY: Springer.

Bruner, R. F. Home Depot, Inc.

Levy, M., Weitz, B. A., & Grewal, D. (2015). Retailing Management. McGraw-Hill Education.

Margolis, J. D., Elfenbein, H. A., & Walsh, J. P. (2007). Does it Pay to be Good? A Meta-Analysis and Redirection of Research on the Relationship Between Corporate Social and Financial Performance. Ann Arbor, 1001, 48109-1234.

Krafft, M., & Mantrala, M. K. (2010). Retailing in the 21st century: Current and Future Trends. Heidelberg: Springer.

Michman, R. D., & Greco, A. J. (1995). Retailing Triumphs and Blunders: Victims of Competition in the New Age of Marketing Management. Westport, Conn: Quorum Books.

The Home Depot. (2016). The Home Depot. Retrieved 22 October 2016, from https://corporate.homedepot.com/