Mr. Nardelli believes these new strategies are opportunities to stay competitive and vastly augment Home Depot’s growth. “People say we’re in a $400 billion market, because that’s the market for our products today,” says Mr. Nardelli. “I say we’re in a $900 billion market. We’re looking to sell to professional contractors themselves — plumbers, builders, and so on. That’s a $300 billion market. The ‘we do it for you’ market is another $200 billion.” Announcing Home Depot’s 15 percent profit rise in the third quarter of 2004 over the prior year, the company’s chief financial officer, Carol Tomé, highlighted a 26 percent increase in “home installation services,” aimed at the free-spending “do it for me now” customer.
Home Depot is also looking to take its ideas to other geographies. With its new emphasis on processes and metrics, Mr. Nardelli says the chain is in a better position to expand internationally. In the late 1990s and early 2000s, Home Depot had small operations in Argentina and Chile, but because it was going to be difficult to gain economies of scale in those countries, the CEO closed those stores and instead opted to focus resources in Mexico. The bet has paid off. Over 18 months, the company became the largest home improvement chain in that country, with 40 stores. Now, Home Depot is looking to expand into China as well. In 2002, it established sourcing operations there, and there are more plans in the works for China.
From 2000 to 2004, Mr. Nardelli’s first four years on the job, Home Depot revenues grew by $19 billion, or 42 percent, and earnings per share have increased by 71 percent. With the U.S. construction sector heating up — and with the company setting its sights on the $50 billion China market — Home Depot seems well on its way to meeting its aggressive growth objectives.
Still, the company faces big challenges. With more than 1,800 stores, the retailer is about twice the size of rival Lowe’s. In 2004, Home Depot opened 175 stores; with 150 to 200 workers per store, that is about 20,000 new hires. As Home Depot pushes for more growth, it may become increasingly difficult to keep employees aligned with corporate goals. “The problem is that service doesn’t scale well compared with bricks and mortar,” says Aram Rubinson, an analyst at Bank of America Securities. Even Kmart’s merger with Sears was not so much an effort at scaling up as it was cutting back. The leaders of those companies say they will cut $300 million in costs out of operations over the next three years by laying off workers and reorganizing structures.
Distinguishing itself from competitors is a constant battle at Home Depot, and the macroeconomic environment may shift against the corporation. “If the housing sector keeps shining,” says Mr. Rubinson, “Home Depot will do well; if not, they could take a downturn.”
A Fine Romance
Mr. Nardelli isn’t worried. He believes Home Depot’s efficiency-driven, human-centered management can keep the retailer ahead of its competition. Demographic trends also are working in favor of the retailer’s ambitious growth plan: Baby boomers are buying second homes, and Hispanics are a rapidly growing customer base.
The company’s spirit should also continue to grow. Outside a Home Depot near Boston, on a fine spring day, employees are about to get to work. They begin by chanting the cheer that opens the workday for the chain’s salespeople across the country.
“Give me an H,” someone calls.
“Give me an O.”
The chant continues. It’s a relic from the Marcus and Blank era. Yet the cheer is as reflective of the new Home Depot as of the old, mixing enthusiasm with a newfound discipline. There’s room for individual expression. The chant varies slightly across the country. Some employees may answer the final question, “What are we going to do?” with “Beat Lowe’s!” Others may shout, “Serve customers!” But what’s important is that everyone is on the same page. It’s that unified commitment and enthusiasm that Mr. Nardelli wants to see.