Did Home Depot Ceo Agree To Build Wall
Stock valueAfter six years, Home Depot investors were larboard captivation a bag of banal that had absent 8% of its value. During the aforementioned time aeon the banal of Lowe's, the No. 2 home-improvement chain, was up 188%.
If you aloof attending at Home Depot's numbers, Nardelli did a acceptable job. In six years, sales were up 99% and profits were up 125%.
But analyze Home Depot to Lowe's. Aback Nardelli took over, Home Depot had revenues that were 2.4 times that of Lowe's. Aback Nardelli left, Home Depot had revenues that were alone 1.9 times that of Lowe's.
Room for growthThere's still affluence of allowance for advance at both chains. Lowe's estimates the U.S. home-improvement bazaar is $700 billion. If that's true, Home Depot and Lowe's accumulated accept beneath than 18% of the market.
Why did Home Depot abort to accumulate clip with its abate rival? I accept it's because the alternation abandoned one of the axiological laws of business -- the law of focus.
What was Nardelli's strategy? It was a abstraction he alleged "The three Es."
In the accomplished two years, Home Depot spent added than $6 billion to access some 25 broad suppliers to aggregate up Home Depot Supply, its above accomplishment to get into the building-supply business.
Losing focusThe grass is consistently greener on the added side. Why is it that a aggregation like Home Depot keeps attractive for added businesses to get into aback it still hasn't bedeviled its absolute business. (Keep in apperception that 18% bazaar allotment for both Home Depot and Lowe's.)
Furthermore, architecture accumulation and home accumulation are two altered businesses. "Contractors await on abiding relationships with suppliers and accomplished salespeople," The Wall Street Journal acicular out. "Many accessory the Home Depot cast with do-it-yourselfers and soccer moms blame arcade carts, and abstain the stores."
In my experience, Home Depot is archetypal of abounding companies that accumulate attractive to access their businesses by 1) band extension, 2) about-face or 3) synergy. None of these strategies can analyze with the ability of a simple focus.
You ability anticipate that Home Depot would accept abstruse a assignment from its antecedent acquaintance with one of the Es, "extending the business."
Expo Design CentersIn 1991, the aggregation alien Expo Design Center, a kitchen and ablution project-based business. Today there are aloof 34 Expo Design Centers and it's my assumption they're not actual assisting and a big aberration for Home Depot management.
In 1995, the aggregation alien Home Depot CrossRoads, a abstraction advised to account rural markets with articles like tractor tires. The abstraction died an aboriginal death.
In 1999, the aggregation alien Villager's Hardware, a mom-and-pop-style store, one-third the admeasurement of a archetypal Home Depot. Why would anyone try to barrage a accouterments cast (with a anemic name) in a crumbling bazaar bedeviled by two above chains, TrueValue and Ace? Villager's Accouterments is no best with us.
Nardelli should accept focused all his efforts on his Home Depot brand. Instead of an advancing attack to cut costs (not about a acceptable abstraction in retail), he should accept caked money and accomplishment into befitting the Home Depot advanced of the pack.
From plumbers to part-timers"Mr. Nardelli confused to cut aback on higher-paid full-time advisers with acquaintance as plumbers or handymen," the Wall Street Journal reported, "and to await added on part-time workers with beneath acquaintance answering home-improvement questions from customers."
Nothing lasts forever. In abounding categories, brands charge connected absorption to accumulate them abreast and "with it."
For instance, booty a attending at what happened to Dell. The aforementioned affair that happened to Home Depot. The aboriginal aggregation to advertise claimed computers direct, Dell congenital a able cast and a able aggregation by architecture PCs from blemish so it could clothier them to the needs of the business community. (Headline of Dell brochure: "New computers custom congenital to do your business your way." Not actual poetic, but absolutely actual definitive.)
Then Dell jumped into the chump bazaar with both chump electronics and chump PCs. Remember the Steven appearance played by Benjamin Curtis on TV: "Dude, you're gettin' a Dell?" (After Curtis was arrested with marijuana in his possession, he and the attack were scratched.)
Flawed strategyBut the chump client is a altered chump than the business buyer. Clothier a computer to the consumer's needs? How abounding consumers knew what they needed? Furthermore, the business client didn't decidedly affliction what a computer looked like; they were abundant added anxious with how it performed.
But best consumers admired to blow and feel a PC afore buying. In animosity of massive announcement campaigns, consumers represent alone 15% of Dell's sales today. (In 2005, Dell was the seventh better advertised cast in the U.S. in agreement of abstinent media, spending an estimated $776 million.)
In animosity of adorning its line, Dell's allotment of claimed computer sales fell to aloof 14% of the common bazaar from a aerial three years ago of 18%. And CEO Kevin Rollins met the aforementioned fate as Robert Nardelli.
What's accident at your company? The allocution in best boardrooms of America is about expansion. How do we access sales by accretion into new products, new services, new distribution, new amount categories?
In best boardrooms, focus is article you do with a camera, not a corporation.
~ ~ ~Al Ries is the columnist or co-author of 11 books on marketing, including his latest, The Origin of Brands. He and his babe Laura run the Atlanta-based business action close Ries & Ries. Their website is Ries.com.