Improvements - Articles & Advice

Home Depot's Fix - Is It Really In One

The last time I was in a Home Depot store I saw no empty aisles. There were plenty of shoppers lingering around. Oh sure the clerks are busy and no one's jumping from checkout counter to checkout counter throwing flowers and singing, but I didn't see any problems. So what's the beef?

Lowes. That's the real issue. Analysts and investors alike are holding Home Depot up to Lowes, comparing the two as if they were fine bottles of wine, holding the glass up to the light inspecting its amber glow, sniffing those corks as if that's gonna tell you anything. They should take that same view when comparing HD to LOW. These stores may be in the same business but they're not that alike.

Lets look at the facts, store against store and talk dollars not lightly lit isles. Lowes inventory is higher in major appliances. While to some that may seem a good strategy and yes, the isles are wider at Lowes. Its true too that Home Depot's stores look more like a warehouse. That's because they are!

These are retailers, LOW and HD, and they should be judged like retailers judge themselves; floor space and turn over. HD carries more inventory per square foot of store space than LOW. HD carries less of the bulky, slow turning appliances than LOW. They've also got a whole lot more in buying power with 1,500 stores than LOW and that means lower costs in volume purchases. If it came down to a price war it would be bloody, but Home Depot's clearly got the upper hand.

Chief Executive Robert Nardelli who arrived from General Electric two years ago, was already under intense pressure from investors. Home Depot's stock had fallen 53 percent in 2002, making it the worst performer among components of the Dow Jones industrial average.

Nardelli, some analysts say, has focused too much on cost cutting at the expense of a critical element of retailing -- the customer. Moreover, they say, stores have a poor layout, merchandise that appeals too much to the traditional male do-it-yourselfer rather than women who make many of the spending decisions, and a sales staff whose strong suit is not customer service.

While analysts and institutional investors have been critical of Nardelli and HD, as the no. 2 retailer in America behind Wal-Mart, Nardelli's got has hands full. With a business that large centralized purchasing, which was one of the changes Nardelli made, makes sense and offers greater control over capital expenditures. While women do make many of the decisions in spending, adjusting the entire home improvement chain's focus to attract more women shoppers would take years and time is something Nardelli doesn't have.

While Home Depot has made some moves towards improving customer service, announcing greater staff training and its expansion into the latest bathroom fixtures and rugs. Many analysts are too quick to judge these shifts in business tactics. HD's move into bathroom fixtures and rugs is aimed right at " Mrs. I want a better looking home." Its not men who have concern over bathrooms, except that the toilet will flush properly and few mean really care about the rugs that go in them.

But Mr. Nardelli's not Home Depot. Nardelli's assembled a small army of key management while quietly managing to combine new thinking with the old. His tactic is not a new one but it's a task few would undertake if given that opportunity.

Axcess Business News believes the market pundits and institutional investors are too quick to judge this company's future and added Home Depot's stock to its Stock Guide's "best picks column" the last week of Dec 2002 with a "very positive" view towards the stock. Axcess Business News is holding that view in an even stronger light in lieu of its share's recent downturn this Friday.

The company blamed weaker-than-expected sales of hardware and power tools over the holidays for its latest troubles, as the stock fell 14 percent to its lowest level in nearly five years on Friday, a day after it warned that fiscal 2002 earnings would fall short of earlier estimates and that sales at stores open at least a year could drop as much as 10 percent in the fourth quarter.

Home Depot is not alone in lower retail sales for the 4th quarter. The entire retail sector lagged through the Christmas season with few exceptions, like JC Penny's (NYSE: JCP), which had also been one of the companies Axcess Business News had selected for its "best picks column", ahead of Bear Stearns' recent applaud by nearly two months. Axcess Business News dropped coverage of JCP last week as Stearn's released its views as stated above, supporting the "best picks column's" 18th week of advancing market picks successfully.

This reporter is for Home Depot, as is Axcess Business News. I expect the market to rise in its favor in the coming period as Nardelli's "fix-it team" quietly moves forward with its repairs.

Axcess Business News will continue to report on the fix of the home improvement industry and these companies activities for our readers. Watch your in-box for any news alerts on this and other late breaking business news. If your not a member, consider subscribing now and you can get these great market alerts too!

Go to http://www.theaxcess.net and subscribe now! Its free!!

Alan writes a daily column for Axcess Business News called Market Axcess. And he'd really like it if you click on that link and tell his editor how much you like his work so he gets a raise! (just kidding) I would like it if you visited the site, http://www.theaxcess.net Help yourself to some common sense and read my column now!

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