Home Improvement

Home Depot is betting its $1 billion investment in IT infrastrucutre will boost growth and earnings, while fending off rival Lowe's. Can a strategy designed to improve efficiency also increase customer satisfaction?

Bernie Marcus and Arthur Blank tapped into America's love for size, choice and bargains when they envisioned a chain of retail warehouses stacked floor to ceiling with everything and anything a builder or homeowner could want or need. In 1978, The Home Depot was born. At last, men could experience the same sense of wonder that overcomes kids let loose in Toys "R" Us.

With its then-unusual, big-box format and its knowledgeable, helpful clerks clad in construction-sign-orange aprons, Home Depot rapidly became an icon of American culture alongside Harley-Davidson, Coca-Cola and Ford.

It also became an icon of American business. By 1986, with 60 stores and 6,600 employees, Home Depot reached a billion dollars in sales. From then until 2000, revenue nearly doubled every two to three years. The company's success coincided with the increasing suburbanization of middle-class America, the nesting of the baby boomers, the real estate boom of the 1980s and the popularity of the TV sitcom Home Improvement. Home Depot was the right idea arriving at the right time. In 1989, it surpassed the then-37-year-old Lowe's as America's number-one home improvement retailer. Today, the company is America's second largest retailer (trailing only Wal-Mart) and the biggest home improvement chain in the world, with $64.8 billion in revenue and 11 percent of the vaguely defined U.S. home improvement market. The company opens a new store somewhere almost every other day.

Battle Of The Titans

Home Depot VS Lowe's
1,635 Number of stores 952
50 Number of states 45
22 million Customers per week 10 million
40,000+ Products carried 40,000+
299,000 Employees 147,000
$64.8 billion 2003 revenue $30.8 billion
$342 million 2003 IT spending $275 million
$300 million 2004 IT spending $300 million
$80.7 billion Market Capitalization* $41.7 billion
T1 lines with an ATM backbone Network Frame relay network with back-up provided by a satellite-based WAN
Sources: HOME DEPOT AND LOWE's *AS OF JUNE 22, 2004

What helped fuel Home Depot's dizzying growth (besides a historic economic boom) was a decentralized business model that made store regional and division managers responsible for the mix and quantity of the products on their shelves. Marcus and Blank believed that the people closest to the customer ought to be making those critical choices, not the muckety-mucks at headquarters.

IT also played a significant role. Home Depot relied heavily on homegrown systems. By building its own applications, it didn't get bogged down in customizing off-the-shelf software and didn't invest time and money in endless enterprisewide implementations. In addition, a standard database design and an application architecture that reused software components allowed the IT staff to develop applications, such as the company's mobile ordering system (a cart equipped with a computer and printer that clerks could wheel around the store to reorder products and change prices), lickety-split.

But the glory days didn't last. As the millennial malaise set in across the country, Home Depot faltered. The entrepreneurial strategies of the '80s and '90s suddenly began to look old-fashioned. With more than 1,000 stores in the United States, Canada, Puerto Rico and South America, local-level decision making had led to a hodgepodge of store layouts, confusing customers who shopped at different Home Depots and wanted to find the same product in the same place in each store. The systems on which Home Depot prided itself became too costly for the chain to support because they required so much elbow grease to change. Even the warehouse format that was so closely tied to Home Depot's identity was showing wear and tear. As Lowe's, Target, Wal-Mart and warehouse clubs added stores, Home Depot became just another big box on the increasingly homogenized American retail landscape. The thrill was gone.

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