The Home Depot–the playground for a man's man. They are the leader in the category of "home improvement warehouse." Approximately 18% of the $700 billion annual market is shared between Home Depot and category number two, Lowe's.
But there is trouble in paradise. On January 2, 2007, then-CEO Robert Nardelli (dubbed "America's Most Overpaid CEO") was given the heave-ho to the tune of $210 million. This came after he had eroded the company's strong focus, giving rival Lowe's a foothold to gain on Home Depot.
The problem was, according to branding experts, one of focus. Nardelli stretched the company into areas which it did not dominate. He had a vision to expand the core, extend the business, and expand the market. To that, I say, "what?"
Aggressively, he purchased some 25 wholesale suppliers for $6 billion. That just doesn't make sense. What does a home improvement warehouse know about running a wholesale supplier?
When Nardelli took the helm at Home Depot, sales were 2.4 times that of Lowe's. Upon his corporate demise, sales were only up 1.9 times. That is unacceptable. Leaders lead. The gap between the number one and number two brands in a category should not shrink.
Al Ries, the world's foremost branding authority, wrote in Ad Age, "Why did Home Depot fail to keep pace with its smaller rival? I believe it’s because the chain violated one of the fundamental laws of marketing. The law of focus."
The Law of Focus states: the most powerful concept in marketing (or branding) is owning a word in the prospect's mind. Crest owns cavities. FedEx owns overnight. Lexus owns luxury. Sometimes one word won't do. In those cases, two words will also suffice. Domino's owns home delivery. Home Depot owns home improvement.
(Still, it is easier–and far better–to own one word than two. We are already inundated with bright ads, chirping cell phones, and overtime work shifts. The less clutter a brand offers, the more likely it will be remembered.)
If, then, Home Depot owns home improvement, why would they extend their brand into the wholesale supplier category? What does a home improvement warehouse know about wholesale supplying?
In the movie City Slickers, Jack Palance asks Billy Crystal, "Do you know what the secret to life is?"
Crystal responds, "No, what?"
"One thing, just one thing. You stick to that and everything else don't mean sh*t."
"That's great, but what's the one thing?"
"That's what you've got to figure out."
Home Depot has begun to realize the error of their ways. On June 19, 2007, they sold their supply company, HD Supply, for a pretty $10.3 billion dollars. Home Depot's board also approved a $22.5 billion share repurchase.
It appears that Home Depot is refocusing their business on their core strength. According to the Washington Post, "The struggling retailer now plans to focus on improving its stores to keep up with its high-performing rival, Lowe's."
What once made Home Depot great was its unparalleled customer service. “Mr. Nardelli moved to cut back on higher-paid full-time employees with experience as plumbers or handymen,” reported The Wall Street Journal, “and to rely more on part-time workers with less experience answering home-improvement questions from customers.”
A narrow focus can often times mean taking a hit in the short term. Home Depot is already planning to shell out $2 billion to improve its customer service, which will be done by putting more experts in stores and enhancing inventory.
Home Depot is no stranger to a wandering focus. In 1991, they developed Expo Design Center. This is a high-priced kitchen and bath-based store. Today there are only 34 stores in existence. In 1995, they introduced Home Depot CrossRoads. These stores tried to function as a tractor-and-tire hub for rural areas. In 1999, they rolled out Villager's Hardware, a me-too retailer that tried to go up against Ace and True Value.
A company should not look to extend their brand, they should look to deepen its penetration. Home Depot should focus on how it can take a greater share of the category, one, and two, make the $700 billion annual category even bigger. Being the leader, they will get the heftiest chunk of that expansion.
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