Home Depot's total rehab

First the customers revolted. Then housing went into a free fall. Time to slash and burn - unless you're CEO Frank Blake, who thinks an army of orange aprons will save the day.

(Fortune magazine) -- The Home Depot's Francis S. (Frank) Blake has one of the biggest jobs in corporate America but one of its least famous faces. Which is what the CEO is counting on one weekday morning when he goes on an undercover mission in Riverside, N.J.: a secret walkthrough at one of his company's 1,970 U.S. stores. He's been taking the walks an average of four times a week, all around the U.S., since January 2007, when he took over as CEO after Bob Nardelli's abrupt and painful departure. Blake wants to see for himself the way regular folks are treated when they shop at the big orange box. And he's not sure what to expect. "This is going to be like a Cracker Jack box," he says, a bit nervously. "You don't know what you'll get."

Things get off to a promising start: Barely are we in the door when an orange-aproned associate asks brightly, "Can I help you find something?" A small smile plays across Blake's poker face. "That's always good," he says, stooping to pick up some pink flower petals that have fallen to the ground. As he makes his way to the carpet section, which has been redesigned so that women customers can actually reach the rugs, the level of service begins to border on obsessive. "You need help with anything?" "How you doing today?" "Folks, you sure you don't need any help?"

It should be a gratifying moment for Blake, who has bet the ranch on Home Depot (HD, Fortune 500)'s quest to reclaim the $77.3 billion retailer's once-vaunted edge in customer service. Instead he looks uncomfortable. He's accustomed to walking freely through most stores; with his preppy clothes, thinning hairline, and lack of entourage, he resembles a suburban accountant who gets his jollies riding his power mower. Not this time. "You've been outed," I tell him. And sure enough, the manager of store No. 919, Mike Pleskach, comes bounding over to say hello. (Blake says he should have worn a baseball cap; his bald head is too distinctive.) . . . more

Home Depot slashes prices, seeking to gain share

Analysts caution move may lead to a price war, hurting profit margins

In a bid to drive traffic and sales hurt by the housing market downturns, No. 1 home improvement retailer Home Depot Inc. said it will lower prices on 1,200 items from paint to a toilet repair kit by as much as 50%.

Price cuts ranging from 5% to 50%, which Home Depot intends to keep permanent, will be lowered on about 400 items each starting Thursday over each of the next three weeks, Home Depot spokeswoman Jean Niemi said.

For example, the price on a Stratford Brushed Nickel Ceiling Fan was lowered to $69.00 from $89.97 while a THD moving box was cut to 97 cents from $2.76. The affected stock marked about 4% of Home Depot's average of 30,000 items in each store, she said.

To promote the deals, Home Depot also is launching a marketing campaign involving TV commercials and print and radio ads. Store signage touting "new lower price" and labels on racks comparing the old and new prices will be prominently displayed.



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Market turnaround 'close,' Home Depot CEO says

Home Depot Chief Executive Frank Blake told investors last month he hoped the housing market had hit bottom.

On Tuesday, he said a turnaround is "close" but added, "I don't see it yet."

"It's still a very tough market," said Blake, who appeared on CNBC's "Squawk Box" morning show in New York. It was Blake's first extended television interview since he became CEO in January 2007.

Home Depot co-founder Bernie Marcus also joined the show's three hosts, interviewing Blake and other guests. Marcus praised Blake for not cutting jobs, upgrading Home Depot stores and reviving a culture that he said had disappeared earlier in this decade.

"People love what they are doing," Marcus said. "The culture [co-founder Arthur Blank] and I created has come back."

Marcus, who stepped down as chairman of Home Depot in 2001, said morale was so low at the stores during the past few years of his tenure that he stopped going into them.

"What, you were going to Lowe's?" asked "Squawk Box" co-host Joe Kernan, referring to the archrival chain.

Marcus continued: It was a disaster. It was cost-cutting. It was getting rid of the most experienced people because they were the highest-paid.

Despite Home Depot's success in helping to create the DIY market segment, Marcus said the founders might not be able to repeat the feat today because of regulatory and economic constraints.

For one thing, Home Depot ran through most of its money within its first year of opening, and it hired on the promise of stock options, he noted.

"Think about going public with $25 million," Marcus said. "Our margins, they looked good, but we had no balance sheet."

Source: Atlanta Journal

Home Depot: Economic Tides Buffet Big Retailer

"Rowing the boat hard against an outgoing tide" is how Home Depot CEO Frank Blake described running the home improvement chain in the current economy.

At a meeting with the editorial board of The Atlanta Journal-Constitution on Monday, Blake said that despite a commitment to invest in stores, when sales decline, fewer associates are allocated per store.

"I'd like the tide to turn," he said. "It's a lot easier to row with the incoming tide."

But Home Depot has been hit hard by a perfect storm of bad economic news: the sluggish economy driven by higher fuel prices, the housing market downturn and the tight credit markets.

Atlanta-based Home Depot's annual sales showed a first-ever decline in 2007. Under Blake, who started as chief executive in January 2007, the chain has refocused on retail fundamentals. It's a direction that harkens back to the company's roots under co-founders Bernie Marcus and Arthur Blank. The previous CEO, Bob Nardelli, had tried to make Home Depot the world's largest heavy-duty construction supplier. Last year, Blake sold HD Supply for $8.5 billion.

But despite Blake's best efforts, people are spending less on their homes. Blake said Home Depot's sales are driven by three big factors: Housing turnover drives 20 percent to 25 percent of Home Depot's business; home repairs are another 20 percent to 25 percent; but the vast majority, 50 percent to 60 percent, is discretionary spending.

"People are doing fewer big kitchen remodels and more faucet repair," he said.

There are a lot of gradations of discretionary spending, he added, which is influenced by how people feel about their homes. Some view the home as an investment that is appreciating, others as a place to raise their kids. When homes depreciate in value, he said, it can be hard to justify remodeling the kitchen.

"The decline seen in housing values is a new thing," he said.

Despite declining sales, the company is investing $180 million to put more sales associates on the floor and give them better perks, and to hire master tradesmen such as plumbers and electricians to staff the aisles.

The investment, however, came at the price of laying off 500 headquarters employees and 2,000 human-resources employees this year, as well as closing 15 underperforming stores and shelving the development of 50 others.

Blake said it is counter-intuitive to reinvest savings from layoffs and other changes into the company during a downturn --- as opposed to giving the returns to shareholders. "It is an advantage there are lower expectations, and people understand the need to change," said Blake.
He said the current economy has "absolutely" given him more breathing room to turn the ship around. Blake also is seeing opportunities to sell new kinds of products, given record energy prices: Energy-efficient windows, insulation and even solar panels are becoming a hit in some regions.

Still, he's ready to see the upside. In the past 17 months, the stock has taken a beating --- it closed Monday at $26.54, down from $39.32 on Jan. 2, 2007, the day he took the helm.
"If I were writing the story," he said, "the market would start to pick up right about now."

Source: Plain Vanilla Shell

Home Depot, Praktiker rumors resurface

(Jun. 6) Home Depot CEO Frank Blake shot down rumors that began circulating late last month that the retailer was considering a takeover of Germany's DIY giant Praktiker AG. When asked by an analyst at the company's annual analyst meeting on June 5, and later in the by reporters, about whether Home Depot was interested in taking over a European company, Blake said simply, "No."

Rumors that Home Depot would consider a bid at taking over the German big-box DIY retailer resurfaced May 28 after shares of Praktiker rose 9 percent, ostensibly on the takeover speculation.

Blake said the retailer is focused on expansion opportunities in China and Mexico, but that rumors about an entry into the European market were just that: rumors. He specifically discussed China, and Home Depot's plans to get its 12 stores in that country into a "profitable model" before a larger rollout some time in the future.

Home Depot has been rumored to be considering European acquisitions on and off for years, as far aback as 2001. Names have included Praktiker and Kingfisher, parent of European chains B&Q, Castorama and Brico Depot.

Source: Home Channel News

The Starbucks Effect

A few weeks ago I wrote about my brother-in-law who'd just decided to buy his first home. While I was on a business trip last week, he gave me a quick tour of his new place: a 1920s row house in Washington, D.C.'s Petworth neighborhood with exposed brick, good bones and lots of space. He was quick to point out the hip restaurants that were opening up nearby, as well as a new upscale condo project rising a few blocks away. Such neighborhood developments, he said, were sure signs that the neighborhood was on the up. But then I asked, "How far is it to the nearest Starbucks?"

While reporting on real estate the last few years, I've been surprised by how often I've heard house-hunters and real estate investors alike talk about the presence or expansion of certain retail chains as a surefire indicator that a neighborhood's home values were set to spike. One real estate pro told me the perfect place to buy a rental property is a town where Home Depot has just constructed a store and Starbucks is about to move in. Blogger Sarah Gilbert offers similar advice, which she calls "the smartest real estate strategy ever." "Buy, immediately, in a neighborhood where a Starbucks is planned," writes Gilbert, who says her own home value doubled shortly after an outlet of the ubiquitous coffeehouse opened nearby. (Of course, since she wrote that in 2006, it's hard to say how much of her home's appreciation exists today.)

People who believe in this logic say that growth-oriented chains like Starbucks and Home Depot do tons of economic and demographic research before moving into a new town, and that their decision to locate a store indicates a big vote of confidence in the area's economy.

Adam Epstein of Site Analytics, a New York-based firm that helps chains analyze data to choose new locations, says he does sometimes observe a "snowball effect," in which the creation of a subdivision gives a particular retailer the confidence to site a store nearby, which in turn boosts demand for houses, which draws in more retailers, etc. Epstein also says that as some retailers (including Starbucks) have begun promoting future locations on their Web sites, more real estate investors seem to be making use of the data. "Among homebuyers, [Starbucks] is seen as the ultimate validation," Epstein says.

This would seem a strange time to talk about Starbucks and Home Depot as leading indicators for local real estate purchases, since both chains have been struggling of late. In April, Starbucks founder Howard Schultzacknowledged that his company is "experiencing some difficulties as a result of some tough operating conditions in the U.S.," and last month Home Depot announced plans to close 15 existing stores and take 50 planned stores off the drawing board as its earnings shrink due to the ongoing housing crisis. Indeed, if Americans have learned anything as a result of the ongoing housing meltdown, one would hope it would be to buy a house because it's a good place to live and not based on the hope that its price will double or triple. Still, despite the current troubles, most buyers can't help looking for a home that seems likely to appreciate, and some buyers still view these companies' site decisions as a leading indicator of sorts.

Consider George Vaughan, an advertising salesman in Portland, Ore., who first heard about the concept he calls "the Home Depot Magic Rule" from his accountant a few years ago. The accountant had another client who'd been buying investment property in towns where Home Depot planned to build new stores. This client had bought a bunch of houses in such a town in Oregon; over eight years they appreciated from $120,000 to $400,000 apiece. Vaughan, whose accountant was urging him to buy some rental properties to improve his tax situation, zeroed in on an Oregon town called Hermiston, about three hours east of Portland, and ultimately bought two homes there.

Source: Newsweek

Home Depot shareholders question customer service

ATLANTA - Home Depot Chief Executive Frank Blake was grilled Thursday by investors, who also shop in his company's stores, on the retailer's commitment to customer service.

Several shareholders spoke at the Atlanta-based company's annual meeting about poor experiences in Home Depot (nyse: HD - news - people ) stores. They said some employees don't seem well-trained in the store's products, and they also criticized the performance of people who do home installations for the company.

One shareholder said he couldn't get the attention of Home Depot workers. "They don't see you or they don't want to see you," he said.

Blake said Home Depot is aware of customer service complaints at some of its stores, and he vowed, as he has in the past, to fix the problem.

"I apologize for any bad service you've had in our stores," Blake told a woman who complained about Home Depot's installation business.

Blake said at the meeting that Home Depot doesn't plan to change its strategy of investing in its stores and trying to woo professionals, like contractors.

"We are keeping on the same strategy we had in 2007," Blake said during the meeting at a conference center near the company's headquarters.

Home Depot shares fell 2 cents to $26.91.

The Home Depot Inc., the world's largest home improvement store chain, has suffered from the slumping U.S. housing market. Its sales, profits and stock price have slid, and it previously announced it would close 15 of its flagship stores because they failed to meet company performance goals.

Also Thursday, shareholders again defeated a proposal that would have given investors an advisory vote on pay packages for several senior executives at the company.

The proposal submitted by a group of shareholders is a frequent one at Home Depot annual meetings in light of hefty compensation and severance packages given to its executives over the years, particularly former Chief Executive Bob Nardelli.

As in the past, the company's board recommended that shareholders reject the proposal Thursday. Shareholders did, though 41 percent of votes cast favored the proposal. That's about the same percentage of votes cast in favor of last year's proposal.

On Tuesday, the company reported a 66 percent drop in first-quarter profit. It also said it doesn't know if stimulus checks making their way to potential customers are enough to improve its fortunes this year.

Source: Forbes.com

Home Depot to close 15 underperforming US stores

ATLANTA (AP) — It's been 4 1/2 years since former Home Depot Chief Executive Bob Nardelli's bold prediction that the home improvement retailer could sustain "unlimited growth" without significantly affecting sales at established stores.

That statement was made during much better economic times.

The Atlanta-based company, under different leadership, a different growth philosophy and amid an ailing housing market, put the brakes Thursday on some of its future expansion plans and said it would do what was previously unthinkable — close 15 of its underperforming flagship stores.

It is the first time the world's largest home improvement store chain has ever closed a flagship store for performance reasons. The move, to be completed within the next two months, will affect 1,300 employees.

The company reiterated its intention to open 55 new stores in the 2009 fiscal year, though it will no longer pursue the opening of roughly 50 U.S. stores that have been in its new store pipeline, in some cases for more than 10 years.

"By building fewer stores, in the best locations, and making sure our existing stores are profitable, our company will be in a much stronger competitive position," said CEO Frank Blake, who took over for Nardelli in January 2007.

Home Depot shares rose $1.17, or 4.1 percent, to $29.97 in afternoon trading.

Nardelli, now the chief at automaker Chrysler LLC, had other ideas on Nov. 18, 2003, when he told The Associated Press that The Home Depot Inc.'s robust new store growth would continue unabated and suggested the retailer may one day expand into Europe and Asia.

The company has added about 600 stores since then, but has scaled back new store growth in the last few years. Its only stores outside North America are a dozen in China, and those were obtained through an acquisition.

Some analysts and large investors have worried in the past that as Home Depot gets bigger, it would invariably put stores in direct competition with existing stores, a practice known in the industry as cannibalization.

Home Depot in the past has justified cannibalization by saying it increases the company's overall market share.

On Thursday, Blake said Home Depot's goal now is to "reduce cannibalization and drive higher returns."

Growth aside, Home Depot previously had never closed one of its flagship stores for performance reasons.

On Sept. 21, 2007, Blake told AP that the company had no plans to make any broad-based job cuts or reduce the number of its core retail stores in the face of a persistent housing slump that wasn't expected to improve anytime soon.

But since then, the economy and the housing market woes have grown worse, and Home Depot has announced several rounds of job cuts.

In December, Home Depot said it would cut 950 jobs and close three call centers that handle orders for home installation. The next month, Home Depot said it would cut 500 jobs at its headquarters.

Home Depot has sought over the last year to focus more attention on its core stores. In August 2007, it sold its wholesale distribution business, HD Supply, to a group of private equity firms for $8.5 billion.

The stores Home Depot said Thursday it plans to close consist of three in Wisconsin, two in Ohio, two in New Jersey, two in Indiana and one each in Kentucky, Louisiana, Minnesota, North Dakota, New York and Vermont (KeyPoint note - the Vermont store is in Brattleboro).

A company spokesman said some of the affected employees will be relocated, while others could lose their jobs.

Spokesman Ron DeFeo said Home Depot has only closed one of its flagship stores previously because of structural damage. Last year, Home Depot closed its 11 Landscape Supply stores. It also has previously shut a number of its Expo design centers.

Due to the store closings announced Thursday, Home Depot will record a charge of roughly $186 million, including inventory markdowns of $11 million and severance of $8 million. It also will record a charge of roughly $400 million related to development costs and ongoing obligations associated with the future store locations that it is scrapping.

New store capital spending will be reduced by $1 billion over the next three years, Home Depot said.

Excluding charges, the company reiterated that its diluted earnings per share from continuing operations are expected to decline by 19 percent to 24 for fiscal 2008. Home Depot releases its first-quarter results May 20.

Home Depot operates 2,258 stores in the United States, Canada, Mexico and China.

Source: NJ.com

Big-box retailers undaunted by slow economy

LOS ANGELES (MarketWatch) -- Can big-box retailers keep growing briskly, given the current downturn in the economy? For the most part, yes, but it depends on what's inside the box.

While a select few retailing giants -- namely home-improvement retailers -- have had to curtail expansion plans, others are continuing as if recession talk is nothing more than idle chatter.

Companies like Target Corp. , Costco Wholesale Corp. and Best Buy Co. are carrying on with expansion plans at virtually the same pace as in years past.

"We continue to look at a standard of 100 net new stores a year," Target spokeswoman Anna Goeppinger said. In fact, Target's rate of expansion has quickened, as it built 118 new stores last year and is on pace for 116 this year. In 2005 and 2006, the company added 86 and 88 new stores, respectively.

For the most part, today's retail giants don't suffer in the same way that most retailers do when gasoline prices climb and pocketbooks get pinched. While they may make adjustments, they're big enough to absorb the shock, according to industry experts.

"They really are looking through the economic time because their stores will open after the bad economic times have passed," said Jim McComb, president of retail consultancy McComb Group based in Minneapolis, home to Best Buy and Target headquarters.

The biggest box of all, Wal-Mart Stores Inc. , is curtailing its expansion efforts, although company executives insist that it's not recession-related. The world's biggest retailer is beginning to saturate the North American market, so now it's looking to grow more quickly overseas.

Wal-Mart said as recently as October that it plans to completely phase out new construction of its conventional outlets by fiscal 2009 in favor of its grocery/discount-goods supercenter stores. Development of all new Wal-Mart outlets, including Sam's Club and its group of neighborhood markets, will eventually be cut to 190 by fiscal 2010, down from the 340 new locations that were opened last year.

The subsiding-expansion plans were formulated several years ago and there are no plans to alter them, said Wal-Mart spokesman Phillip Keene, even though economic conditions have worsened since they were outlined six months ago. In fact, the company is stepping up its international expansion efforts at a fairly brisk clip. "There's been no change from this outline," Keene added.

Home-improvement blues

That hasn't been the case with two major big-box home improvement retailers. Home Depot Inc. and Lowe's Cos. are feeling the pinch as the real-estate market drops and new-home building subsides.

Last month, Home Depot scrapped plans to put its first-ever store in San Francisco despite wrangling with reluctant city officials for nearly a decade. In 2005, the city's Board of Supervisors had approved the construction of a Home Depot, but the company backed off in light of rough economic conditions.

"We evaluated the deal and found that it no longer worked for us," said Home Depot spokeswoman Sarah Molinari.

Home Depot has curtailed much of its new-store building throughout North America, cutting back to 55 new stores this year from 100 last year. Capital-expenditure spending will be down 32% from a year ago, to $2.3 billion.

The company is looking to spruce up its existing stores and find ways to improve service, as well as invest in its supply chain, according to Molinari. She also said that much of the curtailing in Home Depot's expansion activity is that like Wal-Mart, the company is reaching market saturation.

At one point, Home Depot was building 200 new stores a year, Molinari elaborated.

That kind of pulse-quickening expansion is unlikely to return, it appears. "I just don't think we're at that point in our business. I think we're past that point," she added.

Lowe's, on the other hand, still is growing rapidly, though it has delayed the opening of 20 new outlets this year in markets where the housing crunch is acute, said spokeswoman Chris Ahearn. Most of the delays are in California and Florida markets.

The company still plans to open 120 other stores, she noted. Lowe's would not reveal precisely where it is holding off on construction. "Again, they're delays. We're not canceling stores," Ahearn said. "We still have an aggressive expansion plan."

Markets that didn't experience a massive housing bubble, such as Texas and Oklahoma, are still ripe for new properties. Lowe's has 1,525 outlets in all.

Urban problem

Home Depot's San Francisco experience exemplifies the dilemma now faced by home-improvement centers. Buying or leasing land in pricey urban areas will cut deeply into their return on investment, said Craig Johnson, president of Customer Growth Partners, a retail consultant.

When economic conditions weaken, that takes a lot of steam out of a Home Depot or Lowe's that is looking to venture outside its comfort zone of suburban strip malls.

"Even in good times, it's a reach," Johnson added.

Companies that seem to be clinging to good times are Best Buy, Costco and Target. Best Buy said that it could stand to build another 500 stores in its various markets, so it plans to open 130 to 160 of them over the next fiscal year. That's about the same pace at which Best Buy has grown over the past several years, according to company spokeswoman Sue Busch.

Best Buy is hoping to use the current economic situation to its advantage and to expand its market share as some of its rivals retreat. "Right now, this is where the focus is," Busch said.

Its main competitor, Circuit City Stores Inc., has seen its stock price tumble, and it has become a takeover target for Blockbuster Inc.

"Smart retailers will use down markets as the most cost-effective time to build market share," Johnson commented. "I think Best Buy is doing a very good job of this."

The same goes for Costco, Johnson said. The membership-warehouse retailer may be seeing its nonfood sales drop, but its food and low-price gasoline have grown more attractive to consumers.

The company plans to open 30 to 35 new units this year and to relocate 10 more stores, spokesman Bob Nelson said.

Costco should continue on that pace in the foreseeable future. "We have no plans to curtail next year," he added. "We're cautiously optimistic that things are going to get better."

Source: MarketWatch.com

Home Depot pulls plug on Berlin, VT store plan

BERLIN -- Home Depot has shelved plans to build a store in central Vermont.

In a surprise announcement during an Environmental Court hearing Tuesday, Home Depot's lawyer told a judge the company will be withdrawing its application to build on the site of a former strip mall on the Barre-Montpelier Road.

Home Depot's lawyer did not say why the company was dropping its plan. Some officials blamed the poor economy.

Source: Burlington Free Press