Home Depot Has Goal of Growth in '05
March 28, 2005,
Home Depot is looking for sales growth between 9 and 12 percent in 2005 and has a sound plan to get there, company executives said during last week's Merrill Lynch Retailing Leaders Conference.
First off, she said, Home Depot must continue enhancing its core business. To do this, the company must focus on store modernization to the point that every store is touched, refreshed or completely remodeled. Home Depot must also continue to bring in “distinctive and innovative merchandise,” Tome said. Technology, she added, must remain a focus as new and more functional point-of sale terminals find their way into the stores to enhance the customer experience. Lastly, Tome said, Home Depot must continue to invest in its store leaders. “The only thing that matters is people,” she said.
A second arrow in Home Depot's quiver is targeted at extending the business. To that end, the company plans to open 175 new stores in 2005.
Frank Blake, executive vice president of business development and corporate operations, said that over half the new stores will be in markets with existing Home Depot locations. Twenty-nine of the new stores, he said, will be in new formats such as a 67,000-square-foot model found in Mexico or an 80,000-square-foot variety that exists in Canada. New formats will also include converted Kmarts that the company acquired last year. Sixty percent of the new stores will be in the Northeastern United States.
According to Blake, Home Depot is a company that learns from every aspect of its business. Blake said Home Depot will apply lessons learned in its Manhattan stores to tap other urban locations, while its experiences in Mexico will come in handy when opening more rural U.S. locations. The foray into Mexico will also help tap the large Hispanic population in America, he added.
Tome said Home Depot is focused on further expanding that presence in Mexico and Canada, while it also intends to tap the vast resources of China. Blake reflected on the company's international growth, noting that Home Depot will have gone from 12 Canadian locations in 1994 to 136 by the end of 2005.
“Canada is already a multi-billion-dollar business, and we see that growth continuing,” Blake said.
As for Mexico, he said Home Depot wasn't even in Mexico in 2000, but now is number one in that country, expecting $1 billion in comps by 2006. Mexican stores, he said, exhibit three-times the growth rate of U.S. stores.
Blake said that when assessing new business for the company to enter, a few criteria must be satisfied. He said the potential business must have a good degree of connectivity to Home Depot's core business. Also, the business needs to have strong prospects, such as double-digit sustained growth with the potential to reach $1 to $2 billion. Finally, the business must have attractive financials.
The company is specifically interested in better tapping the professional builder market, citing the fact that it is currently only garnering 10 percent of that spend. Overall, Blake said, Home Depot attributes 30 percent of its sales to this group but is certainly looking for that to increase.
While professional builders may be a target of sales, running a public company means keeping shareholders top of mind, said Tome. “We try and balance the return of cash to shareholders with reinvestment in the business to create top-line growth while increasing the rate of return on capital. We have a balance sheet that allows us to do anything we want,” she said.