Competitive Analysis

1. Competitive Analysis Eric Baker, Joshua Benjamin, Tiffany Jesko, and Berkley Stell

2. SWOT Analysis The SWOT Analysis is a organized list that appropriately determines all the strengths, weaknesses, opportunities and threats of a business. This is used to help a business excel in their strengths, understand all areas of weakness, foresee opportunity and potential growth options, as well as risk mitigate and fight against any potential threats.

3. Home Depot’s strengths • Highly structured leadership team • Good Quality work performance • Valued and respected brand loyalty • Heterogeneous product line • Relationship Oriented management approach • Online technology resulting in increased customer satisfaction When referring to the strengths of a business, the primary focus of the SWOT analysis is to notice key factors that allow Home Depot to excel, grow, and make more of an impact on the market over other businesses.

4. Weaknesses Weaknesses Home Depot’s Weaknesses • Sole dependency on the U.S. market • 65% dept of the balance sheet • Shareholder returns • Minimal increased income When referring to the weaknesses of a business it is important to pinpoint areas that need improvement, areas that are done with little excellence or areas that hinder growth.

5. Home Depot’s Opportunities • International market growth • Product line and mix growth • Online technology growth When regarding the opportunities of a business, anything that can potentially bring growth to a company is seen as opportunity. This can range from anywhere from international growth to technological growth to product growth.

6. Home Depot’s Threats • Competitors • Lowe’s, Walmart, Ace Hardware and Sutherlands • Substitutional products • Online theft When regarding the threats of the business, anything that hinders the success of a business or causes detrimental failure to a company is viewed as a threat.

7. Lowe’s Strengths • One of the Leading companies in its industry, therefore its size and market dominance are its key strengths. • Large customer base: serves over 14 million customers each week • In the Top 50 Companies in the Fortune 500 list (40th with average revenues at $68 Billion) • Knowledgeable and helpful employees create a positive reputation in the eyes of the customers.

8. Lowe’s Weaknesses • Lack of globalized presence (only a handful of stores in Canada and Mexico) • Lack of financial strength when compared to Home Depot. (Home Depot brings in more than $30 Billion more than Lowe’s) • Price match guarantee • Many reviews show that it is not as good as Home Depot’ • More ambiguous • Employees are not as knowledgeable of the varying aspects of the guarantee

9. Lowe’s Opportunities • Virtually untapped global market (Home Depot has yet to explore overseas, could be a huge benefit for Lowe’s if they can establish themselves overseas before Home Depot) • Social Media and Online shopping via website and app. • Website and app are already established, but could use improvement • Social media marketing campaigns via facebook could prove useful if Lowe’s we to potentially offer social media specific discounts.

10. Lowe’s Threats • Lowe’s major threat is Home Depot. • Currently, Home Depot holds the top dog position due to its low cost suppliers and large inventory. • Home Depot also excels at its online stores and next day pick up for orders in ways that Lowe’s has yet to master. • Another large threat to Lowe’s would be the current trend of millennials’ (Lowe’s future market) to opt out of home ownership and instead choose home/apartment rental.

11. Ace Strengths • Brand Loyalty • known across the globe as the local old school hardware store thats has all your repair basics. • The franchise structure of each store allows for easy expansion with little risk to corporate. • Exclusive partnership with U-haul to bring rental vehicles and trailers to communities without a designated U-haul location. • Strong philanthropy of giving back to the community

12. Ace Weaknesses • Lack the scope of products that larger stores offer. • Lack of diversification. • Lack a diversification strategy outside of the home goods industry. • Poor store structure • Low quality customer services • Installation • contractors

13. Ace Opportunities • Expand to maintain dominance. Ace stores can grow in size to compete with stores like Home Depot and Lowe’s that focus on large selections at low cost they may be able to become unstoppable. • Expansion into the services sector much like its competition. • Offering installation on appliances and other products may bring more value to the brand. • Ace customers may become more loyal and current Home Depot/Lowe’s customers would be likely to convert if such services were offered through a local Ace Hardware. • Ace can also offer tool rentals for those customers who may not have the right tool for the job or the means to afford the tool.

14. Ace Threats • Expansion of big box competitors like Lowe’s and Home Depot • who compete on cost while offering a far larger spectrum of products and services. • The expansion of e-commerce and platforms such as Amazon will likely impact the sales of the home improvement industry as a whole. • laws regarding international business such as international trade compliances and taxes. • current debt situation. • Cash flow at the end of the year was $25.1M, Debt was $1.5B while Assets were $2B. This gives Ace a cash flow to debt ratio of .00167 or the theoretical ability to pay ~1% of its debt every year with cash flows.

15. SWOT Summary • Understanding the SWOT analysis of your business is important • After gathering all the information regarding the SWOT analysis: • Next step to have a successful business is to prioritize the information by categorizing them in order of severity • An action plan should be created in a way that implements a promotion of the strengths within a business • Even Home Depot needs to make strategic changes to compete in the industry

16. Intensity of Competition Among firms Intensity of competition: How well other competitors are competing within the same marketplace. • Measured by anything that makes one firm be above other firms within competition. • Home Depot holds the dominating role within the marketplace however there are several other businesses that compete within the market as well. • Lowe’s • Walmart • Ace Hardware • Sutherlands

17. Degree of Bargaining Power Buyers and Customers Possess Majority of the bargaining power lies with the buyers/customers. • Home Depot primarily competes on cost • offering items at the same or lower price than their competitors. • Home Depot offers a price-match guarantee

18. Factors Determining Competitive Advantage • Market Share • Product Quality • Product Life Cycle • Product Replacement Cycle • Competition’s Capacity Utilization • Technology know-how • Vertical Integration

19. Market Share • Home Depot: 27.96% • Lowe’s: 18.42% • Ace Hardware: 1.32% • Found by dividing the company’s sales by the total sales within the industry ($387B). • This information shows that Home Depot controls 27.96% of the home improvement industry, Lowe’s controls 18.42%, and Ace Hardware controls 1.32%.

20. Product Quality • All companies compete more through lower prices, longer store hours, and customer service • Home Depot: Husky • Product Quality and Engineering Laboratory • Slightly higher price, but also of higher quality • Lowe’s: Kobalt • Lower price, mediocre quality • Ace Hardware: products branded to them • Lowest price, low quality • Good for one time tool users

21. Product Life Cycle There are four different categories: launch, growth, maturity, or decline. • Home Depot: growth • Lowe’s: growth • Ace Hardware: growth • The home improvement industry is experiencing growth overall as the housing market has increased, as well as popularity for home improvement shows and apps such as pinterest.

23. Product Replacement Cycle Home Depot: • No deductible, full reimbursement or replacement. • Covers functional parts and labor for incidents caused by normal wear and tear, power surges, dust, heat, or humidity. Lowe’s: • No deductible, covers normal wear and tear. • Offers 50% reimbursement of preventative maintenance items- fuel additives, belts, blades, batters, etc. Ace Hardware: • No protection plans through the company, must go through the manufacturers.

24. Customer Loyalty • Home Depot: • known for good customer service, aims towards the professional home improvers as their target customers • Lowe’s: • attracts first time DIYers by looking less intimidating • Ace Hardware: • small town target customers, more personable because their customers are typically returning customers

25. Competition Capacity Utilization • Home Depot • Annual revenue: $108.2B • Employees: 413,000 • $262K per employee • Lowes: • Annual revenue: $71.3B • Employees: 190,000 • $375K per employee • Ace Hardware: • Annual revenue: $5.1B • Employees: 8,200 • $622K per employee

26. Technological Know-How • Home Depot • Enhanced voice search, easy chatting, 3D augmented reality, in store mapping, and machine learning • Lowe’s • “Holoroom How To” • Open in three locations • Benefits customers and employees through experiences • Ace Hardware: • Website • “Dysfunctional” app

27. Vertical Integration • Home Depot, Lowe’s, and Ace Hardware all use vertical integration through their supply chain • Give the company more differentiation and control of what hits their shelves. • Home Depot: Husky • Lowe’s: Kobalt • Ace Hardware: specifically branded products

28. Factors Determining financial strength • Return on investment • Leverage • Liquidity • Cash flow • Ease of exit from market • Risk involved in business

29. Return on Investment • 2018 ROI • Home Depot: 40.76% (+10% from previous yr.) • Lowe’s: 12.06% (about a third of Home Depot) • Ace: -4% • This has been the trend for the past 5 years with the exception of Ace who was only in the negative this year.

30. Leverage • Home depot is a relatively highly leveraged firm when compared to Lowe’s but relatively low compared to Ace. 2018 • Home Depot carried a 27.88% debt to equity ratio • Lowe’s only had 5.86% • Ace had a 72.4% ratio • A good ratio is 50% or less is a good amount of debt to equity • Lowe’s and Home Depot have reasonable leverage ratio • Ace hardware’s is relatively concerning.

31. Liquidity • Company's ability to meet short-term financial obligations. • Home Depot and Ace hold the tops spots for liquidity. • Home Depot beats Ace out with its cash ratio but Ace has both a better current and quick ratio although not much better than Home Depot.

32. Cash Flow Free cash flows: Cash available to pay investors after a company has paid off its costs of doing business and invests in short-term assets like inventory, long-term assets like property, stores or equipment. The firm's investors include both bondholders and stockholders.

33. Ease of Exit From the Market • Large amounts of capital tied up in their stores • Although Home Depot and Lowe’s have fewer stores than Ace the relative size is much larger. • Exiting the home goods market would likely mean shutting down all stores and selling off the retail space.

34. Risk Involved in Business • Similar to the ease of exit from the market all of these businesses have large amounts of capital tied up in these businesses. • Ace hardware has minimized their risk by structuring as a franchise.

35. Offering Premium Products online • Higher quality premium products online for customers who would be interested. • Train in-store employees on the selling of these products • Upsell incentives • Employee specific coupon/discount codes

36. Explore New Markets • Tailor marketing at current DIY trends • Target the future market - Millenials • Expand into new markets • Explore Blue Oceans

37. Questions?