The Home Depot, Inc. or Home Depot is the largest retailer in the United States dealing with home improvement products (Ausick, 2017). It has its headquarters in Atlanta, Georgia. The store has outlets in the US, Canada, Mexico, Puerto Rico, and Guam. The company employs more than 400000 employees at more than 2285 locations across North America. It was found in 1978 and has seen years of excellent performance and excellent sales. In 2018, the company earned revenue of $108.2 billion (Home Depot, 2019). The company has been facing a higher level of competition forcing it to look towards innovative ways of rebranding itself and work on increasing its sales.
Following is a detailed Porter Five Forces Model Analysis of Home Depot:
Competitive Rivalry – High
The force of competitive rivalry against Home Depot is high. Over the years, the number of retailers providing products and services similar to Home Depot has increased. Some of the competitors are Lowe’s, Ace Hardware, and Sears. All of them are competing for market share by ensuring they provide quality products. The competitive rivalry is high because of numerous firms selling similar products, low switching costs for the customers if they find Home Depot products to be low quality or of higher prices, and moderate exit barriers forcing those in the business to stay put and try to succeed (Meyer, 2017). Having a competitive advantage can help Home Depot increase its market share and increase sales.
The Threat of New Entrants – Moderate
Home Depot faces a moderate threat of new entrants. The costs of establishing a new business of home improvement products and services have a moderate cost. It can be started from a not so big budget. Even those businesses which are operating at a smaller scale can snatch business away from Home Depot. The switching cost for customers is low. However, the cost of branding and marketing a new establishment is much higher. This is the major cost of a new entrant if it wants to compete at a larger scale and grab market share. New entrants can ensure quality and variety of products to interest customers.
Bargaining Power of Suppliers – Low
The bargaining power of suppliers of Home Depot is low. They cannot influence the decisions and purchasing of Home Depot through their prices. The company operates on a large scale and procures from suppliers in bulk. This provides a moderate supplier with extensive and long-term business. The large size of Home Depot and its financial strength give it an edge over its suppliers. If a supplier attempts to influence product prices of Home Depot, Home Depot can easily shift to another supplier with a low switching cost. This can mean a major loss for the supplier. Suppliers would be more than happy with the continuous business Home Depot offers them.
Bargaining Power of Buyers – High
The customers of Home Depot hold a significant level of bargaining power over the brand. The company cannot force buyers to purchase products at higher prices. If it increases prices, customers can easily switch to other sellers with a low switching cost. Also, since Home Depot operates in a competitive environment, customers can easily access competitors and purchase the products from them rather than Home Depot. Also, the number of buyers is large. Customers also have extensive access to information and variety through online sellers and social media that make it difficult for Home Depot to influence buyers in any way.
The Threat of Substitutes – High
Home Depot faces a variety of substitutes. Various substitutes include general retailers such as Walmart, online sellers offering home delivery, and others. All of these offer products and services of similar quality and variety. Customers can easily switch from substitute to the other with a low switching cost. The threat of substitutes has also increased as a result of more channels made available for customers to purchase products. These include traditional brick and mortar stores, e-commerce, and various apps that make buying easier for customers. The improved and easy return policies of these alternate delivery channels have further increased the threat of substitution (Pratap, 2018). This requires Home Depot to compete against a variety of businesses to ensure market share.
References
Ausick, P., 2017. Why Home Depot Dominates the Home Improvement Market. [Online] Available at: https://247wallst.com/retail/2017/03/09/why-home-depot-dominates-the-home-improvement-market/ [Accessed 26 Nov. 2019].
Home Depot, 2019. ANNUAL REPORT 2018. [Online] Available at: https://ir.homedepot.com/~/media/Files/H/HomeDepot-IR/2019_Proxy_Updates/HDAnnualReport2018.pdf [Accessed 26 Nov. 2019].
Meyer, P., 2017. Home Depot Five Forces Analysis (Porter’s Model). [Online] Available at: http://panmore.com/home-depot-five-forces-analysis-porters-model [Accessed 26 Nov. 2019].
Pratap, A., 2018. Home Depot Five Forces Analysis. [Online] Available at: https://notesmatic.com/home-depot-porters-five-forces-analysis/ [Accessed 26 Nov. 2019].