Home Depot: Looking for growth engines
US retail giant The Home Depot, which the world's largest seller of home improvement supplies in its 2,000+ "big box" superstores across the country, has taken a big step to growing its services to professional building contractors. It announced it acquire construction supplies distributor Hughes Supply for $3.5 billion. The acquisition will, according to Home Depot, more than double its professional supply business.
Home Depot has grown rapidly in the 25 years of its existence. But recently, it has been getting aggressive pressure in its main business from the Loews chain, which is expanding rapidly and growing profits. So the company, which has saturated the US market, is looking for new ways of growing. The professional supply business is one of several growth plans.
In 2005, Home Depot acquiring builder supply companies with a total value of over $2.3 billion. The biggest now was National Waterworks Holdings Inc., a supplier of plumbing equipment, for $1.35 billion. The company announced recently it would buy Chem-Dry, a largest company involved in carpet and upholstery cleaning services for homeowners. That company will be added to Home Depot home services division, which de such things as install windows and roofing for customers. In addition, the company bought Litemor Distributors, a Canadian commercial lighting distributor. In 2004, it bought US-based White Cap Construction Supply and Creative Touch Interiors, a California flooring supplier.
The company is also expanding internationally, though rather cautiously by Pizza Hut or Wal-Mart standards. The company has hit the North American market, with 100 stores in Canada and 50 in Mexico. In 2004, it acquired HomeMart, the #2 Mexican home improvement chain. It has also been cleared to build stores in China, though it hasn't announced any specific sites or store formats.
As the Motley Food analysts opine, home Depot may have some trouble applying the North American model to China:
Both the Chinese citizen and the Chinese landscape lack a lot of the commercial resources that we take for granted on this continent, like the ubiquitous giant car or relatively quick access to the wide arteries that feed strip malls and megastores. And while the Chinese appetite for things like cars and cell phones is pretty well established, you have to wonder if they'll snap up plywood and drywall with the same enthusiasm.
In any case, the consolidation of building supplies is a global, both on the manufacturing end and the supplier/retailer one. It's yet another industry where the decisions are being made by fewer and fewer people in centralized offices. Small hardware stores, building supplies companies, or paint and tile stores are going the way of the local food market or the local drugstore. They simply can't compete in prices, inventory, or marketing.
